
Deep blue: Opportunities for blue carbon finance in coastal ecosystems
This report explores the growing opportunities for blue carbon finance in coastal ecosystems, focusing on mangroves, saltmarshes, and seagrass meadows. It highlights the significant potential of these ecosystems to mitigate climate change, generate carbon credits, and provide essential co-benefits, including biodiversity conservation and economic resilience for coastal communities. Despite increasing interest, challenges in securing funding and scaling projects remain key barriers to unlocking their full potential.
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OVERVIEW
Background
The report outlines the growing importance of ocean-based climate mitigation, particularly through blue carbon ecosystems, including mangroves, saltmarshes, and seagrasses. These ecosystems play a crucial role in sequestering carbon, storing 10 times more carbon than terrestrial ecosystems. Coastal wetlands are vulnerable, releasing 0.2 to 0.24 gigatons of CO₂ annually through degradation, which contributes to 3% to 19% of global deforestation emissions. Protecting and restoring these habitats presents significant opportunities for climate mitigation, resilience, and economic co-benefits. Governments are increasingly including these ecosystems in their Nationally Determined Contributions (NDCs).
Carbon markets
Carbon credits from blue carbon projects are a key financial mechanism to support coastal ecosystem restoration and conservation. These credits can be traded to offset emissions, with prices expected to rise due to increasing corporate demand. In 2021, carbon credits from nature-based solutions accounted for 80% of voluntary carbon market issuances, with blue carbon offsets fetching $15 to $35 per credit. However, carbon pricing remains volatile, and securing financing for blue carbon projects remains challenging. Recommendations include simplifying carbon credit methodologies and bundling small projects to achieve economies of scale.
Blue carbon
The report emphasises the importance of tidal wetlands, particularly mangroves, saltmarshes, and seagrass meadows, which store large amounts of carbon. Mangroves alone sequester up to 24 million tonnes of CO₂ annually, despite occupying only 0.2% of global ecosystems. They provide other essential services such as fisheries support and coastal protection, with potential avoided damages of up to $42 billion annually. Mangrove degradation, particularly for aquaculture and urban development, has led to emissions of 14,000 tonnes of CO₂ per year. Recommendations include prioritising mangrove restoration due to its high potential for carbon sequestration and climate resilience.
Project potential
Coastal blue carbon projects have the potential to offset between 0.5 and 1.38 gigatons of CO₂ annually by 2050 through restoration and conservation. However, the current scale of blue carbon projects is far below this potential, with only 0.97 million tonnes of CO₂e credits issued in 2022. Scaling these projects requires increased investment and supportive regulatory frameworks. The report recommends focusing on small-scale, community-led projects that could be bundled to achieve significant impact.
Carbon pricing
Carbon prices for blue carbon projects are expected to increase to $40 to $65 per tonne by 2040, driven by growing corporate demand for carbon offsets. Mangrove restoration credits currently command the highest prices due to their sustainable development benefits. However, the report highlights that carbon pricing mechanisms are not fully developed, with many projects still in the proof-of-concept phase. To improve pricing outcomes, the report recommends further development of carbon standards and greater transparency in the pricing of ecosystem co-benefits.
Financing blue carbon projects
Securing financing for blue carbon projects is a significant challenge, particularly due to the high risk and long timeframes involved. The report outlines barriers such as the small scale of projects, high upfront costs, and lack of institutional capacity in many regions. It recommends that financial institutions play a key role by offering firm purchase agreements for carbon credits and promoting nature-based solutions in infrastructure projects. Additionally, blended finance products could help bridge funding gaps for blue carbon initiatives.
Blue carbon opportunities for financial institutions
Financial institutions (FIs) have a crucial role in scaling blue carbon projects. FIs can provide upfront financing, purchase agreements, and carbon credit bundling services. By supporting these projects, FIs can secure premium carbon credits and promote sustainable infrastructure. The report suggests that FIs could also develop “blue bonds” or insurance products linked to wetland restoration, leveraging the co-benefits of blue carbon ecosystems to enhance climate resilience.
Conclusion
Blue carbon ecosystems present a high-impact opportunity for climate mitigation and adaptation. With the right financial structures, policy support, and project development methodologies, the blue carbon market can grow significantly, offering strong returns and essential climate and social co-benefits.