The effect of introducing fuel tax to the Norwegian fishery industry

Abstract

Fossils fuel use is the main source of climate emissions in many fisheries and also one of the input factors with the highest cost share. This has led Norway to eliminate an implicit subsidy in the form of the fuel tax-exemption for the fishing fleet. It is suggested to gradually reduce the fuel tax-exemption over the years 2022–25 and simultaneously gradually introduce the CO2 tax. For a climate motivated tax policy to be successful from an environmental perspective, the tax must give vessels an incentive to utilize less fuel. However, it is unclear to what degree this is possible and therefore what effect a fuel tax will have. In this article, we investigate the economic impact of increasing fuel prices for the Norwegian fishing fleet. The most important result is a relatively inelastic fuel price elasticity for all vessel groups. This means that increases in fuel prices will result in only moderate changes in fishing practices and a small reduction in fuel consumption. Introducing a fuel tax will accordingly have a limited effect on climate gas emissions. Furthermore, we find that there are few possibilities for input factor substitution, which means that an increase in fuel price will lead to a direct cost effect for all vessel groups.