Insights into the performance of Iceland´s ITQ system in he context of sustainable development

Abstract

The Individual Transferable Quota (ITQ) approach to fisheries management has been promoted as a way to improve efficiency by reducing biological and economic overfishing. However, ITQ´s have also been challenged from environmental and social perspectives while observed efficiency gains have fallen well below estimated potential. This thesis examines these topics in the context of Iceland´s ITQ system in order to shed light on the potential contribution of ITQ´s to sustainable development. Iceland´s ITQ system is a useful case for studying the impact of ITQ´s since it is one of the world´s oldest and is widely regarded as a success, while the historic importance of fishing to Iceland means that the impact of introducing ITQ´s has been subject to intense national scrutiny. Paper I applies established indicators of industry concentration and competitive rivalry to quota holdings at company and vessel level across species in order to quantify changes in industry structure following the introduction of ITQ´s. For several species, concentration has reached levels associated with market power and further consolidation is increasingly hampered by regulatory limits. The results suggest that a review of these limits may be overdue. Paper II investigates the large apparent gap between reported and potential economic rent in Iceland´s harvesting sector by quantifying the contribution of transfers to processing, fishermen and the government. The results indicate that cumulative transfers to these groups between 2002-2014 exceeded reported rent. A speculative explanatory model is presented in which stakeholder representatives cooperate in order to obfuscate resource rent from harvesting and reduce pressure for reallocation to society at large. Paper III examines the transitional gains trap, a phenomenon claimed to reduce the political scope for reallocation of quota rent due to resistance from harvesters who paid for the quota rather than being granted them as a result of grandfathering. A potential measure of the trap, based on harvesters’ cumulative investment in quota, is developed and applied to the Icelandic ITQ system. Illustrative results indicate that the proposed measure was generally below 60% by 2016 and that the extent of the trap may only be partial some 25 years after the current system was introduced, although outcomes are sensitive to assumptions due to the cumulative nature of the measure. Lastly, it is shown that the proposed measure can decline over time when accumulated profits are set off against cumulative investment costs. Paper IV analyses historic fuel use patterns by Icelandic harvesters for key segments and species and examines potential drivers. The results indicate that fuel intensity in the demersal sector has declined in recent years to levels which are low relative to other countries and that higher fish stocks have been an important contributory factor. A novel policy instrument to reduce industry greenhouse gas emissions is presented whereby ITQ´s are extended to cover emissions as well catch, with each harvester receiving individual transferable emissions quota in proportion to their catch share and Total Allowable Emissions set by the authorities. Paper V explores patterns in usage of catch-quota balancing mechanisms in Iceland´s mixed demersal fishery. Panel data analysis indicates systematic behaviour consistent with arbitrage incentives, suggesting a high risk of consistently exceeding TAC limits. Despite this, overfishing has been relatively modest and this is attributed to limits which have been tightened and are particularly stringent for the main target species, cod. This thesis explores the potential of the ITQ approach to contribute to sustainable development of fisheries along the three established dimensions (economy, society and environment). Results for the Icelandic ITQ system indicate a qualified success in meeting some of the key challenges. The system also exhibited flexibility in responding to emerging issues. Two avenues for further research are highlighted; pathways to carbon-neutral fishing and implications of different allocation methods. Research into the latter topic seems particularly warranted; fisheries economics has been relatively silent on the subject but frameworks can be found in the broader literature that may inform the sustainable development agenda to the extent that it involves creating limited valuable rights to use natural resources which must somehow be allocated.