In environmental policy, market-based instruments such as ‘cap and trade’ and ‘offsets’ use markets, price, and other economic variables to provide incentives for polluters to reduce or eliminate detrimental environmental emissions. These instruments have proven effective because they place a tangible value on the pollutant requiring abatement and can be a cost-effective method for achieving pollutant reductions, particularly resulting from negative externalities associated with profit-maximising enterprises. The most attractive characteristic of market-based instruments is that the incentives provide a vehicle for shifting pollution management effort to those areas that can make the largest net gain in reducing pollutant loads into the receiving environment at the lowest cost.
Market-based instruments are employed around the globe across a range of pollutants, most recently in the area of anthropogenic carbon emissions through a ‘cap and trade’ system. This system was adapted in Australia to a baseline and credit mechanism. Similar systems have also been implemented in several Australian states as a way of managing water quality pollution from point-source discharges and diffuse catchment pollution. Cap and trade systems through trading or approved offsets offer flexible options for licensed, point-source operators to meet their water emission discharge requirements in a more cost-effective way that maximises the ecological benefits and whole of catchment outcomes.
The use of offsets provides an avenue to reduce the overall cost of achieving a given emission target particularly when the cost of the offset is less than the cost of on-site mitigation. Emitters purchase credits supplied by offsets from approved abatement projects. In Australia, this is facilitated through the Emissions Reduction Fund (ERF). A by-product of the ERF is the potential for projects to deliver incentives and sustainability benefits beyond the offset objective through the development of technology, alternative income streams, biodiversity protection or restoration, and overall consumer behavioural change. To date, most offset projects in Australia have focused on terrestrial programs in vegetation such as reforestation and biodiversity conservation, agricultural stock management, savannah burning programs under approved ERF methodologies. The international community (including Indonesia, Cost Rica, Australia) is progressively interested in exploring offset project potential in coastal or marine ecosystems with key focus across coastal wetlands, mangroves, seagrass and seaweeds. So called ‘Blue Carbon’ (carbon captured by coastal and marine ecosystems) has been shown to have much greater carbon sequestration potential than terrestrial systems. However, considerable steps need to be taken in understanding and estimating the carbon storage potential in specific coastal ecosystems (in particular permanence) before such methodologies can be approved under these existing frameworks.
Similarly, interest is growing in the use of marine offsets for the treatment of nutrients, primarily nitrogen, attributed to point source pollution from sewage treatment plants and diffuse catchment pollution. The use of marine plants such as seaweed has been touted as one of the most effective biological means for treating nutrients. Seaweed has been used in aquaculture systems around the world as a biofilter to remove nitrogen from the aquatic environment. Seaweed is also grown extensively across the Indo-Pacific for the generation of food, gels and agricultural products, yet seaweed is not currently farmed in Australian coastal waters. As governments and industry look to more ecologically-balanced solutions for the management of waste streams, seaweed farming presents an opportunity for nutrient credits and/or offsets. This opportunity could be generated using existing aquaculture systems with the corresponding growth of a sustainable domestic industry with minimal waste generation.
Whilst offset projects are well regarded for creating additional environmental and socio-economic co-benefits[1], only one offset is typically recognised for consideration even if there are multiple offsets of potential financial value i.e. sustainable aquaculture farming that offsets both carbon and excessive nitrogen in water catchments. Whilst this is not unique to Blue Carbon, the quantification of carbon sequestration and permanent storage in coastal ecosystem is more challenging when compared to terrestrial environments and has subsequently slowed progress towards identifying and accepting Blue Carbon methodologies. The complex nature of the Blue Carbon concept, however, combined with the need to address growing water quality concerns in the shadow of booming coastal populations in Australia, has led to unprecedented collaboration across disciplines, where scientists, conservationists and policy makers have interacted intensely to advance shared goals and increase flexibility in approaches to sustainability and climate mitigation.
Whilst we demonstrate that there is both environmental and financial benefit in both carbon and nitrogen offset opportunities, we demonstrate that nitrogen offsets have an offset value twice that of carbon per tonne of harvest, and traceable environmental and economic benefit at the local and regional scales, and the potential for greater renumeration through an offset market mechanism. Irrespective of the aquaculture method (e.g. oysters or seaweed), the value of nitrogen (per tonne of seaweed) is twice that of carbon, based on existing nitrogen treatment costs (globally) and current carbon market prices. For example, with a carbon market price of AUD$12 per tonne, harvested seaweed (dry) and oysters (shells only) could attract additional revenue of between AUD$2.00-$3.00 and between AUD$1.44- $5.22 per tonne per harvest respectively through the sale of Australian Carbon Credit Units. Storage permanence and sequestration periods, however, remains an issue and further research needs to investigate the cradle to the grave carbon lifecycle to accurately quantify and track carbon sequestration. Nitrogen, on the other hand, at a current treatment cost of between AUD$10-40 per kg, has the potential to attract between AUD$50-200 per tonne of oysters and AUD$200-$800 per tonne of dried seaweed through trading nitrogen credits. In both circumstances the cost of production of seaweed and oysters remain similar, meaning that the relative financial value of the nitrogen offset could be substantially greater than the carbon offset.
Through this paper, we demonstrate an opportunity to integrate both nitrogen and carbon pollution management through sustainable aquaculture systems that would enable the growth and diversification of commercial products to traditional markets as well as the potential trading of nitrogen and carbon on offset markets. We consider the market-based mechanisms utilised for both carbon and nutrient pollution in Australia; the regulatory framework that facilitates them; the non-regulatory pathways and their incentives; the role of both the communities and business interests (suppliers and investors) at the opposite ends of the offset value chain across spatial scales; and the overarching benefits and constraints for combining carbon and nitrogen offset activities in coastal aquaculture.