Effects of fuel prices, subsidies and taxes on CO2 emissions and management: An application to the EU Northeast Atlantic fisheries

Abstract

Governments support their fishing sectors through a range of policy mechanisms, some of the most ubiquitous but also least well accounted for are those that reduce the prices fishers pay for fuel by exempting them from certain fuel-related taxes. While applied in the pursuit of objectives such as improved economic performance, tax exemptions result in fuel being under-priced, meaning the negative externalities associated with fuel consumption are not reflected in the price. Under-pricing creates incentives to overconsume fuel, which can negatively impact both environmental and economic performance through overfishing and increased emissions. This paper explores the role fuel taxation policy plays in subsidising the fishing sector. We advocate that the difference between fuel consumption’s negative externality and fuel tax is the proper method to estimate fuel subsidies. To do so, we quantify the subsidies provided under different tax scenarios for a range of management situations, along with outcomes in terms of fuel consumption, fleet capacity, and economic performance. When compared to prices that account for the negative externalities, current policy represents a subsidy of just under one billion euros annually for the EU fishing fleet operating in the Northeast Atlantic. We also find that, even in the absence of tax policy reform, reducing fishing effort to a level compatible with MSY based management objectives would substantially improve profits while reducing fuel consumption. These findings highlight that ensuring management can meet existing objectives and reforming policy so that fuel is no longer under-priced are clear opportunities to improve fishery performance outcomes.