As the world grapples with the urgent need to keep global warming below the 1.5°C threshold, the role of carbon markets in minimising carbon emissions has taken centre-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.
Last year’s climate COP was optimistically labelled the “finance COP”, but even before the summit commenced scepticism was rife about the very nature of these finance talks. A sense of “not enough” was pervasive before, during and after the summit.
To be sure, this sentiment has become a recurring theme at climate COPs, where the stakes are undeniably high, but ambitious progress is often elusive.
Game-changer or soft win?
Article 6 has remained in the Paris Agreement since its inception. So what makes the decision at COP29 groundbreaking?
Characterised by fraud
Firstly, COP29 distinguished itself by finalising the Article 6 Rulebook and ending decades of ambiguity over how carbon markets should operate, creating a global carbon market framework.
Historically, carbon markets have been characterised 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 deal also set the stage for increased private sector investment in climate mitigation and adaptation projects, including blue carbon initiatives which 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 such as new 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 such as the Kyoto Protocol’s much-maligned Clean Development Mechanism.
Yet, sceptics said the deal was rushed with insufficient negotiation and transparency and that it also bypassed regular COP approval processes.
Blue carbon markets vs regular carbon markets
The new carbon deal recognised specific guidelines for restoration of Blue Carbon Ecosystems (BEC’s) and in doing so recognised the crucial role these ecosystems play in climate mitigation. 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, salt marshes, and sea grass). Having sequestration levels estimated to be five times higher than terrestrial ecosystems and being able to store it 30 to 50 times faster, these ecosystems are carbon absorbing giants.
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.
Blue carbon and unique interest for island nations
The inherent nature of blue carbon offsets and allows major polluters in the world to “pay to pollute.”
Critics decry this as “outsourcing responsibility”. 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 such as Sri Lanka, heavily reliant on the ocean and blessed with extensive coastal ecosystems, these markets present an opportunity to monetise 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.
Controversy, concern and how to prepare
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.
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. It’s imperative to prioritise 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 multi-stakeholder roundtable hosted by CSF on how to leverage conservation finance tools to protect Sri Lanka’s Marine Protected Areas.
To be clear, for countries such as Sri Lanka that depend heavily on marine ecosystems, there are multiple realities that we need to face. On the 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 it 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.
The writer is a Researcher at the Centre for a Smart Future (CSF). CSF is an interdisciplinary policy think tank focussing on an inclusive and sustainable economic recovery for Sri Lanka.
