December 11, 2024
The blue economy, blue bonds, blue carbon—these terms have entered the popular discourse with force, often portrayed as the answer to both environmental challenges and economic growth. But behind the alluring names lies a critical issue: the lack of economic history and established basis for these environmental financial instruments.
Despite their potential, without a solid track record, many of these initiatives risk being dismissed as mere buzzwords rather than credible pathways toward sustainable development.
In this article, I explore why I still believe in the concept of the blue economy, the challenges of creating economic credibility for blue financial instruments, and the urgent need for more foundational research, real-world case studies, and risk assessments.
1. The Promises and Shortcomings of Blue Bonds
Blue bonds are similar in concept to green bonds, but instead of funding renewable energy or sustainable infrastructure, they’re meant to support marine projects—such as coral reef restoration, sustainable fisheries, and marine conservation. The first-ever blue bond was issued by the Seychelles in 2018, raising $15 million to support sustainable fisheries. But while the concept is inspiring, it has a few inherent challenges.
The Challenge: Blue bonds lack the economic history that green bonds have benefited from over the last two decades. Green bonds have had enough time to establish metrics, impact assessments, and repayment models. Conversely, blue bonds have yet to undergo the same economic testing, which makes their risk profiles difficult to assess.
Metric to Consider:
- Default Risk Assessment: Currently, blue bonds have no historical data to determine the rate of default or repayment success, making them harder for investors to assess compared to established financial products. According to the World Bank, there is not yet enough data to determine the average return on investment for blue bonds, making the market cautious.
Key Example: While the Seychelles’ issuance was successful, other countries have hesitated to follow suit due to uncertainties around how well marine projects translate to actual financial returns. The scaling of blue bonds requires establishing a robust history that investors can depend on.
2. Blue Carbon: Buzzword or Climate Savior?
Blue carbon refers to carbon stored in coastal ecosystems like mangroves, salt marshes, and seagrass beds. Conceptually, blue carbon credits offer a way for companies to offset emissions by supporting the conservation or restoration of these ecosystems. However, unlike forest-based carbon credits, blue carbon has a relatively short history and lacks the maturity required for the market to thrive.
The Economic Gap: Blue carbon projects often face challenges when it comes to monetization and scalability. Forest-based carbon markets have years of robust methodologies, certification standards, and regulatory frameworks. Meanwhile, blue carbon methodologies are still being developed, and many projects lack third-party verification that investors rely on to gauge risk and return.
Metric to Highlight:
- Market Size and Trading Volume: The global blue carbon market remains small, with an estimated valuation of $100 million in 2023 compared to the multi-billion-dollar forest carbon market. This lack of scale limits liquidity and discourages broader investment.
Key Example: The Mikoko Pamoja project in Kenya—one of the few functioning blue carbon projects—generates carbon credits through mangrove restoration, but the project is relatively small-scale. The slow pace of adoption and the difficulties in establishing certification protocols have made blue carbon less appealing to major investors compared to more established carbon projects.
3. The Blue Economy and the Buzzword Dilemma
The blue economy encompasses all economic activities related to the ocean, such as fisheries, aquaculture, tourism, and renewable marine energy. It promises both economic growth and sustainable ocean use, yet it’s often used as an aspirational term without a clear economic foundation.
What’s the Issue? The term “blue economy” is used frequently in international forums, conferences, and initiatives, yet the data behind it is still nascent. We know that the ocean economy could contribute $3 trillion annually by 2030, but we lack real, proven frameworks and business models that balance profitability with sustainability at scale.
Metric to Consider:
- Profitability Index of Blue Economy Projects: Many blue economy initiatives have no established profitability metrics, leaving investors wondering about their financial viability. According to a UNEP report, only about 15% of blue economy startups have reached profitability in their early years, highlighting a significant gap in credible economic data.
Example to Note: The Sustainable Ocean Alliance (@soalliance) supports startups focused on ocean health, yet most of these startups are still seeking long-term profitability and rely heavily on grants rather than proving consistent returns.
4. Outgrowing the Hubbub and Into Substance
So where do we go from here? Despite these shortcomings, I still believe in the blue economy, blue bonds, and blue carbon—because we need these concepts to protect our oceans and combat climate change. But belief isn’t enough—we need to strengthen the economic foundation of these concepts.
What Needs to Change?
- Building a Track Record: The success of green financial instruments was built on decades of data. We need sustained funding to build an equivalent history for blue financial products, enabling us to create robust risk and profitability models.
- Transparent Reporting: One of the biggest barriers to investment in blue financial products is a lack of transparency. Impact metrics need to be standardized, third-party verified, and made accessible to potential investors.
- Public-Private Partnerships: Governments should incentivize the private sector to invest in blue economy initiatives by offering guarantees, tax breaks, or subsidies, thereby reducing investor risk and building a foundation for growth.
Future Vision: For the blue economy to truly thrive, we need to create an ecosystem where innovative marine-based financial instruments are credible and economically sound. This means creating standardized metrics, building a clear risk-return profile, and offering incentives that balance risk for private investors.
A Call for Substance Over Hype
The ocean is the lifeblood of our planet, and the concepts of the blue economy, blue bonds, and blue carbon are crucial in fighting climate change and ensuring ocean health. But we can’t just coin new terms, slap a label on them, and hope they will catch on.
We need data, transparency, a long-term track record, and credible economic foundations to turn these buzzwords into powerful, actionable tools for a sustainable future.
To create meaningful change, the blue economy must evolve beyond aspiration. It needs evidence, economics, and impact.
Sources:
- OECD. “The Ocean Economy in 2030.”
- World Bank. “The Seychelles Blue Bond Initiative.”
- UNEP. “The Profitability of Blue Economy Startups.”
- Sustainable Ocean Alliance (@soalliance). “Supporting Startups for a Healthier Ocean.”
- Mikoko Pamoja Project. “Mangrove Restoration and Carbon Credits.”