As the world grapples with the urgent need to keep global warming below the 1.5°C threshold, the role of carbon markets in minimizing carbon emissions has taken center stage during recent global climate talks. In fact, the spotlight on the first day of the UNFCCC COP29 summit in Baku, Azerbaijan, was on the new carbon trading deal. In what was ostensibly seen as a ‘win’ for climate finance, countries agreed on the rules governing international carbon markets, under Article 6 of the Paris Agreement.
This year’s climate COP was optimistically labeled “the finance COP“, but even before the summit commenced skepticism was rife about the very nature of these finance talks. A sense of “not enough” was pervasive both before, during, and after the summit. To be sure, this sentiment has become somewhat of a recurring theme at climate COPs, where the stakes are undeniably high, but ambitious progress is often elusive.
When the stakes are high, solutions must arguably match them in terms of boldness. In so far as the carbon markets deal is concerned, however, there are doubts if this is the case. The question that has arisen now is, is the solution bold and meaningful enough?
COP29’s Carbon Deal: Game-Changer or Soft Win?
What made the decision at COP29 noteworthy – even though Article 6 has remained in the Paris Agreement since its inception – was that it finalized the Article 6 Rulebook and ended decades of ambiguity over how carbon markets should operate. Arguably, it has created a firmer global carbon market framework.
Historically, carbon markets have been characterized by fraud and poor outcomes which have often given them a bad reputation and led to parties being unable to find common ground on the rules governing them during negotiations. The recent deal also set the stage for increased private-sector investment in climate mitigation and adaptation projects, including blue carbon initiatives. In these schemes, emissions are quantified into “carbon credits” that can be bought and sold on carbon exchanges, and the framework allows nations to trade these credits, facilitating emission reductions. It can incentivize climate action by enabling parties to trade carbon credits generated by the reduction or removal of GHGs from the atmosphere. Uniquely, blue carbon and other nature-based solutions were explicitly highlighted as priority areas for investment under the new carbon market framework.
The framework introduced measures to increase the trustworthiness of these markets. For example, there are now schemes in place that place stronger emphasis on integrity and transparency. On paper, the safeguards seem strong – rigorous monitoring, reporting, and verification (MRV) protocols aim to prevent the pitfalls of past systems like the Kyoto Protocol’s much-maligned Clean Development Mechanism. Yet, skeptics argue the deal was rushed, with insufficient negotiation and transparency, and it also bypassed regular COP approval processes.
Blue carbon markets vs regular carbon markets
The new carbon deal recognized specific guidelines for restoration of Blue Carbon Ecosystems (BEC’s) such as mangroves, seagrasses, and salt marshes in carbon markets, and in doing so recognised the crucial role these ecosystems play in climate mitigation. It can help unlock new opportunities for financing conservation and restoration projects. By valuing these natural carbon sinks, the deal integrates biodiversity and climate goals, addressing two global crises simultaneously.
Blue carbon markets and regular carbon markets are both trading systems for carbon credits, but they differ in the types of carbon they address and how they work. ‘Blue Carbon’ refers to carbon dioxide (CO2) stored in the world’s coastal and marine ecosystems (such as mangroves, saltmarshes, and seagrasses). Having sequestration levels estimated to be 5 times higher than terrestrial ecosystems, and being able to store it 30 to 50 times faster, these blue ecosystems are carbon absorbing giants. This immense storage potential has drawn attention to blue carbon markets as a promising tool for climate change mitigation.
However, there is a key distinction between regular carbon markets and blue carbon markets in the type of units they generate.Blue carbon projects produce carbon “offsets”, which result from the protection and restoration of these ecosystems, whereas traditional carbon markets deal primarily in carbon “credits”, which are purchased by companies or individuals to cap emissions at a certain limit. Often used interchangeably, these terms have the potential to create confusion. The primary distinction lies in the fact that credits and offsets serve two different purposes – carbon credits are a way to limit emissions, while carbon offsets are a way to compensate for continuing emissions.
Blue carbon and unique interest for island nations
The inherent nature of offsets allow major polluters in the world to “pay to pollute.” Critics decry this as “outsourcing responsibility”. There are concerns that developing island nations could become mere ‘carbon laundries’ for global polluters. Yet, one cannot deny the potential benefits of these schemes for island nations, and therefore warrant closer examination. Blue carbon offsets promise a dual benefit – mitigating climate change while restoring vital ecosystems. For developing island nations like Sri Lanka, heavily reliant on the ocean and blessed with extensive coastal ecosystems, these markets present an opportunity to monetize the carbon capture potential of our rich marine ecosystems, while achieving national climate goals, contributing to global climate mitigation efforts, and attracting much needed finance for conservation. Blue carbon schemes have the potential to provide a range of benefits, including climate change mitigation, enhanced coastal resilience, improved water quality, and finance ecosystem protection and restoration .They also have the potential to offer socio-economic benefits to local communities, through sustainable livelihoods and job creation from activities like mangrove planting and ecotourism. Additionally, blue carbon projects can generate revenue through carbon offset sales, providing a source of income for conservation efforts and community development. One such example that was discussed during a webinar organised by CSF is the Mikoko project in the Gazi-Kwale County of Kenya, which has seen nearly 500 members of the community participate in the regular protection and planting of new mangroves. With 32% of payments going to community projects, this blue carbon project has created jobs and supported wealth creation for local communities . The Delta Blue Carbon in Pakistan is another blue carbon project example, which is reforesting more than 200,000 acres of mangroves in the Indus Delta.
Controversy and concern
While some are calling blue carbon projects as a new frontier for climate finance, others are describing it as a scam and not a sustainable solution to the climate crisis. Beyond the bold headlines and provocative discourse seen since the carbon markets deal at COP29, there is one thing most can agree on – there is more to it than meets the eye.
Despite the potential benefits, there are many controversies and concerns surrounding blue carbon markets, including accusations of shoddy measurement, weak verification, and outright fraud. One primary concern is of uncertainties in measurement -with the uncertainties in the measurement of carbon flows in coastal systems being reportedly much higher than the uncertainties in emissions in other sectors. Other key concerns are issues relating to land rights, where blue carbon projects can lead to land grabs and displacement of indigenous communities, raising ethical concerns in the places where they operate. The commodification of carbon through offsets also raises concerns about potential greenwashing and the perpetuation of unsustainable practices. The voluntary carbon market’s lack of transparency and standardized methodologies also has the potential to hinder accountability.
What’s in it for us and how do we prepare?
For countries like Sri Lanka that depend heavily on marine ecosystems, there are multiple realities that we need to face. On one hand, we are significantly low emitters compared to large fossil fuel companies and developed states, and we would simply be drawn into bearing an outsourced responsibility, which allows such polluters to continue operating as is. At the same time, our rich marine ecosystems could generate much needed finance through these carbon markets, and help to protect and restore vital ecosystems while providing local livelihood opportunities. A forthcoming Knowledge Primer on blue carbon being published by CSF could help better prepare us to navigate these decisions, by better understanding the nuances of blue carbon and identifying key considerations for Sri Lanka.
It’s imperative to prioritize research, transparency, and community engagement to ensure that the blue carbon market serves as a tool for genuine climate action. Research that contributes to national stock assessment of our blue carbon ecosystems is vital and a key point brought up during a multistakeholder roundtable hosted by CSF on how to leverage conservation finance tools to protect Sri Lanka’s Marine Protected Areas. Some efforts at assessing blue carbon stocks are underway in selected MPAs like the Vedithaltivu Nature Reserve.
Sri Lankan stakeholders need to view the new COP29 deal objectively. While it offers a new global framework for blue carbon projects – an area of emerging interest for Sri Lanka – it does come with many gaps and risks. Understanding the limitations of the deal, and indeed the complexities of blue carbon projects, is crucial for meaningful action.
Simra Riyaz is a researcher at CSF and a policy coordinator at the Sri Lanka Chapter of the Global Youth Biodiversity Network (GYBAN). She also serves on a youth panel of a European-based energy company guiding their green transition.
