Climate finance and Article 6 at the 29th Conference of Parties
The 29th Conference of Parties (COP) at Baku, Azerbaijan concluded with key agreements on climate finance and carbon markets that present a promising enabling environment for blue carbon markets.
On climate finance, about 200 countries present at the Conference came to a contentious agreement to increase the climate finance commitment to developing countries by three times. The previous US $100 billion annual commitment is now increased to US $300 billion annually by 2035. The agreement also included a commitment to scale this finance to developing nations through cooperation across the public and private sectors to reach US $1.3 trillion annually by 2035.
On carbon markets, the countries have agreed on the operationalisation aspects under Article 6 of the Paris Agreement. Under Article 6.2, the countries decided on the process of authorisation for carbon credit trading and operation of tracking registries for inter-country trading. The Paris Agreement Crediting Mechanism has been operationalised under Article 6.4 and the centralised carbon market will function under the United Nations (UN). Mandatory checks have been included under the Mechanism for environmental and human rights protection along with a mandate for the UN carbon market to be science based. Further, the Supervisory Body responsible for the Mechanism will continue refining it under a 2025 directive.
Blue carbon markets as an opportunity to raise climate finance
The contentious climate finance commitment from the developing nations and the UN carbon market agreement at COP29 have transpired in the backdrop of a massive finance need, globally, for climate action. This need is reflected in a recent report that projects a US $8.5 trillion annual climate finance need till 2030 and over US $10 trillion between 2031 and 2050. In this context, it is imperative to capitalise on all possible avenues of positive action. Innovative climate financing mechanisms to scale climate action, leveraging the committed public finance to attract private funds for climate projects present a promising solution. One propitious avenue at the intersection of the discussed developments is presented by blue carbon markets.
Blue carbon refers to the storage of carbon dioxide (CO2) in the marine and coastal environments ecosystems including mangroves, saltmarshes and seagrasses. Different types of blue carbon ecosystems have unique methodologies for measuring their impact. The Intergovernmental Panel on Climate Change (IPCC) has recognised accounting methodologies for coastal blue carbon. The significance of these natural carbon sequestration hotspots can be understood by the fact that while coastal ecosystems account for only 2% of the entire ocean surface, they are responsible for 50% of the total carbon absorbed by the oceans. Considering that oceans absorb as much as 90% of the surplus heat from climate change and 23% of anthropogenic CO2 emissions, the contribution from coastal environments is of immense significance. Further, protecting these coastal ecosystems can also increase local community resilience as they provide storm protection, reduce flooding and erosion, increase food security and support livelihoods. However, these rich ecosystems are faced with an immense threat from anthropogenic activities. Deforestation during 1980s and 90s led to the destruction of as much as 35% of mangroves. During the 20th century alone, we have lost over 50% of the original saltmarshes across the globe. About 25% of the seagrass beds have also been lost. Thus, there is an urgent need for projects to protect these vital ecosystems.
Given the context, coastal ecosystem conservation and restoration projects can be undertaken while utilising the blue carbon markets for meeting their financing needs. The incorporation of blue carbon into Article 6 could drive its monetisation on an international scale. The potential of the coastal blue carbon markets is substantial, with carbon sequestration and storage by these ecosystems estimated to be valued for US $190 billion every year. Innovative climate financing mechanisms like blue bonds and public-private partnerships can be a promising means to making these markets accessible as exemplified in existing initiatives. Following are some examples:
Blue bonds- Countries can explore issuance of blue bonds for funding large-scale marine conservation, with repayment tied to blue carbon credit revenues. For example, issuances like the following can be undertaken for coastal ecosystem protection projects and can utilise the blue carbon credits generated for repayments
- In 2018, the government of Seychelles launched the world’s first sovereign blue bond, structured for sustainable marine and fisheries projects which raised USD $15 million from investors globally
Public-private-partnerships- Projects can be undertaken as public-private partnerships to finance restoration projects, offsetting costs through carbon credit sales. For example, the following initiative can benefit from monetising the blue carbon credits generated from their work for coastal ecosystems protection
- The Blue Carbon Initiative works towards protection and restoration of coastal ecosystems. One of the projects being undertaken by the Initiative is the Kaimana Coastal Conservation and Community Development in Indonesia, a pilot to exhibit the potential of blue carbon projects in furthering climate mitigation action
- The Indonesia project also focuses on the development of science-based mythologies that can garner global credibility and build the capacity of indigenous communities to safeguard and sustainably manage the coastal ecosystems
Thus, the blue carbon market can be mobilised to achieve the dual target of climate mitigation through carbon sequestration and climate adaptation by building local community resilience through the protection of coastal ecosystems.
The road ahead
It is essential to acknowledge that while there is an opportunity, there are several challenges that persist. Credible measurement and verification processes for blue carbon credits through robust monitoring systems need to be established. The advanced measurement methodologies that have been developed for carbon sequestration benefits from forest ecosystems, for example, need to be replicated for coastal ecosystems to build processes for verification and monitoring. Another concern is to ensure that the emission reductions achieved are not reversed as there can be negative consequences on the carbon storage effectiveness of these ecosystems from external factors. Considering the land and sea bodies are interconnected through water, any external pollution through land reaching the coastal ecosystems can be damaging. Thus, we need to establish a holistic approach to coastal ecosystem protection for the blue carbon markets to be effective.
While there are challenges, the unique opportunity for coastal economies to monetise their natural resources while addressing global climate goals is promising. Leveraging innovative climate financing mechanisms and addressing existing challenges through policy, research and technology will be key to unlocking the full potential of blue carbon markets.
Bibliography
https://unfccc.int/process/the-convention/history-of-the-convention#Climate-Change-in-context
https://www.wri.org/insights/cop29-outcomes-next-steps
https://www.climatepolicyinitiative.org/publication/top-down-climate-finance-needs/
https://www.worldbank.org/en/news/feature/2023/11/21/what-you-need-to-know-about-blue-carbon
https://cma-india.in/about-cop-29/
https://www.thebluecarboninitiative.org/
https://www.weforum.org/stories/2024/01/public-private-partnerships-help-restore-ocean-health/