Externalities

61 industry-oriented R&D activities with the goal of achieving higher value creation. The fee is paid to The Norwegian Research Seafood Fund which collected 206 MNOK in 2014. The fund support research projects which are deemed to be of interest to solving problems the industry faces.

62 through the use of chemicals in the delousing process and the genetic effect on wild salmon.

This is in effect a classic example of market failure because the firm as a profit maximizing entity does not bear the cost (or at least not all of it) of the damage its activity might cause on the environment. It is essentially the same argument as using pollution tax against companies.

The second reason is that the sea lice represent a direct loss for producers and that it prevents a higher growth in production volume. This, in turn, is negative for the possible value creation in the industry and thus is not optimal from a social welfare point of view. One explicit new policy was presented in June 2015 where the state announced a 5 % growth opportunity for all existing licenses given that producers manage to keep a maximum sea lice level of 0.2 per fish¹¹⁰.

The Norwegian Food Safety Authority is the organ which enforces the regulations regarding sea lice. They operate with daily fines for locations with high density of sea lice in the cages.

Other measures used is coercive, forced slaughtering and in worst-case police involvement¹¹¹. This represents a huge cost for fish farmers, and it is estimated that the problem cost the industry between 1 – 2 BNOK per year.

4.6.5.2 Salmon escape

Norwegian fish farmers are actively working towards limiting the amount of escaped farmed salmon, and they are required to report escapes immediately. The cause of escapes is mostly due to technical and operational failure, in addition to extreme weather. In January 2015 a regulation was established which implemented polluter-pays-principle in the salmon aquaculture industry¹¹². Through regulation and binding agreements with the industry, the salmon aquaculture industry provides financing, planning and implementation of actions to reduce the proportion of escaped farmed salmon that find its way into rivers. The industry announced a zero vision regarding escapes and has therefore imposed a number of different actions, ranging from daily inspections to renewal of equipment¹¹³.

110 Lovdata, 2015

111 Norwegian Environment Agency, 2015

112 St. Meld. 16, 2015, p. 11

113 Norwegian Seafood Federation, 2011

63 The NYTEK regulation was enacted in 2003 by the Directorate of Fisheries with the purpose of “preventing the escape of fish from aquaculture facilities through securing technical standards on the facilities”¹¹⁴. The regulation required that all new facilities from that point on had to meet the technical standards in the regulation. In addition, existing facilities were required to be in compliance with the regulation by 1^st of January 2006¹¹⁵.

Escaped salmon can also cost the producer and substantially hurt the economic results. The following describes a scenario which gives an indication of the cost escaped salmon has for a fish farmer. 100.000 fish with an average weight of 4 kg escapes from the facility. Cleanups, supplementary work and lost production costs will in total cost the fish farmer approximately 7.5 MNOK, which equals a cost of over 75 NOK per fish. In addition, if one is to estimate the lost revenue, the potential economic loss increases significantly looking at current salmon prices. A rough estimation of lost sales revenue indicates that a profit of 20 NOK per kg fish increase the potential economic loss by 8 MNOK. This represent a potential loss of 15.5 MNOK for 100.000 escaped farmed salmon or slightly over 155 NOK per fish¹¹⁶. Also, the firm risk being fined from the Directorate of Fisheries.

4.6.5.3 Contamination and emissions

The main source of emissions from fish farms is fish excrement and uneaten fish food. When it comes to emission of phosphorus and nitrogen in coastal areas, the natural concentration in the costal stream stands for approximately 95 % of the total amount of these nutrients. The salmon aquaculture industry is the dominant single source for the remaining 5 %. Emission of nutrients and organic material can have a negative effect, both locally and regionally. The state requires fish farmers to monitor the amount of these nutrients on the seabed under the fish farms due to the importance of keeping the levels low. As of today, however, the levels do not pose an environmental concern compared to sea lice and escape¹¹⁷.

All fish farms have an emission permit issued by the environmental authorities. The

monitoring of emissions and the emission permits issued is tied to the individual facility and

114 Lovdata, 2011

115 Fiskeri- og kystdepartementet, 2005, p. 5

116 Aarhus, 2011

117 St. Meld., nr.16, 2015, p. 57

64 the areas surrounding the facility. In addition to emission from nutrients and organic materials there occurs emission of drugs/chemicals, mainly associated with medication against sea lice.

Widespread drug use can cause resistance to the drugs used. Resistance problems can lead to both increased use of drugs and change to use drugs that are less favorable for the

environment. Drug treatments and drug resistance is therefore a challenge in terms of environmentally sustainable production.

4.6.5.3 Genetic effect on wild salmon

Norwegian authorities stated ambition is to preserve and rebuild wild salmon populations to ensure diversity within the species and exploit its production potential. The world’s

population of wild Atlantic salmon has, however, decreased by 80 % over the past 30 years.

1/3 of the remaining and vulnerable population is domiciled in Norwegian rivers. Therefore, Norway has a special responsibility for sustainable management of Atlantic salmon, and Norway has committed to providing special protection through the International Salmon Convention NASCO and through its own parliamentary decision¹¹⁸.

Wild salmon is one of the largest species in the world of sport fishing. The activity generates great revenue to landowners and fish right holders and the local community that resides along the salmon rivers. The revenue from the wild salmon business in Norway was estimated to approximately 1.13 BNOK in 2009, with 380 MNOK from sales of fishing permit and 750 MNOK in additional services. The business also employs 2500 to 2900 FTEs¹¹⁹.

The genetic effect on wild salmon when farmed salmon escapes are an important reason behind the strict regulation and fines associated with salmon escape. The state must essentially take the role as protector of the wild salmon and the environment, while on the other hand wanting the salmon aquaculture industry to grow and be a profitable industry.

Thus, instead of prohibiting fish farming, which at least in theory would be an alternative, they impose strict regulations to limit the effect on wild salmon and requiring production to be sustainable.

118 Andaur et al., 2012, p. 25

119 Landbruks- og matdepartementet, 2012

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