The oceans and coasts are the Earth’s climate regulators. Covering 72 percent of the planet’s surface, they have absorbed around 40 percent of carbon emitted by human activities since 1850.1 Coastal ecosystems such as mangroves, tidal marshes, and seagrass meadows act as deep carbon reservoirs, while marine ecosystems absorb and sequester greenhouse gases (GHG) through the carbon cycle.2 The bad news for humankind is that both oceans and coasts are under pressure, amid atmospheric and marine warming, habitat destruction, pollution, and the impacts of overfishing and industrial activity. These destructive factors are undermining the role of oceanic systems in slowing climate change.
Humankind’s impact on coastal and offshore ecosystems is a double-edged sword. While we are responsible for significant destruction, we also have agency over potential outcomes. Through our efforts, we can avert damage to or restore the oceans. This would increase carbon absorption from the atmosphere and move the world toward the net-zero emissions envisaged by the Paris Agreement on climate change. Companies that are seeking to offset their carbon emissions through voluntary and compliance carbon markets, and in particular those whose activities are connected to the oceans, such as the fishing industry, would have a key role to play in facilitating this process.
One of the key tools to tackle climate change is the carbon markets, through which organizations can trade emissions allowances to achieve reduction targets. The vast majority of funding provided by carbon markets is allocated to so-called nature-based solutions (NBS). These are focused on the protection, restoration, and management of natural and modified ecosystems. On land, the most recognizable NBS is planting of trees to restore forests. In this report, we analyze the potential of so-called blue carbon NBS, which are designed to protect or enhance ecosystems on coasts and in the oceans. We consider three categories of blue carbon solutions, which we rank according to their scientific and economic maturity:
- Established solutions: We consider blue carbon NBS to be “established” when they meet minimum standards of scientific understanding and implementation potential. These relatively mature solutions are focused on the protection and restoration of mangroves, salt marshes, and seagrass meadows. They are more widely understood than many less mature blue carbon solutions, offer scientifically verifiable levels of carbon abatement, and are amenable to funding through the carbon markets.3
- Emerging solutions: Emerging solutions are those for which there is an existing body of peer-reviewed research to quantify CO2 abatement potential, but for which further research is required to align with funding frameworks such as the Core Carbon Principles, published by the Taskforce on Scaling Voluntary Carbon Markets. The emerging category includes the protection and restoration of seaweed forests, extension of seaweed forests, and strategies to reduce bottom trawling.
Nascent solutions: The nascent and potentially largest blue carbon NBS category focuses on the protection or restoration of marine fauna populations. This category is the most challenging in terms of understanding impacts, establishing permanence (preventing leakage), and proving the vital concept of additionality—meaning the benefit would not have accrued anyway, for example, for economic or legal reasons. Fish themselves are not considered a form of carbon sequestration, but they contribute to the effectiveness of the biological carbon pump and therefore to exportation of carbon into the deep sea. Also in the nascent category are reef-based solutions. Healthy reefs may contribute to carbon sequestration through their support for a range of organisms and shell fish.
Due to the scientific challenges around quantification, the nascent category is not yet financeable through carbon markets.
Assessing blue carbon solutions
McKinsey’s new report, Blue Carbon: The potential of coastal and economic climate action, sizes blue carbon NBS and measures their impacts, costs, and likely access to future funding. It highlights the latest scientific research and leverages McKinsey analysis to estimate abatement or conservation potential on a 2050 timeline. Deep dives on kelp reforestation and bottom trawling show how economies of scale in these emerging solutions could help reduce costs.
If fully implemented, the established class of solutions would offer 0.4 to 1.2 metric gigatons (Gt) of annual CO2 abatement, or between 1 and 3 percent of total current annual emissions (Exhibit 1). That potential jumps to approximately 3 GtCO2 of annual abatement (about 7 percent of total current annual emissions) if the solutions in the emerging category, such as large-scale seaweed farming and bottom-trawling management, were to be fully confirmed and implemented. Nascent solutions might add another 1 to 2 GtCO2 of annual abatement potential in the longer term, but the science remains highly uncertain.4 To put these numbers into context, annual human emissions are currently around 40 GtCO2.5
Alongside the climate case for blue carbon solutions, there are potentially significant ecosystem benefits. For example, as mangroves recover, fish and marine-fauna populations will expand, supporting both fisheries and nature-based tourism, as well as bolstering coastal protection and filtering runoff.6
When it comes to costs, preliminary analysis suggests that around one third of the total abatement potential would be viable below $18 per tCO2. This is more than the $5 to $15 per tCO2 average price paid in the voluntary carbon markets but below the $40 to 100 per tCO2 paid in the European compliance markets over the past year (February 2021–2022) (Exhibit 2).7
While blue carbon solutions are an increasingly viable option to help companies and organizations get to net zero, many promising ideas face significant hurdles. Scientific research into many solutions remains at an early stage, creating uncertainty over the impacts of abatement. For example, it is scientifically unclear how seaweed farming or avoided bottom trawling reduces atmospheric CO2 (complex biogeochemical cycles in seawater and ocean currents influence net exchange of CO2 with the atmosphere8). In addition, there is insufficient modeling of how terrestrial processes such as agricultural runoff and climate change may impact the ocean’s continued ability to sequester carbon.9
Beyond scientific uncertainty, matters of coastal and marine law are often complex or opaque. Estuarine and coastal environments, which are subject to national jurisdictions, are often governed by numerous subnational regulatory and administrative regimes. Offshore ocean environments are mainly overseen by the consensus-oriented United Nations Convention on the Law of the Sea and UN Environment Programme. However, individual nations retain rights to resources up to 200 nautical miles from their coastlines. Nearer to shore, disputes over land tenure are common. Finally, in many countries, the practical path to implementation is likely to be bumpy. Coastal blue carbon project developers will need to engage with local communities, respecting traditional access and tenure rights and supporting marine-resource stewardship. We show how some organizations are working to tackle challenges in these areas.
Apple’s blue carbon initiative
Despite varying levels of practicality and scientific certainty, there are viable arguments to suggest that blue carbon solutions present a net opportunity. Indeed, companies are starting to roll out projects as part of their journeys toward net-zero emissions. Apple is working with nonprofit Conservation International to preserve a 27,000-acre mangrove forest in Colombia, the first fully accounted carbon offset credit for a mangrove, expected to sequester one million metric tons of CO2 over its lifetime. Procter & Gamble, meanwhile, has partnered with the same organization to safeguard 31 species of mangroves in the Philippines.
Another tailwind is the ongoing development of methodologies to report and quantify project impacts. In 2020, standards setter Verra published the first blue carbon conservation methodology approved under any major carbon-offset program. The methodology, which is a revision to the VCS REDD+ Methodology Framework (VM0007), adds blue carbon conservation and restoration activities as eligible project types, and is expected to unlock new sources of funding for tidal wetland conservation and restoration.10
Actions to support funding
There is no escaping the fact that blue carbon solutions are, for the most part, in their infancy. Just a trickle of projects have qualified for carbon markets to date, and there are significant financial, practical, and legal hurdles to scaling in ocean and coastal environments. In short, there are deficits in both supply and demand, resulting in a challenging risk-return profile. That said, the science that supports established blue carbon sequestration is sound, and there is clear opportunity for corporations to consider blue carbon opportunities. Moreover, given their beneficial impact on biodiversity and coastal communities, blue carbon solutions are particularly rich in “cobenefits” beyond their abatement profiles. Therefore, amid narrow pathways toward a 1.5°C outcome, the solutions merit serious consideration across financial markets, corporates, and governments.
As in any nascent technology, a key early requirement is to get to sufficient scale to achieve critical mass. At financial institutions, current investment in blue carbon projects is rooted in a broader mismatch between climate ambition and operational resources. Outside the top tier, many banks and investors lack the strategy and capabilities to commit to a relatively marginal asset class. Ticket sizes tend to be small compared with the effort required, and there is often a gap to cost parity with incumbent technologies. To resolve these challenges, financial institutions need to find ways to layer blue carbon into portfolio allocation frameworks and source the knowledge resources that can help them navigate new markets. Even then, there are doubts around returns profiles and timelines. These present significant barriers that need to be overcome if blue carbon is to become established as an alternative to terrestrial solutions.
Corporate scaling opportunities
Companies looking to offset their carbon emissions face similar challenges to those faced by financial institutions. In comparison with more readily available terrestrial credits, blue carbon offset opportunities may appear high risk, subscale, and expensive. Still, Apple and others have shown there are opportunities, particularly in the established class of solutions. For companies focused on the ocean, such as expedition cruise lines, there is also the chance to align their net-zero programs with their real-world activities. Tackling the challenge of scaling both supply and demand, the recently announced Blue Carbon Buyers Alliance aims to aggregate and educate buyers around a clear demand signal, with members committing to funding or purchasing credits from high-quality blue carbon projects.11 These collective, early mover signals could have a significant impact on supply, potentially bringing down prices in the process.
Project leads and governments
To support financial and corporate initiatives, blue carbon project leads have an important role to play. They must seek out more risk-tolerant financing and then design, pilot, and demonstrate project feasibility. This will establish the track record that will support more capital inflows. To create early momentum, they should share their early successes as widely and as comprehensively as possible.
Finally, governments will be critical in scaling participation and funding. A good blueprint is the work of the US Advanced Research Projects Agency, which is tasked with promoting and funding research into advanced energy technologies. In addition, multilateral and development assistance agencies can fund innovative and scalable programs. Progress at the COP26 summit in Glasgow on drafting the terms of a future structure for carbon markets under the revised Article 6 of the Paris Agreement was a positive step, and more progress is expected over the coming year. Governments could also signal support by including blue carbon solutions in nationally determined contributions (NDCs) under the Paris Agreement. Through these kinds of initiatives, they could nudge blue carbon toward the mainstream, and the world toward a promising new abatement opportunity.