Could Blue Carbon Credits Be The Future Of Sustainable Financing?

The Bahamas has become the newest emerging market to seek to take advantage of its natural environment to fund projects to protect its environment, announcing plans to sell blue carbon credits before the end of the year.

In late April the government unveiled plans that would give companies the opportunity to buy the credits to offset their own carbon emissions.

The proposed agreement is based on the Bahamas’ estimated 4270 square km of mangrove forests, seagrass and other ecosystems that absorb and store significant amounts of carbon.

Announcing the initiative, Prime Minister Philip Davis said the Bahamas is aiming to raise $ 300 million to invest in efforts to conserve the country’s marine environment, as well as other renewable energy and green projects.

The nation has pledged to generate at least 30% of its energy from renewable sources by 2030, and is working with international institutions such as the EU and the Inter-American Development Bank to implement solar energy projects.

The importance of blue carbon

While green carbon credit projects involving forests and grasslands are well established in global financial markets, the sale of blue carbon credits is still at an early stage. However, there are some signs that this may be starting to change.

This change is happening as governments and companies alike become more aware of the environmental potential of marine ecosystems to combat climate change.

Coastal ecosystems such as mangroves, salt marshes and grasslands have great carbon storage potential: not only can they store up to 10 times more carbon than terrestrial forests, but they can also hold carbon for 10 times longer than tropical forests.

Another initiative based on blue carbon credits is the Cispatá Conservation Project, located off the Caribbean coast of Colombia.

A collaboration between the Coastal and Coastal Research Institute of Colombia, Conservation International and Apple, the project aims to conserve and restore 11,000 ha of mangrove forest. Those involved say the project will remove about 1 million tons of CO2 of the atmosphere during its lifetime.

It is hoped that a sale of carbon credit will help cover half of the project’s $ 600,000 in operating costs.

Meanwhile, in Japan, Electric Power Development, better known as J-POWER, began generating its own blue carbon credits by raising algae and seagrass beds near its Kitakyushu plant.

The company does not plan to sell the credits but rather use them to offset carbon emissions from its power plants. By establishing grasslands around the country, J-POWER expects to absorb 100 tons of carbon a year.

There are a number of other blueberry conservation projects taking place in emerging markets around the world, including Kenya, Senegal, Madagascar, India and Pakistan, the latter of which are home to the world’s largest mangrove restoration project, containing approximately 350,000 ha.

Environmentally-linked financing in emerging markets

The expansion of blue carbon conservation and credit projects is another example of how emerging markets are increasingly looking to find innovative ways to finance environmental projects.

For example, in september last year the government of belize launched a debt-to-nature change to restructure its sole sovereign obligation. Under the terms of the agreement, Belize repurchased its debt at a significant discount – $ 0.55 cents for every $ 1 – in exchange for growing efforts to protect its marine environment.

Meanwhile, Earlier this year, the World Bank issued the world’s first wildlife conservation obligation to raise money to protect endangered populations of black rhinos in South Africa..

The five-year, $ 150 million “rhino bond” is a results-based financial instrument linked to the rate of population growth of black rhinos in the Addo Elephant National Park and Great River Nature Reserve of South Africa, which means investors will get “success”. payment ”if the population increases.

In a similar vein, Chile became the first country to issue bonds linked specifically to sustainable targets when it sold $ 2 billion in U.S. dollars called a bond-linked bond (SLB) in March..

Unlike other types of green bonds that raise money to fund greening developments such as solar and wind power projects, SLBs encourage climate-positive solutions by integrating environmental targets, along with a series of penalties for issuers if they fail to meet their targets. .

In the case of Chile, the obligation stipulates that the country can emit no more than 95 tons of CO2 and equivalent by 2030, and that 60% of its electricity generation should come from renewable sources by 2032.

Given the growing focus on environmental, social and governance metrics in both the public and private sectors, the development of environment-based financial initiatives could set a precedent for emerging markets seeking to obtain funding in the future.

From Oxford Business Group

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