Topic Area: Individual Transferable Quotas (ITQ) in Fisheries
Geographic Area: Iceland
Focal Question: How successful has the introduction of ITQs been
Sources:
(1) Arnason, Ragnar, "The Icelandic Individual Transferable Quota System: A Descriptive Account." Marine Resource Economics. VIII No. 3 (1993): 201-18.
Reviewer: Betsy Burleson, Colby College '96
Review:

In 1966 Iceland woke up to the crisis of overfishing in the herring industry. Initial attempts to establish fishing quotas failed to remedy the situation. Finally in 1972 the government established a moratorium on catching herring. This ban lasted until 1976 when fishing was once again permitted but under a quota system. Knowing that the entire fleet could not reenter the market without replicating the crisis, restrictions were based on an individual vessel quota system.

The introduction of such a system was facilitated by Iceland's ability in 1976 to claim ownership of its coastal oceans. As part of the Third United Nations Conference on the Law of the Sea, countries had consented to allow a zone of 200 miles within which the coastal country had sovereignty. The regions became known as Exclusive Economic Zones (EEZ) and by 1976 Iceland was one of 60 countries to establish them. Prior to this extension of national jurisdiction, foreign fleets had participated in depleting fisheries off the coast of Iceland, making management of the fishing industry difficult. After 1976, foreign competition was eliminated but the domestic common property problem remained. Because domestic access to the fish was unretricted, little care was taken to fish at a rate at which the various species could replenish themselves. As a result, capital and effort dedicated to fishing become excessive. Iceland's effort to confront this common property dilemma, went through several stages. Quotas were introduced at various times for different species starting with the herring fishery then expanding to the capelin and demerol fisheries. Finally in 1990, the government created a uniform system of Individual Transferable Quotas (ITQ) for all Icelandic fisheries.

Before the ITQ system, Iceland did have a management system protecting juvenile fish. This system included equipment, location and size limitations. The ITQ system now coexists with these previous provisions. In the ITQ system, vessel catch quotas are shares in the Total Allowable Catch (TAC). The quotas are divisible and transferable. The allocation process includes a small annual charge for enforcement. Licenses, which serve as a deterrent to entry, are required thereby restricting access. Each licensed vessel is granted a TAC-share which is a permanent allotment of fish. TAC shares are completely transferable but annual vessel quotas have some restrictions. For example, to stabilize local employment there are restrictions on transferring quotas outside of a region. In this way fishing rights can not be stripped from local areas.

ITQs were first implemented in Iceland in 1979 for herring. In 1990 the herring fishery ITQs were incorporated into the uniform ITQ system without major alterations. By 1980 it was already evident that the herring ITQ system was a success. This prompted the government to establish a similar quota system of limited entry and individual vessel quotas in the even more important capelin fishery. These quotas became transferable in 1986 and were eventually incorporated into the uniform fisheries management system in 1990. In this time, the total quantity of capelin catches has fallen by 20 percent and efficiency has increased with a 40 percent decrease in the number of boats. (Arnason 1993) Thus, there are strong indications that the efficiency of the capelin fishery has been substantially increased since the introduction of the vessel quota system.

Introducing ITQs into Iceland's most important fishing market, the demerol fisheries, has proved to be far harder. This industry accounts for more than 75 percent of Iceland's total value of fishing catches. An ITQ system was implemented for the demerol fishery in 1984 but was constantly altered before finally being incorporated into the uniform fisheries management system of 1990. With the extension of the exclusive fishing zone to 200 miles in 1976, came quotas for the demerol fisheries. Gradually these quotas became transferable but they remained ineffective. Based on the decision that the quotas proposed by the scientific community were too restrictive for the social climate, the government established individual effort restrictions instead of catch restrictions. Each vessel was limited to certain fishing days, but new fishermen were not restricted from entering the industry. As a result, the fishing days decreased annually for each ship in an effort to avoid an overall increase in fishing effort as the number of vessels increased. From a capital perspective such a system was obviously inefficient. Finally in response to a crisis drop in demerol population size, individual vessel quotas were established in 1984. Arnason points out that, "The knowledge and understanding gained from these experiments were probably crucial for the eventual acceptance of the much more efficient ITQ system." (Arnason 1993)

Even with an ITQ system, however, policy changes continued in response to political pressure. For example, the government again introduced effort quotas, in 1985, to appease fishers in the political process of increasing fishery regulation. In retrospect, it is apparent that these effort quotas counteracted the efficiency incentives of the ITQ system. Since the number of fishing days was restricted, many boat owners invested in more equipment to be able to catch more fish in a shorter period of time. When the effort quotas were eliminated in 1990, capital expenditures fell.

While it remains to be seen how powerful a role ITQs can play in creating a sustainable demerol fishery, the vessel quota system has proved to have some significant advantages. First, since ITQs end competition between vessels for a limited fish stock, these quotas lead to a decline in wasteful overexpenditures in equipment. Second, since fishers have private ownership of their allowable allotment of fish, they can concentrate on minimizing costs, instead of racing to get the largest catch in the shortest period of time. Finally, in addition to increasing efficiency in effort and capital expenditures, an ITQ system provides an estimate for measuring the value of the fish stock. The market value of a fishery can be calculated by determining the price of a quota. If the quota market is effective, this price could roughly equate to the value of the fishery.

On the other hand, since the quota system limits quantity, quality is left as the primary means of increasing profits in an ITQ system. While this improves the quality of the catch, it often comes at a cost. Discarding of lower valued fish is known as "highgrading" and it is especially a problem in mixed fisheries like the Icelandic demerol fisheries. Thus far, however, incidents of highgrading do not appear to have increased significantly with the ITQ system. The government commission, Nefnd um Motun Sjavarutvegsstefnu, released a report in 1993 which cited a demerol discard range from one to six percent of total catch. The report concludes that there has not been an identifiable rise in discarding practices since the establishment of demerol ITQs in 1984. (Arnason 1993)

Iceland implemented Individual Tradable Quotas (ITQ) for herring fisheries in 1979. Since then, this management approach has been broadened into other fisheries. In general, it has proven to be a successful approach to confronting overfishing. ITQs have helped revive the herring industry from ruin. Results are less striking in the capelin fishery but still beneficial. For the demerol fisheries, however, it is not as clear whether the ITQ approach will be enough to counteract the traditional free access nature of fishing. The fishing fleet has actually increased and aggregate fishing effort has not gone down significantly. Since the consolidation of the ITQ system in 1990, however, investment in capital has dropped considerably. Iceland appears to have established an integrated management system which goes beyond simply reacting to a crisis. Concerns regarding increased discarding of catches and the overall ability of ITQs to alter economic incentives still need to be addressed but thus far, the ITQ system appears to be a positive force in establishing a sustainable Icelandic fishing industry.