Comprehensive Incentives for Reducing Chinook Salmon Bycatch in the Bering Sea Pollock Fleet: Individual Tradable Encounter Credits

Comprehensive Incentives for Reducing Chinook Salmon Bycatch in the Bering Sea Pollock Fleet: Individual Tradable Encounter Credits Hao Ye, Keith Criddle, George Sugihara RMA 2010 Helsinki, Finland

BSAI Pollock Fishery Eastern Bering Sea and Aleutian Islands Walleye pollock (Theragra chalcogramma) largest US fishery ~ 1 million metric tons > $300 million ex-vessel revenue rationalized in the 1990 s subsector allocation of Total Allowable Catch (TAC) similar to individual fishing quota

BSAI Pollock Fishery mid-water trawl relatively clean fishery ~ 1% bycatch < 1% discards large amount of catch => large amount of bycatch in 2007: 264 mt of Halibut, 338 mt of Herring, 3.8 thousand crabs, 120,000 Chinook salmon, 97,000 Chum salmon

Chinook Salmon Bycatch 140,000 120,000 B season A season 100,000 Chinook Salmon 80,000 60,000 40,000 20,000 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Year

Chinook Salmon Bycatch highly variable (across time and space) can have a large impact on Chinook Salmon returns in western Alaska average bycatch in 1994-2007 reduces Chinook salmon by 35,706 fish per year 56.3% (20,097) from western Alaska northern Alaska Peninsula, Yukon drainage, Gulf of Alaska, Southeast Alaska, British Columbia, Pacific Northwest

Management Measures fixed and variable spatial closures fixed closure areas variable closure areas (rolling hotspots) determined by three-week running average of bycatch rate vessels are given 1-2 days notice of closures can potentially fish out an area before closure is in effect

Proposed Measures NPFMC adopts Preliminary Preferred Alternative (PPA) to manage Chinook bycatch 2 options simple hardcap of 47,591 Chinook salmon per year (with fixed percentages for different sectors and different seasons) hardcap of 60,000 Chinook salmon per year with an intercooperative agreement (ICA) to create individual vessel incentives

Proposed Measures NPFMC adopts Preliminary Preferred Alternative (PPA) to manage Chinook bycatch 2 options simple hardcap of 47,591 Chinook salmon per year (with fixed percentages for different sectors and different seasons) hardcap of 60,000 Chinook salmon per year with an intercooperative agreement (ICA) to create individual vessel incentives

Simple Hardcaps without individual allocation of hardcap quota, race to fish bycatch! obvious solution: individually allocate fractions of hardcap pro rata to pollock TAC fractions high variability in bycatch (year to year) high variability in bycatch (vessel to vessel) no trading scheme REVENUE LOSS!!

Vessels Exceeding Hardcap 0 10 20 30 40 50 60 20-Jan 30-Jan 9-Feb 19-Feb 29-Feb 10-Mar 20-Mar 30-Mar 9-Apr 19-Apr 29-Apr 9-May 19-May 29-May 8-Jun 17-Jun 27-Jun 7-Jul 17-Jul 27-Jul 6-Aug 16-Aug 26-Aug 5-Sep 15-Sep 25-Sep 5-Oct 15-Oct 25-Oct number of vessels date 2000 2001 2002 2003 2004 2005 2006 2007

Potential Revenue Loss -$100,000,000 -$90,000,000 -$80,000,000 -$70,000,000 Revenue Loss -$60,000,000 -$50,000,000 -$40,000,000 -$30,000,000 -$20,000,000 -$10,000,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 Year

More BAD News no stock assessment for Chinook salmon: bycatch levels are proxy for abundance hardcap is not restrictive in years of low bycatch perverse incentive for industry to fish out ALL Chinook salmon when bycatch/ abundance is low!

Proposed Measures NPFMC adopts Preliminary Preferred Alternative (PPA) to manage Chinook bycatch 2 options simple hardcap of 47,591 Chinook salmon per year (with fixed percentages for different sectors and different seasons) hardcap of 60,000 Chinook salmon per year with an intercooperative agreement (ICA) to create individual vessel incentives

ICA requirements 60,000 hardcap option annual bycatch < 47,591 in at least 4 years out of every 7 year period reward vessels that avoid salmon or penalize vessels that fail to avoid salmon create incentives to avoid Chinook bycatch at all levels of abundance in all years influences fishing decisions when hardcap is not binding

Proposed ICA Comprehensive Incentive Plan Individual Tradable Encounter Credit (ITEC) 2 main components: allocation and reallocation component long-term incentives market component short-term incentives

ITEC 1 ITEC = 1 Chinook salmon vessels are allocated ITEC at the beginning of each fishing season for each Chinook salmon caught, vessels must pay 1 ITEC vessels without ITEC cannot fish vessels with bycatch > ITEC supply must buy additional ITEC 100% observer coverage

Simulation inshore catcher-vessel sector daily data from 2000 to 2007 per-vessel catch and bycatch 33,390 credits (total) 20,916 (A-season) 12,474 (B-season) 100% carry-forward (all unused ITEC from A- season will rollover to B-season)

Allocation Rule Cs,y,i = Ps,y,i Fs,y,i Is Cs,y,i is the number of credits vessel i receives for season s of year y Ps,y,i is the proportional allocation factor for vessel i in season s of year y Fs,y,i is the fraction of the sector s pollock TAC received by vessel i in season s of year y Is is the amount of ITEC the sector receives for season s

Proportional Allocation Factor initialized at 1.0 vessels receive ITEC pro-rata to TAC fraction represents relative ITEC allocation e.g. 1.1 => 10% more ITEC fluctuates based on bycatch performance increases as a result of bycatch reduction decreases when bycatch is high trends back to 1 (past behavior discounted)

Proportional Allocation Factor Ps,y,i =α + β Ps,y-1,i + γ Qs,y-1,i β = legacy weighting (time decay) γ = incentive weighting (year to year change) Q = function of bycatch performance Q > 1 for lower than average bycatch rate Q < 1 for higher than average bycatch rate α = fixed constant α + β + γ = 1

Bycatch Function Q is a function of relative bycatch rate Q > 1 increases allocation Q = 1 resets allocation Q < 1 decreases allocation any reasonable monotonic function suffices

Proportional Allocation Factor Ps,y,i =α + β Ps,y-1,i + γ Qs,y-1,i asymptotically stable for constant Q bounds for Q create asymptotic bounds for P for example: α = β = γ = 1/3 Q [1/3, 5/3] P [2/3, 4/3]

General Properties proportional allocation, P, changes depending on Q Q is calculated based on relative bycatch rate relative bycatch rate dependent on total bycatch sensitivity increases during years of low bycatch larger incentives to reduce bycatch!

Bonus Credits 70 60 50 high salmon encounter (2006-2007, mean=1.97) low salmon encounter (2001-2002, mean=4.42) frequency 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 bonus credits

Credit Penalties 70 60 50 high salmon encounter (2006-2007, mean=-1.75) low salmon encounter (2001-2002, mean=-4.4) frequency 40 30 20 10 0-10 -9-8 -7-6 -5-4 -3-2 -1 0 credit penalties

Summary vessels are incentivized to reduce bycatch to increase future allocation future increases in allocation act as insurance against high bycatch years and/or stochasticity in bycatch incentives to reduce bycatch exist regardless of level of bycatch or whether hardcap is binding incentives are stronger in low bycatch years (~ low abundance)

Trading Rules buying restrictions a vessel may not buy more than 1/3 of its allocation for that season selling restrictions vessels may only sell a fraction of unused credits fraction fluctuates based on bycatch level in current year

Purchase Limit poorly performing vessels (consistently high bycatch) cannot completely offset low allocations through ITEC purchases increasing allocation (through bycatch avoidance) also increases size of buffer (amount of purchasable ITEC) enhances insurance-like incentives of reallocation

Dynamic Salmon Savings early in B-season, estimate how much ITEC is needed excess ITEC determines salmon savings rate (SSR) ITEC transactions taxes according to SSR for example, SSR = 20% vessel has 100 excess ITEC can sell 80 ITEC 20 ITEC are retired

Salmon Savings Rate SSR = min maximum SSR = 50% transactions that occur before SSR is calculated are taxed at 50% refunds occur when SSR is calculated like tax withholding 50%, ITEC excess ITEC initial

Compared to Fixed Tax fixed tax on transfer all transfers in all years taxed at a fixed rate transfers needed in years of mid-high bycatch fixed tax = revenue loss transfers NOT needed in years of low bycatch fixed tax = irrelevant (no protection of Chinook salmon)

Numerical Comparison ITEC Recoverd (Salmon Savings) 16000 14000 12000 10000 8000 6000 4000 2000 0 Dynamic Salmon Savings Fixed Transfer Tax 0 10000 20000 30000 40000 50000 60000 70000 80000 Actual Yearly Bycatch

Numerical Comparison 30000 ITEC Recovered (Salmon Savings) 25000 20000 15000 10000 5000 0 Fixed Transfer Tax (6857) Dynamic Salmon Savings (24209)

Discussion highly tunable parameters can be adjusted to manage behavior scalable ITEC can be used to manage any bycaught species in the same or other fisheries gives fishermen flexibility to optimize revenue by exploiting variability in bycatch performance (per vessel)

Discussion no artificial pricing structure cost of ITEC on market depends on perceived value by vessels in the fishery penalities for ITEC reduction determined by potential revenue loss promotes continual improvement (i.e. lowering) of bycatch rates vessels compete for increased allocation reallocation benefits decay with time

Discussion resistant to collusion between vessels e.g. vessels agree to have equal levels of high bycatch (performance is calculated relative to other vessels) collusion is unstable (i.e. not a Nash equilibrium) an individual vessel changes strategy to decrease bycatch -- that vessel benefits to the detriment of all others

Acknowledgements United Catcher Boats John Gruver Brent Paine Sea State, Inc. Karl Haflinger Alaska Fisheries Science Center (NOAA) Alan Haynie James Ianelli

Timing of Bycatch % bycatch caught 1.2 1 0.8 0.6 0.4 2007 2006 2005 2004 2003 2002 0.2 0 0 0.2 0.4 0.6 0.8 1 1.2 % pollock caught

SSR Calculation Year A B C D E F 2000 16 Sep 9859 254 7540 2319 23.5% 2001 11 Sep 9812 277 7770 2042 20.8% 2002 2 5 Sep 10236 1655 21550 (11314) 0% 2003 2 Sep 10801 256 7560 3241 30% 2004 31 Aug 9716 1890 23900 (14814) 0% 2005 29 Aug 9668 4142 46420 (25298) 0% 2006 10 Sep 9703 3591 40910 (28728) 0% 2007 2 Sep 9826 1465 19650 (4802) 0% A = date when 2/3 pollock caught B = remaining ITEC C = ITEC used (in B-season) D = estimated ITEC needed E = estimated excess ITEC F = SSR

Penalty Functions penalty function (p-value)! 0.0 0.2 0.4 0.6 0.8 1.0-3 -2-1 0 1 2 3 z-score

Do Rolling Hotspots Work? Fishing in January 31 Closure Area Period Chinook Rate % of Trips % of Pollock % of Chinook Before closure During closure in out in 465 2626 7 0.128 0.040 0.078 5.4 94.6 0.3 5.2 94.8 0.3 15.0 85.0 0.8 Alan Haynie Alaska Fisheries Science Center (NOAA) out 865 0.029 99.7 99.7 99.2 After closure in 374 0.181 3.0 3.0 2.8 out 13072 0.196 97.0 97.0 97.2

Ways to Reduce Bycatch salmon excluder devices change timing of fishing effort Chinook salmon bycatch peaks early in A- season and late in B-season Chinook bycatch rate higher during the day than at night better prediction of Chinook salmon spatial distribution requires research into population dynamics

Timing of Chinook Bycatch!"#$"%&'()**+,%#')%-'./0)*0$',)*+# Proportion of maximum 1.00 0.75 0.50 0.25 0.00 Pollock Tows Average duration N tows 2 4 6 8 10 12 14 16 18 20 22 24 Hour of the day > catch at mid-day > relative rate decrease at night for salmon Proportion of maximum 1.00 0.75 0.50 0.25 Catch rates fewer tows at night longer duration Pollock per minute Chinook per minute Chum per minute James Ianelli Alaska Fisheries Science Center (NOAA) 0.00 2 4 6 8 10 12 14 16 18 20 22 24 Hour of the day

Revenue Recovery (Trading) $12,000,000 $10,000,000 Revenue Recovered $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 2000 2001 2002 2003 2004 2005 2006 2007

Revenue Recovery (CIM) $70,000,000 $60,000,000 Revenue Recovered $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 2000 2001 2002 2003 2004 2005 2006 2007

Incentivized Reduction Bycatch (Chinook salmon caught) 80000 70000 60000 50000 40000 30000 20000 10000 Actual Market-Incentivized,! = 0.25 0 2000 2001 2002 2003 2004 2005 2006 2007 Year

Sampling Variability 1.4 individual vessel std. dev. in relative bycatch rate 1.2 1 0.8 0.6 0.4 0.2 0 0.00000 1.00000 2.00000 3.00000 4.00000 5.00000 6.00000 % of sector pollock allocation

Variance Normalization