Falling oil prices might be benefiting the UK economy, but are the world's fish stocks paying the price?
Well, I guess fish and oil go together. Fish oil has been used by humans almost since the beginning of time. It is still used in both modern and traditional medicine. However, I am referring to a different type of oil in this blog: crude oil.
One of the hot topics that has recently dominated the news worldwide is the sharp fall in the price of oil. The price per barrel of oil has plummeted to sub- US$30 this month.
This has been welcomed by motorists and fossil-fuel dependent manufacturers and industries. Even the deputy governor of the Bank of England insisted that the continued decline in oil prices is "a net good" for the UK economy.
It is hardly surprising to find that what is good for some, is bad for others. A number of countries that depend on oil and natural gas have been hard hit. Government revenues in oil producing countries – from Angola and Azerbaijan to Saudi Arabia and Russia – have plummeted. This has started to take its toll on the wider economy, with some governments already moving to cut government expenditure.
For example, Saudi Arabia has recently slashed energy and water subsidies, a move which has been described by some as "the beginning of the end of the era of free money".
The untold story
Perhaps one of the important sustainability questions, which has not yet received sufficient media attention, is the implications of falling crude oil prices on natural resources. This is particularly important for the already strained fisheries resources. According to a new study, the global fish harvest is declining three times faster than previously reported – mainly due to overfishing.
While growing demand for seafood has been one driver of overfishing, national government subsidies to increase capacity have also played an important part. Just to spell it out, this means that governments are subsidising fuel costs for the fishing industry.
This inevitably benefits the bigger fishing vessels which harvest in distant waters – without the subsidies this would not be financially feasible.
In a perfect market economy, fishing vessels break even at a certain point – where cost equals revenue – beyond which any fishing activity is not economically viable. Subsidies for fuel prices deflate the cost, making more fishing possible. This has long led to overfishing and further degradation of natural habitats. As such, fuel subsidies are a 'bad' subsidy and are opposed by fisheries managers and scientists; including yours truly.
Falling oil prices have a similar effect on fisheries and other oceanic resources. In other words, lower oil prices encourage increased fishing. Therefore, a falling oil price has the same negative effect on fisheries.
Price corrected fiscal instruments?
The above phenomenon can be described as market failure. If I were to argue in favour of Adam Smith's "invisible hand" of the market for one second, competitive markets would lead to efficient allocation of resources and therefore government intervention would not be needed. Well not in this case!
Leaving the market to regulate itself and letting fisheries continue to be exploited beyond their ecological limits is a recipe for disaster. So yes, we need government interventions every now and then.
This is how it could be done. One of the least discussed but most potent tools that governments have is fiscal policy. They can be used to "correct market failure" through introducing taxes, fees or levies for instance.
In this particular case, I am arguing that taxes or fees should be used as a negative incentive to control overfishing. To mitigate the damaging effects of falling oil prices on natural resources, taxes or fees per trip (or per unit of vessel capacity perhaps) could be increased. This would inflate (as opposed to deflate) the cost curve and make fishing beyond ecologically sustainable limits too expensive.
We cannot simply fold our hands and wait for oil prices to recover, or not, or for the market to regulate itself.
We need to be proactive and make a compelling case to national governments to flex their fiscal muscles and correct market failures that are damaging the resources on which millions of livelihoods depend.