Are China’s blue carbon credits a free pass to harm its oceans?

In March, a court in Xiangshan, Zhejiang province, sentenced two people to eight months in prison for fishing with prohibited gear during the closed season. Their trawl nets were confiscated, and they had to return the money earned and pay over CNY 56,000 (USD 7,700) in compensation for damaging ecosystem functions and fish stocks.

The judgement records that the defendants had already paid around CNY 19,000 (USD 2,600) of the compensation in the form of “blue carbon credits” supporting a commercial seaweed operation. Blue carbon refers to the carbon stored in oceanic and coastal ecosystems, and a credit usually represents a one-tonne net reduction in atmospheric CO2.

The Xiangshan case is one of China’s more recent legal cases involving blue carbon. The term “carbon credits” has appeared in a number of judgements concerning ecosystem damage since 2020, when China committed to its “dual carbon” goals of peaking emissions before 2030 and reaching carbon neutrality before 2060.

In 2021, China’s supreme court endorsed the purchase of forestry carbon credits as an alternative to paying compensation for damage to forest ecology. “Blue carbon justice”, however, is still mainly confined to the county- and municipal-level courts of coastal provinces and lacks a specialised legal basis. There is concern that the approach risks being overused, and that most of the credits being purchased involve the scientifically contentious matter of carbon sequestration by shellfish and seaweed.

Graphic: Ed Harrison / Dialogue Earth

Blue carbon controversy

In June 2021, arrangements were finalised for China’s first blue carbon trading project, involving mangrove afforestation in Zhanjiang, Guangdong province. Since then, Qingdao, Xiamen, Hainan and Ningbo have also been looking into market-based approaches to trading blue carbon. Some experts expect blue carbon to be incorporated into the national carbon market in due course, spurring the market’s development.

A precondition for such trading is that the carbon-sequestration capacity of an ecosystem can be accurately measured. In early 2023, the Ministry of Natural Resources introduced China’s first comprehensive accounting methodology for marine carbon sinks. It differs from mainstream methodologies used internationally in that, controversially, it includes shellfish and kelp in addition to mangroves, salt marshes and seagrass beds.

Dialogue Earth touched on the controversy over shellfish carbon sequestration in 2021. Shellfish fix carbon as they grow by absorbing CO2 dissolved in seawater and forming shells of calcium carbonate. However, CO2 is also released by shellfish during respiration and shell formation – hence the controversy.

Verra, the world’s largest verifier of carbon-credit projects, told Dialogue Earth that it did not include shellfish in its methodology for blue carbon because much of the literature points to shellfish farming as a net emitter of CO2. The US-based non-profit is awaiting more evidence on the carbon-sequestration capacity of kelp.

“We haven’t fully excluded kelp from consideration,” says Erdem Koch, Verra’s senior media relations manager. “However, to date, there is a lot of uncertainty from the scientific community on the long-term persistence of kelp carbon. Research seems to indicate that kelp has high turnover rates, and we are unlikely to credit kelp activities until there is more certainty about their net carbon benefits.”

No free pass

In China, legal cases involving blue carbon have increased since the marine carbon accounting standards were introduced, despite the controversy over the methodology.

Between July 2022 (when the first documented case connected with blue carbon came to court) and April 2024, there were at least 10 cases concerning either illegal fishing or the destruction of marine ecology in which offenders purchased blue carbon credits to fulfil a portion of their legal obligations. This is according to a Dialogue Earth survey of the China Judgements Online website and public media reports. Eight of those cases have occurred since 2023.

The type of blue carbon involved was only indicated in six of the 10 cases. In one case, it was a matter of replanting mangroves in a separate location. Offenders in the other five cases purchased carbon credits based on shellfish and seaweed mariculture.

The application of blue carbon justice is still largely confined to municipal- and county-level courts in coastal provinces. For the most part, local courts have determined the purchase of blue carbon credits to be a way for offenders to meet their legal obligations after damaging natural marine resources or the wider ecological environment.

The table above suggests blue carbon credits have not given offenders a free pass to damage the marine environment, because they are being paired with harsher punishments. Professor Liu Chao is dean of law at Huaqiao University. In an academic paper, he says sentencing an offender to purchase marine carbon credits as an alternative form of redress is an innovative approach within the discretionary powers of a court.

Cao Caidan is a partner at Yuanda China Law Offices in Shanghai. She tells Dialogue Earth that exploring the use of carbon credit purchases, rather than simply imposing criminal fines, is an improvement in judicial practice.

Dual carbon goals and local economic drivers

The growing interest in blue carbon within local levels of China’s legal system in the past two years is closely connected with the central government’s focus on its dual carbon goals.

The relevant legal provisions have come onto the agenda since those goals were announced. In an “Opinions” document released in 2021, the Party’s central committee and the State Council explicitly referenced the need for improved legislation and regulations relating to the dual carbon goals. At the beginning of 2023, China’s highest court issued its first regulatory instrument for the goals and published information on typical cases. This included two cases of illegal logging, in which the perpetrators were sentenced to restorative replanting and carbon credit purchases.

It is in this context that courts are using the purchase of blue carbon as a tool to protect fish stocks and the coastal environment, just as green carbon credits are used for other environments. As China’s recent blue carbon justice cases show, Fujian has been particularly active in this regard. Another element is the local economic development implicit in the use of blue carbon credits; mariculture, which plays a big part in the livelihood of coastal fishing communities, accounts for much of the blue carbon purchased in recent cases.

The Dongshan county prosecutor’s office chose Xiaxiken village as a “demonstration site for blue carbon justice in support of rural revitalisation”, according to Fujian Daily reports. A part of the city of Zhangzhou, the village is a key locality for cultivating shellfish and kelp, including red algae, oyster and abalone, all of which are regarded in China as blue carbon resources.

At the launch of this demonstration site in June 2023, two people convicted of marine environment endangerment signed a carbon credit agreement with Xiaxiken. Under the agreement, the offenders paid Xiaxikeng CNY 105,000 (USD 14,500) for 1,860 tonnes of marine carbon credits.

The newspaper described the case as the “first application of blue carbon justice in support of rural revitalisation” in Zhangzhou.

Carbon credits v direct restoration

In his aforementioned academic paper, Liu Chao asks: “Should the courts direct offenders to purchase carbon credits, in cases of illegal fishing for seafood and mining of sea sand, on the grounds that the damage to the marine environment cannot be fully remediated and the alternatives, such as stock enhancement or backfilling with sand, are impractical?” His implied answer is yes.

This prompts the question: what types of restorative and remedial action should be taken once damage has been done to the environment, and in what order? China’s 2022 regulations on compensation for environmental damage – jointly issued by the Ministry of Ecology and Environment and the supreme court – are clear about this. Direct restoration is the priority, with financial compensation or alternative forms of redress to be considered where direct restoration is not viable.

This order of prioritisation needs to be clear from the outset, notes Zheng Ping, a lecturer at the Shenyang Institute of Engineering. Zheng says direct restoration is particularly important in cases of serious environmental damage. Carbon trading can only be resorted to when direct restoration is not feasible or cannot provide a full remedy, and when other alternatives are impractical. Zheng also recommends “rectifying the way that people’s courts give direction when applying blue carbon justice, in the spirit of restorative justice.”

Cao Caidan says: “Purchasing carbon credits is essentially an alternative way of accepting liability for damage to the environment. In implementing justice, the liability for restoring ecosystem and environment is prioritised. Judges should first see if it is feasible to repair the damage rather than converting liability into a compensation figure. Damage such as a loss of ecosystem functions cannot always be quantified monetarily, so the priority must be to try and restore the environment.”

She adds: “Judges should only consider carbon credit purchases when the offender has exhausted other approaches and restoration is not possible … It must be the last resort.”

Liu Chao also warns the courts to “be careful not to liberally use carbon credits as a restoration alternative simply because it is innovative and convenient.”

Cao Caidan further notes the “environmental protection and ecology-first” principle is not usually the focus for judges in criminal cases involving damage to the environment:

“Putting environment and ecology first is the main principle of environmental protection law, but not of criminal law. The judge for judging criminal cases makes jurisdiction based on the fundamental values and interests protected by criminal law, such as human life, property, public safety, etc. In most cases of environmental crime, the main penalties include control, detention, fixed-term imprisonment. Civil liability is incidental and usually brings a fine. I think a case can be made for judges taking ‘ecology first’ into account when ruling on the incidental civil liability of perpetrators responsible for damaging the environment and ecosystem.”

Liu Chao argues that local-level courts are still experimenting with blue carbon justice mechanisms, and are copying each other’s approaches in various ways. What is lacking at present is a directly applicable legal foundation. He suggests the supreme court should issue an interpretation on the rules for blue carbon trading. This would serve as guidance on the use of marine carbon purchase credits in place of or supplemental to compensation for environmental damage.

On the issue of regulating and promoting the practice of marine carbon trading in ecological restoration by legislation, Cao Caidan notes legislation usually lags. She suggests that in due course, once there have been more cases involving blue carbon credits applied as a financial sanction, “the Ministry of Ecology and Environment and other ministries may make some refinements to the law and system, and the supreme court, for its part, could publish the relevant legal interpretation and information on typical cases.”