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Building Blue Carbon Projects
An Introductory Guide
2
Considerations for Blue Carbon Projects
2.1
Economic and financial considerations
When considering the feasibility of Blue Carbon projects, it is important to distinguish between
economic and financial analysis. The
economic feasibility
of Blue Carbon projects concerns the
monetary benefits and costs of the project to a given economy, or society as a whole. The
financial feasibility
of a Blue Carbon project concerns the benefits and costs to a given enterprise.
In general terms, an economic evaluation of existing Blue Carbon ecosystems estimates the
benefits provided by these natural areas, in terms of the avoided emissions of carbon stocks (and
other greenhouse cases, notably methane) and the future sequestration that would continue to
occur should the ecosystems not be converted to other uses. This analysis can also include the
other ecosystem services of these resources, which may be significantly greater than the Blue
Carbon benefits.
Generally speaking, projects that value the full range of Blue Carbon ecosystem services are
supported by governments and donors with broad socio-economic and environmental concerns.
Projects that are more strictly focused on developing carbon credits are developed by investors
motivated by positive financial returns and in some cases, a triple bottom line return that includes
socio-economic and environmental benefits.
Broader economic analysis is suited primarily to protecting existing Blue Carbon ecosystems from
conversion to other activities, whereas the more narrow financial analysis tends to focus on
restoration. This difference is due in large part to the fact that international Blue Carbon standards
and methodologies are only beginning to include avoided conversion of such ecosystems. In the
case of restoration projects the decision about whether to proceed or not is taken by the investors
who need to provide the initial capital and human resources, based on their expectations of a
financial return.
Financial analysis will need to account for the initial costs of project preparation and compliance
with the requirements, in addition to the legal and other fees incurred in formalizing commercial
agreements. These agreements typically cost more than U.S. $100,000 and require several years
to be completed. There are also on-going project management and verification costs that need to
be taken into account.
The financial analysis used to determine the feasibility of Blue Carbon restoration projects, tend to
be based on net present value (NPV) calculations. That is to say, those calculations that subtract
projects costs from the estimated benefits of an ecosystem, along with related calculations of the
internal rate of return (IRR) and or break-even analysis. Some of the analysis and calculations draw
from the experience of REDD and other forest carbon investments via an initial due diligence
process.
For most investors, the critical issues they seek to determine are the following:
1.
whether the project could meet the eligibility criteria of the carbon standards and
methodologies that they will use to obtain credits;
