Carbon Credits from Blue Ecosystems

Best for Public or Private beneficiary: Both

Ideal size of beneficiary: SME and Large corporates/entities

Blue carbon ecosystems (BCEs), including mangroves, seagrasses, and tidal marshes, have garnered significant attention due to their remarkable capacity to capture and store carbon at levels surpassing those of other ecosystems. Current studies suggest that mangroves and coastal wetlands annually sequester carbon at a rate ten times greater than mature tropical forests. They also store three to five times more carbon per equivalent area than tropical forests. Most coastal blue carbon is stored in the soil, not in above-ground plant materials as with tropical forests.

BCEs, in fact, can prevent or reduce carbon emissions carbon in two main ways: 

1. through carbon sequestration and storage and 
2. through ecosystem restoration using tidal exchange, which can help reduce methane emissions. 

When avoided emissions and restoration are combined, the potential for additional carbon capture is substantial. On a global scale, conserving all Blue Carbon Ecosystems (BCEs) could prevent emissions ranging from 141 to 466 teragrams of CO2 equivalent annually. Furthermore, if large-scale restoration efforts are implemented, an additional 621 to 1,064 teragrams of CO2 equivalent could be sequestered annually. The combined carbon benefits from these actions amount to approximately 3% of the world's total carbon emissions The total economic value generated by the sequestration of blue carbon, referred to as blue carbon wealth, has been assessed at over $190 billion per year.

The carbon storage capacity of BCEs there is substantial interest from both businesses and individuals seeking to offset greenhouse gas emissions through issued carbon credits, or carbon offsets more precisely. When talking about carbon credits we refer to a broader term that encompasses both carbon offsets and emission allowances:

• By carbon offsets it is meant an Instrument representing the avoidance, reduction or removal of one tonne of carbon dioxide or other greenhouse gas equivalent that (1) represents the avoidance of greenhouse gases being emitted (2) is capable of being traded on a voluntary or sovereign carbon market (VCM) (3) is not subject to regulation requiring such instrument to be traded on a compliance carbon market. 
• Emission allowances, conversely, are certificates issued by a regulatory authority allowing the holder to emit a ton of CO2 equivalent (tCO2e) and can be traded on the compliance (or regulated) carbon market.

The key usages of carbon credits at large and of carbon offsets in particular has been used to support corporate actors in achieving their decarbonization targets but, on the flipside, they have been fundamental tools in supporting nature restoration projects, whether for carbon sequestration or for ecosystem preservation purposes. The proceeds can be used to fund all of the Mission Ocean objectives.

Blue carbon is currently a small slice of the overall carbon market share, but the potential for blue carbon finance within the voluntary carbon market is large. For example, ~20% of the world’s mangrove extent (~2.6 million ha) could potentially qualify for avoided deforestation carbon credits, with significant revenue generation potential.

The effective deployment and trading of carbon credits rests on an effective and swift functioning of the Voluntary Carbon Market, which has proven to be rather complicated due to complexities in certification, imperfect information missing or constantly evolving regulation and other hurdles.

Issuers/Beneficiaries: Can be issued by national or international organisations (depending if they are mandated or voluntary)

Investors: Private investors (e.g. corporates and investments banks) 

The commercial interest in blue carbon is now strong enough that investors are pushing ahead to identify and fund blue carbon opportunities. Banks and financial service companies are now developing public-private partnership financing model to facilitate blue carbon project development as well as partnering with investors and other stakeholders to establish structures to facilitate blue carbon project development.

The case for BCEs carbon credit development is justified by the following reasons:

• Predictable and Effective Revenue Stream Generation for Coastal Carbon Projects. Blue Carbon Ecosystems provide a reliable and efficient means of generating revenue for coastal carbon projects. The consistent carbon sequestration and storage capacity of BCEs often comprised between 3 and 10 times higher than equivalent land surface forestry ecosystems, to offer a steady source of carbon credits or offsets, ensuring financial stability for project developers and investors.
• Accessibility of Project Investments from a Wide Array of Actors. Investments in BCEs for carbon storage purposes are accessible to a diverse range of stakeholders: both large financial institutions and small retail investors can potentially access investments in such projects, thereby.  This inclusivity encourages participation from governments, private sector entities, philanthropic organizations, and individuals, fostering a collaborative approach to BCEs conservation and restoration and widening the group of potential investors. 
• The Possibility of Preserving and Restoring Ecosystems through BCE Investments for Carbon Storage Purposes. BCE investments not only mitigate climate change but also enable the preservation and restoration of critical coastal ecosystems. Funds directed towards carbon storage in mangroves, tidal marshes, and seagrasses simultaneously support the protection of biodiversity, enhancement of coastal resilience, and sustainable livelihoods for local communities. This encourages a large series of co-benefits including biodiversity conservation, coastline protection, flood and water security protection and support to water-based economies. 
• The Large Potential Supply of Blue Carbon. BCEs offer a substantial and largely untapped reservoir of blue carbon potential. Through large-scale protection and restoration efforts, these ecosystems have the capability to remove approximately 3% of the annual global greenhouse gas emissions (GHGs) which can be leveraged through carbon credits. This abundance underscores the significant role BCEs can play in global climate change mitigation strategies as well as the large capital that can be generated through such projects. 

While the upsides can be significant, the drawbacks of this solution are far from marginal and are pointed out by multiple institutions. The main ones are summarized below:

• The Insufficient Ticket Size to Achieve a Critical Mass: As of today, most blue carbon projects are of small size and struggle to scale due to constraints concerning land ownership, complexities in coastal management and limited track record, which affects the investments deployed in the sector. One way to address the challenge of insufficient ticket size might be to encourage financial institutions to integrate blue carbon into their portfolio allocation frameworks. By combining multiple smaller blue carbon projects into larger portfolios, economies of scale can be achieved, making these investments more attractive to institutional investors.
• Uncertainty Around Land Tenure and Carbon Credit Ownership: Land tenure and carbon credit ownership in coastal areas can be complex, given the involvement of various stakeholders. Resolving these issues may require legal and policy reforms, as well as consultation and collaboration with local communities and landowners. Clear frameworks for carbon credit ownership and benefit-sharing agreements must be established to provide certainty for investors.
• Higher Costs Compared to Terrestrial Counterparts: BCEs often have higher establishment and maintenance costs compared to terrestrial carbon projects due to more challenging deployment areas, less accessible territories and similar. Addressing these higher costs may involve improving project efficiency and cost-effectiveness through technological advancements and streamlined governance structures can help make BCE projects more financially viable. Yet, such activities have not been streamlined and proven at this stage, which might hinder their further development.
• Uncertainty in Carbon Credit Prices: The prices of carbon credits, including those from blue carbon projects, can be uncertain and subject to market fluctuations, due both to the current state of the Voluntary Carbon Markets and to the shorter track record that blue carbon projects have compared to terrestrial carbon projects. Further, this uncertainty can present itself as a significant obstacle for the future development of this financing tool due to the long duration of such projects. To mitigate this uncertainty, long-term contracts and hedging strategies can be employed to lock in prices. However, the most significant solution might come through tighter regulation of Voluntary Carbon Markets or a significant uptake in the use of blockchain for data verification.
• High Fees in Issuance and Certification of Credits: Carbon credits, whether marine or terrestrial, need to be issued and/or verified by international certifying companies (Verra, Gold Standard…) which tend to extract significant fees from such transactions and reduce the returns for local project owners and users. Certifying projects using local certifying entities, creating an internal and/or national market for credits that relies on state-led certification and similar activities that leave out large international market entities might be helpful to avoid incurring into such high fees that ultimately lower the return for project owners and for local communities.
• Relatively Low Track Record of Blue Carbon Projects vs. Terrestrial Carbon Ones: Blue carbon projects have a relatively short track record compared to terrestrial carbon offset projects, leading to hesitancy among potential investors. Building a stronger track record involves continually monitoring and evaluating blue carbon projects and sharing success stories. Demonstrating the co-benefits of BCEs, such as biodiversity conservation and community engagement, can also enhance investor confidence and attract more interest in this emerging market.

Case Study: Delta Blue Carbon in Pakistan

Ocean Mission Objectives reached: 1 & 3

One of the most advanced projects in the field of blue carbon development is the Delta Blue Carbon (DBC) project, rooted in 350,000 hectares of Tidal Wetlands on the south-east coast of Sindh in Pakistan. The region, which looks out to the Arabian Sea, is home to a high biodiversity of benthic invertebrates. These intertidal wetlands also provide fertile ground for sequestering and storing vast amounts of atmospheric carbon. The protection, restoration and sustainable management of this natural resource is being led by Indus Delta Capital in partnership with the Government of Sindh. Over its implementation period, the project is estimated will remove 140 million tCO2e (tons of CO2 equivalents) over 60 years starting in 2015, with the creation of 21 thousand jobs in the process. 

The initial batch of 250,000 metric tonnes of carbon credits from DBC has been successfully sold via Climate Impact X, a global carbon credit marketplace, fetching a price of USD 27.80 per tonne. Mangrove carbon credits generally command higher prices compared to other types of nature-based credits. This is because they not only store carbon but also offer additional benefits such as flood mitigation, preservation of mangrove and ocean biodiversity, pollution removal, and ensuring food security for local communities. Notably, in the DBC credit bidding process, 30% of the total bid volume was priced at USD 35 per tonne or more, exceeding the auction reserve price of USD 27.50 per tonne. This demonstrates a willingness among buyers to pay a premium for what they perceive as high-quality credits.

Furthermore, the credibility of high-quality carbon offsets relies on demonstrating both permanence and additionality. This means proving that emissions reductions go beyond standard business practices and would not have occurred without the project's intervention. 

DBC's primary aim in carbon commodification is to fund the revitalization of the vulnerable Indus delta region, which is facing environmental degradation. DBC's sustainability approach revolves around empowering communities and future generations to thrive in an ecologically balanced and unpolluted environment. This is achieved through responsible, renewable resource management. While DBC acknowledges the importance of effective carbon markets, they caution against reducing environmental challenges to mere technical issues, emphasizing the need to consider broader aspects such as improving people's quality of life, justice, and fairness.