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Statistical Benefits of Individual Transferable Quotas for Valuing Natural Capital

Abstract

The economic valuation of natural capital is a fundamental element of environmental accounting. Environmental assets are often valued, in principle, using market values. In many cases there are no active markets for the trading of natural capital, and market values of environmental resources are estimated using a Net Present Value (NPV) approach. This type of approach is very sensitive to assumptions made around discount rates, rates of return to fixed capital and the estimation of capital stocks in National Accounts, and therefore potentially may not truly reflect the market value of the resource.

New Zealand’s commercial fisheries are unique in that they are managed under a comprehensive Quota Management System (QMS). This system allocates property rights to fishermen through Individual Transferable Quotas (ITQs) which provide the right to the fish in perpetuity. Since these quotas are freely traded, it is possible to calculate the value of the fish resource from the market prices of these entitlements. Given that commercial fishers are currently the only players in the ITQ market, the value of the ITQs measured at market price reflects the commercial fisher’s value of the fish stock and their associated resource rent.

For national environmental accounting, an ITQ system provides a means to calculate market values for natural resources, while also providing a species breakdown. This is because the estimates have been built up on a type of “bottom-up” basis, with the estimates being made on the species level, by fish stock area. For example, New Zealand’s commercial pāua (abalone) resource is valued at $328 million, nine percent of New Zealand’s total commercial fish value. The information from the QMS also allows the calculation of species values at subnational levels. This is particularly important for New Zealand’s environmental accounts, as decision makers want information at subnational levels.

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