Economic instruments

3. All farmers should be encouraged to be members of an aquaculture association or producer group;

4. Farmers should have easy access to high quality technical advisory material on best management practice, design and technology.

with imposed standards. Subsidies may be provided for specific environment friendly technology or practice, or to siting in preferred zones. The provision of infrastructure is a common example of subsidy, and this may be used to reduce environmental impact. An example is government or aid funded seawater irrigation systems.

Although subsidies have been provided to aquaculture in many parts of the world they have rarely been linked to environmental management in practice.

The main weakness of subsidy is that it implies a net cost to government. Ideally therefore any subsidy should be matched by a tax (for example on a polluting product). A second weakness is that it provides no incentive for innovation, or reduced inputs.

Deposit refund systems

In this case a surcharge may be laid on the price of potentially polluting products or activities. When pollution is avoided by returning (recycling) these products or its residuals to a collection system, a refund of the surcharge is made. Alternatively a deposit or bond may be required prior to developing a site, especially in environmentally sensitive areas. If and when the operation closes, the site must be fully restored to previous use or value if the bond is to be returned (for example by removing or breaking pond dykes and replanting mangrove). Bonds or deposits may also be applied to operations. In this case the bond is only returned once a water treatment system is operational, or where there is demonstrated use of low pollution diets, or demonstrated low pollution load.

Bonds offer an incentive to minimise the cost of environmental protection and are therefore likely to stimulate innovation.

Market creation

Markets are created where actors might buy rights for actual or potential pollution, or where they sell their

"pollution rights" or their process residuals. This approach could be applied to environmental capacity, a portion of which, for a particular estuary, lagoon or bay, could be sold or allocated for aquaculture, and subsequently traded freely. In theory, operators will buy permits until the price of the permit rises to equal the cost of treatment for the same amount of pollution. This provides a strong incentive to improve operation/technology: those without good technology/management will be unable to afford the larger permit required. This approach has many advantages in so far as it is cost effective (the cost associated with pollution and its treatment is set by the market), it generates revenue, and allows continuing economic growth without increased pollution. Emissions trading relating to heavy industry has been very effective in the USA and has resulted in substantial cost savings.

However, there are problems with this approach for aquaculture, especially in relation to small-scale operations. As for more regulatory approaches, there needs to be some means of policing to ensure that operators are keeping within their permit/allocation. One possible approach is to use feed records (cross-checked between the operator and the supplier). Another is to restrict a permit to only a part of operations. For example, in the case of pond culture, checking might be restricted to the time of harvest, when the bulk of any pollution is likely to take place. It is also essential to be able to track changes in ownership, and this requires significant administration, especially for small permits.

There are also generic problems with permit trading, including manipulation by powerful operators. For example, they may purchase a large number of permits (more than they need) while the price is low, so that there is then little need to improve technology and performance. If permits are originally allocated free of charge, there may be widespread profit taking. In other words these approaches suffer from some of the classic inadequacies of free markets, and some control may be required.

Financial incentives

This type may also be considered as legal instruments: non-compliance is "punished" either ex ante (by requiring a payment returnable upon compliance) or ex post (by charging a fine when non-compliance occurs). A variation of this is liability insurance, where polluters are made legally liable for damage (for example to fish nursery grounds). This will encourage the establishment of insurance schemes, the premium of which will be related to the risks of environmental damage caused by the operator, offering an incentive for improved design, technology and management.

In practice this is only likely to be effective in the case of relatively extreme environmental impacts, and is less suitable for the more subtle and diffuse impacts associated with most agriculture and aquaculture.

Proof is notoriously difficult in the case of environmental impact. It would be very difficult to prove, for example, that steady low level pollution, or the occasional dose of chemicals, had been the cause of a failure of recruitment to a fishery. It would also be difficult to prove that it was not. If the burden of proof were to be laid on the fish farmer (in line with the precautionary principle and the polluter pays principle), this would probably result in most aquaculture being stopped. If the burden of proof were to lie with the complaintive, there would be few if any convictions, although the number might increase if legal aid were provided for such claims (as is the case for example in some States in Australia).

Liability is likely to work best where the risk is high but the information poor. It may be linked to a performance bond (i.e. if the bond is drawn on for damages).

Experience

The main examples of economic approaches to aquaculture have been positive incentives - grants and subsidies to encourage the development of aquaculture, especially in remoter or less developed regions.

Grants, subsidies and low interest loans played a significant role in the rapid development of salmon culture in Scotland and Norway in the 80’s, and fin-fish culture in the Mediterranean in the ‘90s.

There are rather few examples of the use of such instruments to regulate the impacts of aquaculture on the environment or other resource users. The use of deposit refund systems, or restoration bonds tied to the issue of licenses or lease of land has been proposed (for example in India) as a means of ensuring that shrimp farming does not lead to lasting environmental damage, but it is too early to assess the success of such schemes in practice.

Pollution charges have been widely applied in the USA and Europe, and coupled with specific regulations they have almost eliminated pollution from freshwater aquaculture in Denmark. However, in this case they have significantly constrained the development of the industry.

Legal liability on the part of fish farmers for environmental damage is in place in several countries, including Korea and Australia.

Strengths and weaknesses Strengths:

• implementation of the polluter/user pays principle: polluter or user pays in proportion to amount of pollution or full social and environmental costs of resource use;

• less need for “enforcement” in some of its forms;

• usually offers an incentive for innovation (since less pollution = lower cost);

• flexibility and efficiency in economic terms;

• may not need information on operation or discharge from individual farms (particularly important for non-point sources such as cages);

• partly addresses cumulative problems;

• generates government revenue for environmental management.

Weaknesses:

• effects not so predictable as regulatory approaches;

• may need sophisticated institutions (to monitor, enforce; adjust, adapt etc);

• not popular with government agencies - less control;

• not popular with industry - extra costs.

Conclusions

Economic approaches have many attractive features, including the prospect of paying for monitoring and compliance, and in many cases the provision of strong incentives for innovation in terms of less environmentally damaging technology. However, especially in the case of small scale operations, most of them do not overcome the problems of compliance, and implementation may be at least as complex as for regulatory measures.

Both the flexibility aimed at by economic approaches and the certainty of effectiveness sought by direct regulation, might be realised by an open-minded approach to the creative search for new instruments for environmental policy, or new combinations of existing instruments (Soley et al., 1992; OECD, 1989).

Recommendations

1. Economic approaches deserve more attention as possible approaches to the planning and management of aquaculture, probably in combination with regulatory and market approaches;

2. Farmer groups or associations may allow for more effective application to small farmers.