by Jim Rose in applied price theory, energy economics, environmental economics, law and economics, property rights, Public Choice

Like carbon trading permits, an individual transferable quota (ITQ) to a fish catch can be construed as a exclusive, perpetual right. An individual transferable quota (ITQ) is an allocated privilege to land a specified portion of the annual fish catch.

Fisheries regulators consider ITQ quota shares not to be property, but to convey a privilege to catch an amount of fish or shellfish in a given year that can be renewed or revoked. ITQs are quota shares may represent a different resource quantity every year as the total allocated catch may vary from year to year. Nonetheless, the ability to sell or lease ITQ shares implies a more enduring, if not permanent, fishing access privilege.

No one has yet successfully argued that the ability to adjust and modify an ITQ program constitutes grounds for a regulatory taking in the USA.

The Australian courts have found that fishing entitlements, although similar in terms of the privileges conferred, are not the common law property right of profit á prendre. They are a statutory entitlement. A profit á prendre is a right to take part of the soil, minerals, natural produce including fish and wild animals. The person does not own the thing gathered whilst it is on the land, but has a right to gather it.

Compensation for modification and extinguishment of these rights depends on whether there is compensation payable under applicable legislation or on whether the plaintiffs can rely on constitutional guarantees of acquisition of property on just terms. The courts have clearly indicated that fishing entitlements are rights created by government as means of regulating the fishing industry and are thus governed by the legislation that created them.

By annulling that legislation, the entitlement no longer exists. By modifying the legislation, the entitlement is redefined. Statutory licences are ‘inherently susceptible’ to modification or extinguishment.

See ‘ITQs and Property Rights A review of Australian case law’ by Sevaly Sen, Barry Kaufmann and Gerry Geen Fisheries Economics, Research and Management Pty. Ltd. Australia

Deregulatory takings is another name for reducing the size of carbon trading permits and individually transferable fisheries quotas. There is a large literature on deregulatory takings and regulatory contracts in the USA.

In electric power generation deregulation, ‘Stranded Costs’ represents the existing investments in infrastructure for the incumbent utility which may become redundant in a competitive environment. Stranded costs can also be defined as any investment that will be less valuable under competition than under regulation. Stranded costs are another name for the transitional gains trap.

Given there are no constitutional protections against regulatory takings, it would be ironic that there were constitutional protections against deregulatory takings.

It would be even more ironic that the viability of carbon trading is undermined by the unwillingness of the environmental movement to accept investor certainty over individually tradable quotas to a fishery catch. High-handed reductions of fisheries quotas set the stage for the same in carbon trading. Given that sovereign risk, the business community and investors will be less willing to support the regime been established in the first place.