The impacts of climate change – such as sea level rise, extreme weather patterns and warming oceans – are increasingly seen around the world, and, according to a report published in the International Union for Conservation of Nature, are threatening a third of the natural World Heritage sites.

One of the sites that is most affected is the Great Barrier Reef, on the eastern coast of Australia, the world’s largest collection of coral reefs, with 400 types of coral, 1,500 species of fish, and 4,000 types of molluscs.

UNESCO’s recent State of Conservation assessment highlighted that climate change remains the most serious threat for the Great Barrier Reef, with the ecosystem deteriorating from poor to very poor, despite commendable efforts by Australia to implement its Reef 2050 Long-term Sustainability Plan (Reef 2050 Plan). Mass coral bleaching events in 2016, 2017 and 2020 have been compounded by land-based run-off, coastal development and some direct human uses, with UNESCO calling for accelerated and urgent action to improve water quality through reduced sedimentation and nutrient loads.

The Australian Government and the state of Queensland are investing AUD 3 billion in the Reef 2050 Plan, including piloting market-based instruments to incentivise action by diverse stakeholders. The Queensland Government is supporting the scale-up of a Reef Credit Scheme – similar to carbon credits – to improve water quality flowing into the reef lagoon.

Credits for Coral

Reef Credits are tradeable units that quantify the work undertaken by landholders, particularly in the agriculture sector, to reduce pollutants entering the reef, without compromising the productivity of their land. These units represent an amount of dissolved inorganic nitrogen or fine sediment that is prevented from entering catchments, and are sold to government, the private sector, and philanthropists.

Due to the small size of fine sediment, it moves furthest into the marine environment, which leads to increased turbidity and reduced light availability.

An excess amount of nutrients, such as dissolved inorganic nitrogen, affects the natural balance of reef ecosystems and contributes to lower coral biodiversity, algal blooms, coral bleaching, and increased outbreaks of crown-of-thorns starfish which are toxic and prey on coral. Preventative measures include filling in gullies that have formed over the last century, particularly on grazing properties, and reducing fertiliser use in sugar and banana production.

The Queensland Government hopes that piloting and scaling the Reef Credit scheme will create a new environmental market where supply and demand will drive investment into improving and protecting the water quality of the Reef, with returns to producers.

These approaches are becoming more common; building on and learning from the growing success of carbon markets in helping companies, organisations and individuals reduce their emissions for both voluntary and non-voluntary compliance reasons towards the achievement of more ambitious climate targets. In 2020 alone, the total value of global traded volumes and carbon prices grew nearly 20 percent.

Credits are also being introduced to reward improved biodiversity and other ecosystem services, with higher premiums being paid for credits produced by projects that deliver co-benefits, such as other environmental, economic, social, and cultural impacts.

The emergence of these environmental markets and trends presents a significant opportunity for both suppliers and buyers, including options for stacking or bundling of different types of credits.

In that vein, Palladium is facilitating partnerships between governments, investors, landholders, civil society and communities to develop and participate in these nature-based solutions, such as working with UK National Parks to secure funding to restore its estate.

According to Jose Maria Ortiz, Palladium Managing Director of Impact Investment and Business Growth, these experiences serve to further highlight the importance of ensuring returns for all stakeholders involved – and this includes setting credit prices from the outset that are cost-reflective and commercial to attract a critical mass of participants to make individual projects and therefore the overall scheme viable.

In the early stages, this requires looking for partners who may not want to commit to large scale purchases but are willing to support early projects to send a signal to the market on prices that are sustainable for the whole ecosystem and provide proof of concept to new investors and purchasers alike.

“Our approaches harness our global experience in climate change adaptation and mitigation and natural resource management, combined with decades of working with sectors such as agriculture and forestry and leveraging public and private capital for innovative, catalytic solutions,” notes Ortiz.

“Importantly, we also draw on our experience of delivering positive economic and social impact for communities, including indigenous peoples around the world, to optimise the co-benefits of projects.”

But he says, this must be combined with a high level of certainty and transparency of the environmental benefits achieved, informed by proportionate measurement that provides confidence to buyers without being excessively onerous and costly for project developers.

Ortiz adds, “The benefits of credits can be significant, and they form a valuable part of an overall global effort to seek new and innovative ways to accelerate climate action and protect valuable assets like the world’s reefs.”

To learn more, contact info@thepalladiumgroup.com