# Difference between revisions of "Governance policies for a blue bio-economy"

A blue bio-economy aims to optimize the development and utilization of coastal and marine ecosystem services for the benefit of society in a market context. The concept of ecosystem services considered here is elaborated in the article Ecosystem services.

## Pricing of ecosystem services

The free market economy does not guarantee that optimal use is made of the services that ecosystems potentially provide[1]. Ecosystem services that benefit a specific group of users can (and in most cases will) be developed and enhanced through market mechanisms, to the extent that user value exceeds the production costs. This is less the case for ecosystem services that benefit society in general; without government intervention, these services are usually either underdeveloped or compromised by overexploitation (the 'Tragedy of the Commons').

Government intervention is also necessary when the market price of ecosystem services does not take into account the social costs of negative side effects associated with these services. The unpriced side effects associated with the utilization of ecosystem services are called externalities; externalities can be positive, but more often they are negative. A positive externality is the provision of regulatory or cultural services associated to an ecosystem service driven by market demand (see Ecosystem services). Pollution and habitat degradation are examples of negative externalities. Evaluating the net societal impact of the marketing of ecosystem services on the coastal and marine environment is not always obvious, because impacting activities generally have beneficial effects on some environmental aspects and detrimental effects on others. Several methods have been developed to set a price on coastal and marine ecosystem services, see e.g. Multifunctionality and Valuation in coastal zones: concepts, approaches, tools and case studies and other articles in the category Evaluation and assessment in coastal management. Although there is no unique unambiguous method, we will assume here that it is possible to assess whether the net societal effect of externalities is beneficial or detrimental.

## Categories of ecosystem services

The type of intervention that is most appropriate and effective depends on the type of ecosystem service and on local social and cultural conditions. Some principles have been elaborated by Hasselström and Gröndahl (2021)[2] for eutrophication reduction and carbon storage issues. These principles can also be applied for other ecosystem services. They distinguish four categories of ecosystem services based on the market value $M$ of the ecosystem service, the production costs $P$ and the net societal impact $E$ of the externalities associated with the utilization of the ecosystem service. The net societal impact (sum of associated beneficial and detrimental externalities) can be positive or negative. The four categories of ecosystem services, illustrated with some possible examples, are:

1. $E\gt 0, \quad M\gt P . \quad$
Possible examples (only positive externalities indicated):
M = Promoting beach tourism, P = Beach nourishment and sewage treatment, E = Coastal protection, ecosystem health
M = Food provision, P = Farming of molluscs in eutrophic waters, E = Reduction of excess nutrients
M = Medical applications, P = Seaweed farming, E = Reduction of excess nutrients
M = Protection of coastal assets, P = Restoration of mangrove forests, E = contribution to carbon sequestration and other ecosystem services
2. $E\lt 0, \quad M\gt P . \quad$
Possible examples (only negative externalities indicated):
M = Food provision, P = Fishery, E = Foodweb disturbance (e.g. trophic cascade effects), habitat degradation / loss, biodiversity loss and species extinction (see Effects of fisheries on marine biodiversity)
M = Coastal tourism, P = Real estate development, E = Habitat degradation, landscape alteration
M = Shipping, P = Canalization of estuaries, E = Loss of habitats and associated ecosystem functionalities
3. $E\gt 0, \quad M\lt P. \quad$
Possible examples (only positive externalities indicated):
M = Food provision, P = Harvesting invasive species (e.g. jellyfish), E = Foodweb restoration
M = Energy, P = Marine biomass (e.g. macro-algae) instead of non-renewable resources, E = Carbon sequestration
4. $E\lt 0, \quad M\lt P .$

## Policy instruments for a blue bio-economy

The categories 1 and 4 do not need any governmental intervention. Category 1 will normally occur in a liberal market and delivers net beneficial side effects to society. However, the benefit of category 1 ecosystem services for society can possibly be enhanced. Targeting government subsidies to ecosystem service providers to increase the benefit of positive externalities is an option, but entails the risk of spending public money on services that would have been provided anyway[2]. Labels securing that the ecosystem service has been produced without harm to the environment, so-called eco-certification, are a market-based instrument to limit possible detrimental side effects. The higher price consumers are ready to pay for certified products generates an incentive for producers to take all necessary measures to prevent any environmental damage their activities could cause[3].

Category 4 will not happen in a liberal market economy.

Category 2 will normally occur in a liberal market economy, but the negative side effects may be considered socially unacceptable. Several types of governmental intervention can address this issue:

• Setting a legally binding and enforceable limit on the production of negative side effects or the obligation to completely phase out certain negative side effects. Such an intervention is in line with the Precautionary Principle.
• Obligation to apply the Best Available Techiques (BAT) or Best Available Techniques Not Entailing Excessive Costs (BATNEEC). Fishing gear restrictions are an example.
• Compensatory measures. Under EU law, actors carrying out activities that cause harm to protected species or protected habitats that cannot reasonably be avoided are obliged to take compensatory measures that neutralize these environmental adverse effects.
• The polluter pays principle (PPP). The user of the ecosystem service is obliged to pay a tax or fine for repairing any damage caused to the environment. This principle, when applied to companies that make use of ecosystem services, generates a strong incentive for these actors to mitigate negative side effects. The PPP can be extended to include assurance or performance bonds, which are an economic instrument to ensure that the worst case cost of damage is covered. Assurance premiums provide an incentive to limit impacts and to repair any damage the activity has produced. For example, lower insurance costs for the use of more environmentally friendly fishing gear provide added incentive for their earlier adoption and development[4].
Fig. 1. Governmental policies for a blue bio-economy (adapted after Hasselström and Gröndahl (2021)[2].
• Distribution of a limited number of allowances to produce a certain amount of damage during a certain timespan, and the permission for actors to trade allowances among each other. This is a Market-Based Instrument (MBI) to implement payment for ecosystem services. It requires monitoring and quantification of damage and is applied in practice for reducing CO2 emissions (so-called ETS - Emission Trading System or more generally, CAT - Cap and Trade). CAT provides incentives for actors to take mitigation measures and sell redundant permits, allowing emissions to be allocated where emission reduction is most costly. Measures to remove emitted harmful substances from the environment (offsetting schemes, e.g. carbon sequestration) are also stimulated if incorporated in the CAT (see Blue carbon sequestration). Other applications of CAT are conceivable, for example as a way to reduce the emission of nutrients[2]. In the fishing industry, tradable fishing rights are referred to as Individually Transferable Quotas (ITQ), the right to harvest a certain proportion of the total allowable catch (TAC). ITQs represent catch shares where the shares are transferable; shareholders have the freedom to buy, sell and lease quota shares. As the economic value of quota shares increases when fish stocks are well managed (higher TAC), ITQ shares create an economic incentive for environmental stewardship. However, ITQs do not exclude 'free-riding' behavior[5].

Category 3 ecosystem services will not normally be taken up in a liberal market economy, even if they provide significant societal benefits. Financial compensation is needed here to promote the development or strengthening of these ecosystem services. Government subsidies (so-called PES - Payment for Ecosystem Services) can give service providers the necessary incentives to develop or strengthen these ecosystem services, provided the financial compensation is at least equal to the production costs of the service. In rare cases, PES grants are awarded by private users. Subsidies aimed at generating market incentives can be regarded as a kind of MBI. PES grants are conditionally linked to the delivery of agreed ecosystem services and may not exceed the value of the ecosystem services provided[6].

Governance policies fostering a blue bio-economy discussed in this article are summarized in Fig. 1.

## Related articles

Ecosystem services
Multifunctionality and Valuation in coastal zones: concepts, approaches, tools and case studies
Blue carbon sequestration

## References

1. Austen, M.C., Andersen, P., Armstrong, C., Döring, R., Hynes, S., Levrel, H., Oinonen, S., and Ressurreiçao, A. 2019. Valuing marine ecosystems - taking into account the value of ecosystem benefits in the blue economy. In: Future Science Brief 5 of the European Marine Board. Ostend, Belgium, ISBN 9789492043696. ISSN: 4920-43696
2. Hasselström, L. and Gröndahl, F. 2021 Payments for nutrient uptake in the blue bioeconomy – When to be careful and when to go for it. Marine Pollution Bulletin 167, 112321
3. Froger, G., Boisvert, V., Méral, P., Le Coq, J-F., Caron, A. and Aznar, O. 2015. Market-Based Instruments for Ecosystem Services between Discourse and Reality: An Economic and Narrative Analysis. Sustainability 2015, 7, 11595-11611
4. Innes, J., Pascoe, S., Wilcox, C., Jennings, S. and Paredes, S. 2015. Mitigating undesirable impacts in the marine environment: a review of market-based management measures. Front.Mar.Sci. 2:76
5. Garrity, E.J. 2020. Individual Transferable Quotas (ITQ), Rebuilding Fisheries and Short-Termism: How Biased Reasoning Impacts Management. Systems 2020, 8, 7
6. Wunder, S. 2015. Revisiting the concept of payments for environmental services. Ecological Economics 117: 234-243

 The main author of this article is Job DronkersPlease note that others may also have edited the contents of this article. Citation: Job Dronkers (2022): Governance policies for a blue bio-economy. Available from http://www.coastalwiki.org/wiki/Governance_policies_for_a_blue_bio-economy [accessed on 5-12-2022] For other articles by this author see Category:Articles by Job Dronkers For an overview of contributions by this author see Special:Contributions/Dronkers J