Red Rocks and Longay Marine Protected Area: business and regulatory impact assessment

Rationale for Government Intervention

Scotland's marine environment provides: food; energy sources (wind, wave & tidal power, minerals and fossil fuels); routes and harbours for shipping; tourism and recreational opportunities; and sites of cultural and historical interest. Scotland's seas contain important, distinctive habitats and support a diverse range of species that require protection in order to be conserved or for recovery to be facilitated.

There are a number of market failures evident in the ways in which the marine environment is utilised. These relate to:

• Public goods: A number of the benefits of a healthy marine environment such as the non-use value of biological diversity have 'public good' characteristics. No-one can be excluded from enjoying the benefits (non-excludability), and enjoyment of the benefits they provide one person does not diminish the benefits that are available to others (non-rivalry). These characteristics of a healthy marine environment mean that individuals do not have an incentive to ensure the continued flow of these goods as other people will reap those benefits. This can lead to their under-provision, or in other words the eventual decline of the marine environment.

• Negative and positive externalities: externalities occur when actions of marine users affect other parties positively or negatively, but this is not reflected in market prices. In many cases, the market does not account fully for the value of benefits and costs of the activities of marine users. In the case of negative externalities this can lead to more damage occurring from economic activity than would occur if the full cost of economic activity was accounted for. For example, fish are caught but market prices do not often reflect any potential damage caused to the environment by that activity. This means the incentive to fish in less damaging ways is reduced if there is no or limited pay-off to the change.

Due to the competing demands placed upon Scotland's marine resources, market failures related to public goods provision and externalities will lead to insufficient protection of the marine environment if left to the market. This provides rationale for government to intervene to protect the marine environment.