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;

Building Blue Carbon Projects An Introductory Guide

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