Blue Economy and Blue Finance Web

BLUE ECONOMY
AND BLUE FINANCE

Toward Sustainable Development
and Ocean Governance
Edited by Peter J. Morgan, Michael C. Huang,

Michelle Voyer, Dominique Benzaken,
and Atsushi Watanabe
ASIAN DEVELOPMENT BANK INSTITUTE

Blue Economy
and Blue Finance
Toward Sustainable Development
and Ocean Governance
Edited by
Peter J. Morgan, Michael C. Huang,
Michelle Voyer, Dominique Benzaken,
and Atsushi Watanabe

© 2022 Asian Development Bank Institute
All rights reserved.
ISBN 978-4-89974-251-7 (Print)

ISBN 978-4-89974-252-4 (PDF)
DOI: https://doi.org/10.56506/HDLZ1912
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Contents
Tables and Figures v

Abbreviationsx
Contributorsxiii
Foreword 1 xvi
Foreword 2 xviii
Foreword 3 xx
1 Overview of the Blue Economy and Blue Finance 1
Michael Huang and Peter J. Morgan
PART I: Blue Finance

2 Approaches to Strengthening Fisheries Financing
and Institutional Mechanisms: A Cross-Country
Comparison of Cambodia, India, and Indonesia 11
Raghu Dharmapuri Tirumala and Piyush Tiwari
3 Tracking International Aid for Ocean Conservation
and Climate Action 43
Nagisa Shiiba, Miko Maekawa, Tibor Vegh, and John Virdina
4 The Blueness Index, Investment Choice,
and Portfolio Allocation 72
Muhammad Zubair Mumtaz and Zachary Alexander Smith
PART II: Blue Economy

5 Government Policy, Industrial Clusters, and the
Blue Economy in the People’s Republic of China:
A Case Study on the Shandong Peninsula
Blue Economic Zone 93
Zhihai Xie
6 Developing the Philippine Blue Economy: Opportunities
and Challenges in the Ocean Tourism Sector 115
Maria Angela G. Zafra
iii
iv Contents
7 Capitalizing on Co-Benefits and Synergies to Promote

the Blue Economy in Asia and the Pacific 150
Masanori Kobayashi, Atsushi Watanabe, Keita Furukawa,
Keshia N. Tingson, Yimnang Golbuu, and Cielito F. Habito
8 Addressing Marine Litter through Sustainable Tourism:
The Case of the Siargao Islands in the Southern Philippines 190
Kevin Roy B. Serrona, Jeongsoo Yu, and Mary Jean A. Camarin
PART III: Blue Economy-Related Industry

9 Offshore Wind Energy as an Emergent Ocean
Infrastructure in India: Mapping the Social
and Environmental Impacts 219
Gopal K. Sarangi
10 Sustainable Coastal and Maritime Tourism:
A Potential Blue Economy Avenue for Bangladesh 248
Md Wasiul Islam and Tapan Sarker
PART IV: Interdisciplinary Methodology

11 Building Back Better in Small Island Developing States
in the Pacific: Initial Insights from the Binary Constrained
Disaster Model of Disaster Risk Management Policy
Options in Fiji 291
Nepomuk Dunz, Hajime Tanaka, Nagisa Shiiba,
Junko Mochizuki, and Asjad Naqvi
12 Are Coastal Protective Hard Structures Still Applicable
with Respect to Shoreline Changes in Sri Lanka? 320
L.C.K. Abeykoon, E.P.D.N. Thilakarathne, A.P. Abeygunawardana,
T.W.S. Warnasuriya, and K.P.U.T. Egodauyana
Tables and Figures
Tables
2.1 Framework for the Comparative Analysis 19
2.2 Cambodia’s Fisheries Sector 21
2.3 India’s Fisheries Sector 24
2.4 Indonesia’s Fisheries Sector 25
2.5 Growth in Aquaculture Production 28
2.6 Growth of the Total Fisheries Capture 28
2.7 Fish and Fishery Product Exports in the Three Countries 29
2.8 Comparison of the Countries 32
3.1 Framework for Analysis of Public Financing of Ocean
Conservation and Climate Action 52
3.2 Search Terms 52
4.1 Terms of Blue Bonds 78
4.2 Descriptive Statistics 86
4.3 Results of the Panel Feasible Generalized
Least Square Estimator 87
5.1 Gross Domestic Product and Share of the
People’s Republic of China’s Marine Economy 98
5.2 Growth Rate of the People’s Republic of China’s
Marine Economy 99
5.3 Gross Domestic Product and Growth Rate of Major Marine
Industries in the People’s Republic of China, 2019 99
6.1 Estimated Ocean Resources of the Philippines 123
6.2 Summary of Ocean Health Index Scores for
the Philippines in 2018 124
6.3 Assessment of Ocean Tourism Products 126
6.4 Inbound Arrivals in Number of Trips, 2014–2019 127
6.5 Inbound Receipts by Type of Trip, 2014–2019 128
6.6 Cruise Transport Sales, Value, 2014–2019 129
6.7 Stakeholder Engagement for El Nido Resorts 135
7.1 Major Policy Thematic Measures in Japan’s Ocean Policy 156
8.1 Philippine Laws and Policies 196
8.2 Tourist Arrivals in Siargao Islands, 2016–2020 201
8.3 Tourist Arrivals vis-à-vis Solid Waste Generation
in the Siargao Islands, 2016–2020 201
8.4 Number of Tourism-Related Facilities
on the Siargao Islands, 2020 202
9.1 Cumulative Offshore Wind Installation
in Major Offshore Wind-Deploying Countries 224
v
vi Tables and Figures
9.2 Mapping of the Impacts and Gaps from the Key Policies
and Regulations Governing Offshore Wind Energy in India 231
9.3 Major Marine National Parks and Sanctuaries in India 236
9.4 Mapping of the Key Environmental Impacts 237
A10.1 Related Supporting Institutions (National) to Develop
and Promote Coastal and Maritime Tourism in Bangladesh 283
11.1 Basic Socioeconomic Characteristics of Fiji, 2019 294
11.2 Past Hydrometeorological Disasters 298
11.3 Cyclone Shock and Response Policy Simulation Scenarios 307
12.1 Approximate Spatial Resolution of the High-Resolution
Satellite Images from the Google Earth Platform 324
12.2 Coordinates of Ground Control Points Used
in Geometric Corrections 327
12.3 Regions with the Largest and Smallest End Point Rate
Changes in Each District of the Study Area 334
12.4 Comparison of the Data on Coastal Changes
(Average Values) in Each District by 2000 and 2019 337
12.5 Erosion and Accretion Percentage Data Comparison
in the Years 2000 and 2019 339
12.6 Summary of Shoreline Change Statistics 341
12.7 Maximum and Minimum Shoreline Change Statistics
for Selected Areas 341
12.8 Total Hard Structures in Kalutara, Colombo,
Gampaha, and Puttalam Districts 345
12.9 Data Comparison of Applied Hard Structures
in 1996 and 2019 346
12.10 Shoreline Changes in the Study Area with Respect
to Applied Hard Structures 348
Figures
2.1 Aquaculture Production in the Three Countries 27
2.2 Exports of Fish and Fishery Products in the Three Countries 29
2.3 Institutional Frameworks 31
3.1 Cumulative Number of Projects for Ocean Conservation
and Climate Action 55
3.2 Distribution of Projects for Ocean Conservation
and Climate Action, 2013–2019 55
3.3 Funding Trend, 2013–2019 56
3.4 Finance by Category, 2013–2019 57
3.5 Finance by Sustainable Development Goal Target, 2013–2019 57
3.6 Distribution of Funding for Ocean Conservation
and Climate Action, 2013–2019 58
Tables and Figures vii
4.1 Portfolio Allocation Considering the Blueness Index 83

4.2 Emission Taxation and the Utility Function 85
5.1 Makeup of Major Marine Industries in the
People’s Republic of China in 2019 100
6.1 International Tourism and Economic Development,
2000–2017117
6.2 Tourism’s Domestic Gross Value Added and
Gross Domestic Product at Current Prices, 2014–2018 118
6.3 Inbound Tourism Expenditure and Exports
at Current Prices, 2014–2018 119
6.4 Domestic Tourism Expenditure and Household Final
Consumption Expenditure at Current Prices, 2014–2018 120
6.5 Employment in Tourism Industry versus
Total Employment, 2014–2018 120
6.6 Blue Economy of the Philippines by Sector 122
6.7 Conceptual Framework for Analyzing Tourism
in the Blue Economy 132
6.8 Tourist Arrivals in El Nido 134
A6.1 Institutional Relationships in
the National Ecotourism Strategy 146
A6.2 Prioritization of Tourism Products in the Philippines 148
7.1 Socio-Ecological System Framework 154
7.2 Case Study Sites in Japan 158
7.3 Number of Tourists Visiting Taketomi Town
and Iriomote Island, 1989–2019 161
7.4 Oyster Production per Enterprise in Minamisanriku,
Miyagi, Japan, 2010 and 2017 163
7.5 Changes in Seagrass Cover at its Peak in Areas of Hinase,
1950s‒2015165
7.6 Long-Term Fishery Production in Okayama Prefecture,
1956–2015166
7.7 Oyster Production in Okayama Prefecture, 2003–2018 167
7.8 Prawn Aquaculture Production in Kumejima, Okinawa,
2008–2017170
7.9 Prawn Production in Okinawa, 2006–2017 170
7.10 Revegetation/Reforestation and Fisheries Production
in Erimo, 1953–2008 172
7.11 Kelp Production in Erimo, 1991–2018 172
7.12 Trend of Seawater Temperature in Eastern Hokkaido,
2018–2020173
7.13 Fisheries and Aquaculture Production of the Philippines,
2000–2018174
viii Tables and Figures
7.14 Fisheries and Aquaculture in Quezon Province, 2000–2019 174

7.15 Changes in Mangrove Cover and Brackish Water Fishponds
in the Philippines, 1970–1992 175
7.16 Changes in Mangrove Cover in the Philippines
and Quezon Province 176
7.17 Trends in the Top Five Numbers of Tourists
Visiting Palau, 2008–2019 178
7.18 Changes in Government Revenues, 2014–2019 179
7.19 Multifaceted Interface of Enabling and Intervening
Factors for the Sustainable Blue Economy 181
9.1 Compound Annual Growth Rate of Offshore Wind Energy 224
9.2 Schematic of the Institutional Mechanisms Governing
Offshore Wind Energy in India 228
10.1 Blue Economy Sectors of Bangladesh 254
10.2 Proposed Sustainable Coastal and Maritime
Tourism Framework 269
11.1 Exports and Imports, 2019 295
11.2 Share of Trade by Destination, 2020 296
11.3 BinD Model Flow Framework 303
11.4 Real GDP Recovery Trends 309
11.5 Private Consumption Recovery Trend 309
11.6 Capital Stock Recovery Trend 310
11.7 Foreign Debt Trajectory 310
11.8 Budget Deficit to GDP Trend 311
11.9 Public Spending Trajectory 311
12.1 Selected Ground Control Points from Bentota River,
Kalutara, to Modaragam-aru River, Puttalam 326
12.2 Generated Transect Lines from Baseline to Shoreline 328
12.3 Flow Chart Showing the Overall Methodology
the Study Adopted 330
12.4 End Point Rate of the Kalutara (A), Colombo (B),
Gampaha (C), and Puttalam (D) Districts,
and the Wilpattu Region (E) 332
12.5 Graphical Representation of the End Point Rate
of Each Selected Study Area 335
12.6 Average Rate of the Shoreline Changes
in Each Selected Study Area 336
12.7 Percentage of Erosion and Accretion
in Each Selected Area 338
12.8 Graphical Representation of the Shoreline
Change Envelope of Kalutara, Colombo, Gampaha,
and Puttalam Districts 340
Tables and Figures ix
12.9 Categorized Hard Structures in the Study Area 344

12.10 Total Hard Structures in the Western
and North Western Provinces 347
12.11 Coastal Development by Physical Alteration
of the Shoreline, 2000–2019 349
Abbreviations
ADB Asian Development Bank

AF Adaptation Fund
AfDB African Development Bank
ASC Aquaculture Stewardship Council
ASEAN Association of Southeast Asian Nations
BAU business as usual
BIMSTEC Bay of Bengal Initiative for Multi-Sectoral Technical
and Economic Cooperation
BinD binary constrained disaster
CBD Convention on Biological Diversity
CC Coast Conservation
CMEE China Marine Economy Expo
CMT coastal and maritime tourism
CO2 carbon dioxide
CODF China Oceanic Development Foundation
CRMD Coastal Resource Management Department of Sri Lanka
DENR Department of Environment and Natural Resources
DRM disaster risk management
EAMCP East Asia Marine Cooperation Platform
EBRD European Bank for Reconstruction and Development
EEZ exclusive economic zone
EIA environmental impact assessment
EPR end point rate
FiA Fisheries Administration
GCF Green Climate Fund
GCP ground control points
GDP gross domestic product
GEF Global Environment Facility
GHG greenhouse gas
GIS geographic information system
GoI Government of India
GOP gross ocean product
GPS global positioning system
GWEC Global Wind Energy Council
IDB Inter-American Development Bank
IIED International Institute for Environment and
Development
IPCC Intergovernmental Panel on Climate Change
x
Abbreviations xi
IPO initial public offering

ITA international tourist arrival
IUCN International Union for Conservation of Nature
KML Keyhole Markup Language
kW kilowatt
LDCF Least Developed Countries Fund
LGU local government unit
MAFF Ministry of Agriculture, Forestry, and Fisheries
MFFI Marine and Fisheries Financing Institution
MNRE Ministry of New and Renewable Energy
MoCAT Ministry of Civil Aviation and Tourism
MoEFCC Ministry of Environment, Forest and Climate Change
MoFA Ministry of Foreign Affairs
MOU memorandum of understanding
MPA marine protected area
MRF materials recovery facility
NDC nationally determined contribution
NELHA Natural Energy Laboratory of Hawaii Authority
NGO nongovernment organization
NIWE National Institute of Wind Energy
NOx nitrogen oxide
NSM net shoreline movement
NSWMC National Solid Waste Management Commission
NTDP National Tourism Development Plan
ODA official development aid
OECD Organisation for Economic Co-operation
and Development
OTEC ocean thermal energy conversion
PAMB Protected Area Management Board
PES payment for ecosystem services
PPE personal protective equipment
PPP public–private partnership
PRC People’s Republic of China
PRISMA Preferred Reporting Items for Systematic Reviews
and MetaAnalyses
SAARC South Asian Association for Regional Cooperation
SC scenario
SCCF Special Climate Change Fund
SCE shoreline change envelope
SD standard deviation
SDG Sustainable Development Goal
SIDS small island developing states
SIPLAS Siargao Islands Protected Landscape and Seascape
xii Abbreviations
SMEs small and medium-sized enterprises

SO2 sulfur dioxide
SP-BEZ Shandong Peninsula Blue Economic Zone
SWM solid waste management
TDGVA tourism’s domestic gross value added
UN United Nations
UNFCCC United Nations Framework Convention
on Climate Change
UNWTO United Nations World Tourism Organization
US United States
WTTC World Travel and Tourism Council
WWF World Wide Fund for Nature
Contributors
A.P. Abeygunawardana is a lecturer at the Faculty of Animal Science

and Export Agriculture of Uva Wellassa University, Badulla, Sri Lanka.
L.C.K. Abeykoon is a researcher at the Faculty of Animal Science and

Export Agriculture, Uva Wellassa University, Badulla, Sri Lanka.
Dominique Benzaken is a senior consultant with the Australian National

Centre for Ocean Resources and Security, University of Wollongong,
Australia.
Mary Jean A. Camarin is chief tourism operations officer at the

Department of Tourism, Caraga Region, Butuan City, Philippines.
Nepomuk Dunz is a junior professional officer at the World Bank,

Washington, DC, United States (US).
K.P.U.T. Egodauyana is a demonstrator at the Faculty of Animal Science

Keita Furukawa is president of the Association for Shore Environment

Creation, Yokohama, Kanagawa, Japan.
Yimnang Golbuu is chief executive officer of the Palau International

Coral Reef Center, Koror, Palau.
Cielito F. Habito is a professor emeritus at Ateneo de Manila University,

Quezon City, Philippines.
Michael C. Huang is a research fellow at the Ocean Policy Research

Institute, Sasakawa Peace Foundation, Japan.
Md Wasiul Islam is a professor at the Forestry and Wood Technology

Discipline of Khulna University, Bangladesh.
Masanori Kobayashi is a senior research fellow at the Ocean Policy

Research Institute of the Sasakawa Peace Foundation, Japan.
Miko Maekawa is a senior research fellow at the Ocean Policy Research

Institute of the Sasakawa Peace Foundation, Japan.
xiii
xiv Contributors
Junko Mochizuki is a disaster risk management specialist at the World

Bank, Washington, DC, US.
Peter Morgan is a senior consulting economist and advisor to the dean,

Asian Development Bank Institute, Japan.
Muhammad Zubair Mumtaz is an associate professor of finance at

the National University of Sciences and Technology, School of Social
Sciences and Humanities, Islamabad, Pakistan, and an associate
professor at the College of Business Administration, University of
Bahrain, Sakhir, Bahrain.
Asjad Naqvi is a research scholar at the International Institute for

Applied Systems Analysis, Austria.
Gopal K. Sarangi is an assistant professor at the TERI School of

Advanced Studies in New Delhi, India.
Tapan Sarker is a professor at the School of Business of the University

of Southern Queensland, Australia.
Kevin Roy B. Serrona is a solid waste planner at the Resource Recovery

Division of the Department of the Environment, Prince George’s County,
Largo, Maryland, US.
Nagisa Shiiba is a policy researcher at the Institute for Global

Environmental Strategies, Japan.
Zachary Alexander Smith is an assistant professor of economics and

finance at Saint Leo University, Tapia College of Business, Saint Leo,
Florida, US.
Hajime Tanaka is a research fellow at the Ocean Policy Research

Institute of the Sasakawa Peace Foundation, Japan.
E.P.D.N. Thilakarathne is a lecturer at the Faculty of Animal Science

Keshia N. Tingson is an assistant professor at the University of the

Philippines Los Baños, Laguna, Philippines.
Contributors xv
Raghu Dharmapuri Tirumala is a senior lecturer at the Faculty of

Architecture, Building, and Planning of the University of Melbourne,
Australia.
Piyush Tiwari is a professor of property at the Faculty of Architecture,

Building, and Planning of the University of Melbourne, Australia.
Tibor Vegh is a senior policy associate at the Ocean and Coastal Policy
Program, Nicholas Institute for Environmental Policy Solutions, Duke
University, US.
John Virdin is director of the Ocean and Coastal Policy Program,

Nicholas Institute for Environmental Policy Solutions, Duke University,
US.
Michelle Voyer is a senior research fellow with the Australian

National Centre for Ocean Resources and Security at the University of
Wollongong. Australia.
T.W.S. Warnasuriya is a lecturer at the Faculty of Fisheries and Ocean

Sciences, Ocean University of Sri Lanka, Tangalle, Sri Lanka.
Atsushi Watanabe is a senior research fellow at the Ocean Policy

Research Institute of the Sasakawa Peace Foundation, Japan.
Zhihai Xie is an associate professor at Kyoai Gakuen University, Japan.
Jeongsoo Yu is a professor at the Department of International

Environment and Resources Policy of the Graduate School of
International Cultural Studies, Tohoku University, Japan.
Maria Angela G. Zafra is executive director at the Strategia Development

Research Institute, Inc., Mandaluyong, Philippines.
Foreword 1
Covering more than 70% of the planet’s surface, 95% of the biosphere,
serving as home to many complex ecosystems, and producing half of
the planet’s oxygen, the ocean and its well-being are crucial to our
own well-being. Millions of people make their living from the ocean,
be it as a source of income or food, or as a way of life. And yet, we
have been mounting multiple threats to the ocean’s health through
anthropogenically driven climate change, acidification, warming,
overfishing, pollution, and the destruction of habitat and biodiversity.
Meanwhile, the coronavirus disease pandemic has undermined
global efforts to achieve sustainable development, including the
implementation of Sustainable Development Goal 14 to conserve and
sustainably use the ocean’s resources.
People increasingly view the sustainable blue economy as central to
the future of human security, including new sources of food, medicines,
and renewable energy. With the ocean providing powerful solutions
to global challenges, the influential work of the High Level Panel for
a Sustainable Ocean Economy has clearly demonstrated the need for
urgent actions to safeguard the ocean’s capacity to deliver substantive
economic, environmental, and social value.
The great region of Asia and the Pacific has a vital role to play
in the development of the sustainable blue economy. The region is
custodian to an immense ocean space and is home to rich and diverse
marine life and ecosystems. Many people in the region depend on
marine and coastal resources, and the sustainable use of marine and
coastal resources is a centerpiece of the region’s healthy sustenance
and prosperity. The Asian Development Bank is centrally placed in the
region to support governments and stakeholders as they pursue shared
policy goals of protecting the ocean’s health and achieving the resilient
ocean economies.
This book, Blue Economy and Blue Finance, serves to consolidate
regional expertise under the auspices of the Asian Development Bank
Institute to provide useful insights and guidance for regional governments
and stakeholders in the pursuit of sustainable ocean economies. I am
sure it will also serve as useful input for regional preparations for and
deliberations at global conferences regarding the ocean.
xvi
Foreword 1 xvii
I applaud the Asian Development Bank Institute and the Ocean

Policy Research Institute of the Sasakawa Peace Foundation for the
production of this timely publication. I recommend it to all readers who
share an interest in the development of the sustainable blue economy.
Peter Thomson
United Nations Secretary-General’s Special Envoy for the Ocean
Foreword 2
The ocean is confronting unprecedented crises, such as overfishing,

acidification, and marine debris, along with overwhelming human
activities. Its health and capacity for sustaining the ecosystem are likely
to decline if people do not become more aware of its misuse and take
appropriate conservation measures. If we want to address the most
defining issues of our time, such as climate change, food insecurity,
diseases and pandemics, diminishing biodiversity, economic inequality,
and even conflicts and strife, we must work toward a more resilient future
where humanity and oceans thrive together. At present, most of the ocean
remains unmapped, unexplored, and unknown. Our understanding of
the ocean and its contribution to sustainability relies considerably on our
commitment to conducting practical ocean science—through research
and sustained observation, supported by plausible infrastructures and
investments. The prosperity of our region depends on our endeavors to
create healthy oceans and achieve sustainable development.
In 2019, the Ocean Policy Research Institute of the Sasakawa Peace
Foundation kicked off a new research project, Blue Finance, with the
aim of contributing quantitative and evidence-based research and
policy dialogue for the blue economy—i.e., sustainable use of ocean
resources for economic growth, improved livelihoods, and jobs while
preserving the health of ocean ecosystems. Meanwhile, the Asian
Development Bank (ADB) launched the Action Plan for Healthy Oceans
and Sustainable Blue Economies for the Asia and Pacific region at the
52nd Annual Meeting of ADB’s Board of Governors in Fiji. The Asian
Development Bank Institute, based in Tokyo, Japan, thus constructed a
closer partnership to link academia with the public and private sectors
for a broader scope.
Since 2020, despite the coronavirus disease global pandemic, and
with the support of the Australian National Centre for Ocean Resources
and Security of the University of Wollongong and the Ocean Affairs
Council, we issued a call for papers on various issues of the blue
economy and blue finance. We received a great number of submissions,
indicating the tremendous amount of concern for ocean development
that exists around the world. We invited authors of the selected papers
to present at a virtual conference co-organized by four institutes.
The vibrant deliberation among experts and practitioners provided
constructive policy recommendations for better ocean governance and
xviii
Foreword 2 xix
implementation. We believe this book’s abundant content will motivate

researchers and policy makers, fostering in-depth inspiration toward
ocean governance and sustainable development.
With the ocean, we build back better and build back bluer!
Hide Sakaguchi
President, Ocean Policy Research Institute
Sasakawa Peace Foundation
Foreword 3
Working in the environmental financing sector for more than 20 years,

I have witnessed a remarkable growth in the attention given to climate
change issues and reinforcement of the global framework addressing
them. In 2021, 197 countries adopted the Glasgow Climate Pact to turn
the 2020s into a decade of climate action and support. This commitment
is encouraging but far from enough because disparity in commitment
and holistic participation still exists, especially from ocean-related
sectors requiring substantial input of cutting-edge technology.
For all climate change issues, we believe the answers are to be found
in the ocean. According to the report released by the Intergovernmental
Panel on Climate Change of the United Nations in 2022, the ocean
absorbs almost a third of emitted carbon dioxide and 90% of excess
heat, and we may be nearing a tipping point with the world’s oceans.
Moreover, the levels of ocean acidification, ocean warming, and
deoxygenation threaten biodiversity and ecosystems so that the ocean
and its biodiversity is coming to be seen as a critical facet of climate policy.
These complex issues require greater collaboration from academia,
research institutes, and government, and implementation must involve
private sector stakeholders. While the 2021 United Nations Climate
Change Conference (COP26) highlighted finance for climate adaptation,
transparency, and reporting, to mobilize investment for environmental
conservation and ocean-related industry will require evidence-based
research to identify the risk and sustainability projections.
Undoubtedly, the development of the blue economy provides an
opportunity for industry, community, and government in coastal and
island states to consolidate their partnerships, as blue finance could
accelerate the implementation more inclusively. Regarding blue finance,
trackable process and assessment are the most critical considerations
for multinational development banks and public and private financial
institutions to set environmental, social, and governance investment
criteria. The global environment funds are also ready to support these
projects if they have quantifiable social and environmental impacts.
From the perspective of a financial strategist for sustainability,
this book Blue Economy and Blue Finance covers an impressive scope
because it includes emerging market countries and small island
developing states. It provides an exceptional introduction to timely
ocean issues such as fisheries, conservation, tourism, renewable energy,
waste management, and financial schemes in Asia and the Pacific.
xx
Foreword 3 xxi
The comprehensive discussion on these topics enables readers and

policy makers to grasp the critical arguments and policy implications
collectively. More importantly, the authors conducted the empirical
studies and field investigations with sufficient academic rigor, making
the research results robust, with applicable and replicable approaches
for other regions.
I offer heartfelt praise for bringing this publication to fruition
during this challenging time of the coronavirus disease global pandemic.
I can state with confidence that the insights provided in this book will
shed light on the sustainable development of the ocean and a resilient
blue recovery.
Mari Yoshitaka
Principal Sustainability Strategist
Mitsubishi UFJ Research and Consulting
1
Overview of the Blue Economy
and Blue Finance
Michael Huang and Peter J. Morgan
Billions of people in Asia and the Pacific depend on healthy oceans for
their livelihoods, food security, health, and recreation. However, the
impacts of climate change, marine pollution, unsustainable fishing, and
rapid, unsustainable coastal development increasingly threaten these
ecosystems, jeopardizing the region’s small island nations and other
developing coastal economies.
At the same time, the blue economy has become increasingly common
in public discourse and the popular imagination, along with better
understanding of the nature of human relationships with the ocean.
This is reflected in the increasing number of publications addressing this
area. According to the World Bank (2017: vi), the blue economy is “the
range of economic sectors and related policies that together determine
whether the use of oceanic resources is sustainable.” Whisnant and
Reyes (2015: 6) define the blue economy as “the set of environmentally
and socially sustainable commercial activities, products, services and
investments dependent on and impacting coastal and marine resources.”
The Organisation for Economic Co-operation and Development (2019)
focuses on assessing the crucial role of innovative approaches for a
sustainable ocean economy and argues that science and technology will
enable economic growth and preservation of ecosystems in the blue
economy. The Economist Intelligence Unit (2015: 5) also emphasizes
the “industrialization” effect in the blue economy and argues that
“alongside established ocean industries, emerging and new activities—
offshore renewable energy, aquaculture, deep seabed mining and marine
biotechnology are often cited—will bring new opportunities, growth and
greater diversity to the ocean economy.” Blue finance, as an offshoot of
green finance, describes the frameworks to support the financing of
sustainable ocean-related projects. See the Asian Development Bank
(2021) for a very recent discussion of these issues.
The concepts of blue economy and blue finance are reflected in the
2030 Agenda for Sustainable Development (the 2030 Agenda), a set
1
2 Blue Economy and Blue Finance: Toward Sustainable Development and Ocean Governance
of international development goals from 2016 to 2030, adopted by the

United Nations Sustainable Development Summit in 2015. The 2030
Agenda highlighted the Sustainable Development Goals (SDGs), which
consist of 17 goals to eradicate poverty and realize a sustainable world.
The SDGs are universal goals applicable to all countries. Goal 14—Life
Below Water—calls for a healthy and sustainable manner of using marine
resources which maintains the ecosystem while enabling economic
development.
This book addresses crucial and timely issues related to promoting
sustainable ocean and coastal development and management in Asia
and the Pacific with evidence-based approaches. To tackle these ocean-
related issues with intensive discussion among public and private
stakeholders and academia, the Australian National Centre for Ocean
Resources and Security of the University of Wollongong, the Ocean
Policy Research Institute of the Sasakawa Peace Foundation, the
Ocean Affairs Council, and the Asian Development Bank Institute
cohosted an international conference in November 2020. The chapters
of this book, first presented at the conference, include analyses of
Bangladesh, Cambodia, the People’s Republic of China, Fiji, India,
Indonesia, Japan, the Philippines, and Sri Lanka.
The book focuses on the blue economy and blue finance, including
issues related to governance, planning, sectoral management, and
risk management. Topics include innovative ocean financing schemes
and strategies for mitigating the impacts of climate change and
unsustainable practices on communities that rely on a healthy ocean and
coastal ecosystems. The book is divided into four sections: blue finance
(chapters 2–4), blue economy (chapters 5–8), blue economy–related
industry (chapters 9–10), and interdisciplinary studies (chapters 11–12).
In Chapter 2: Approaches to Strengthening Fisheries Financing
and Institutional Mechanisms: A Cross-Country Comparison of
Cambodia, India, and Indonesia, Raghu Dharmapuri Tirumala and
Piyush Tiwari conduct a comparative analysis to identify similarities,
differences, and emerging patterns of financing frameworks across
Cambodia, India, and Indonesia. Their analysis indicates that an
institutional design with a specific focus on the fisheries sector
that promotes constructive collaborations among diverse financing
institutions and community organizations can support sustainable
development of this sector of the blue economy.
To trace the flow of the public funding for the blue economy
for ocean conservation and other climate change adaptation and
mitigation measures, in Chapter 3: Tracking International Aid
for Ocean Conservation and Climate Action, Nagisa Shiiba, Miko
Maekawa, Tibor Vegh, and John Virdin produce a comprehensive
Overview of the Blue Economy and Blue Finance 3
baseline of international fund flows by identifying relevant global

goals and targets. By building upon recent efforts that have established
a baseline for international institutions operating at the global level,
they estimate that cumulative public financing for ocean conservation
and climate action has grown from $579 million to $3.5 billion between
2013 and 2019.
Since ocean-related firms will issue blue financial instruments
to obtain funds and take necessary measures to make the ocean
environment healthier, the measurement of the blueness of a firm or a
blueness index has become desirable. In Chapter 4: The Blueness Index,
Investment Choice, and Portfolio Allocation, Muhammad Zubair
Mumtaz and Zachary Alexander Smith estimate the investor’s portfolio
utility function by incorporating a blueness factor using greenhouse
gas emissions as a percentage of sales. Their results suggest a positive
relationship between the blueness proxy and optimal investment
allocation. If firms have a low level of blueness, they are likely to face
higher levels of environment-related taxation, which would reduce
the portfolio allocation to them. The authors also examine factors that
determine stock returns and find a positive association between the
blueness of a firm and its stock returns. This suggests that firms that
are relatively “bluer” may be more attractive to investors in light of the
public’s preference for sustainable investments, thereby leading them to
outperform other firms.
The blue economy has become increasingly important for countries
to generate new growth sources while maintaining environmental
stability. In Chapter 5: Government Policy, Industrial Clusters, and the
Blue Economy in the People’s Republic of China: A Case Study on the
Shandong Peninsula Blue Economic Zone, Zhihai Xie introduces
the blue economy development program of the People’s Republic of
China (PRC) and its transformative change over the last decade. He
argues that government policy and industrial clusters are the two most
important factors that contribute to the development of the PRC’s
blue economy and uses the Shandong Peninsula Blue Economic Zone
(SP-BEZ) as a case study. To promote the development of the blue
economy in the SP-BEZ, the government has used the Shandong
Peninsula’s industrial competitive advantages to redistribute and
restructure industries in the region. The SP-BEZ has formed industrial
clusters supported by its strengths in scientific and technological research
and the development of the blue economy. These industrial clusters have
integrated a wide range of industries and help promote domestic regional
economic integration in the Shandong Peninsula.
Ocean tourism significantly contributes to the economy of the
Philippines, an archipelagic nation with one of the longest coastlines
in the world and one of the richest marine environments in terms of

biodiversity. In Chapter 6: Developing the Philippine Blue Economy:
Opportunities and Challenges in the Ocean Tourism Sector, Maria
Angela G. Zafra explores how ocean tourism and economic development
are intertwined in archipelagic nations, based on an analysis of statistical
data on tourism and economic development in the Philippines over the
last several years. The author describes in detail the policy landscape of
enabling and disabling factors for the development of ocean tourism in
the Philippines. She also describes how inclusive models can be a catalyst
for sustainable tourism through a case analysis of El Nido Resorts, a
tourism enterprise operating luxury resorts within the protected area
of El Nido, Palawan.
The blue economy has become a pivotal policy objective to promote
sustainable development through conservation and sustainable use of
marine and coastal resources. Some lessons can be drawn from case
studies of successful endeavors such as the need for a sound policy
framework, multi-stakeholder and cross-sectoral collaboration, and
innovation and science-based policy development and implementation.
In Chapter 7: Capitalizing on Co-benefits and Synergies to Promote
the Blue Economy in Asia and the Pacific, Masanori Kobayashi,
Atsushi Watanabe, Keita Furukawa, Keshia N. Tingson, Yimnang
Golbuu, and Cielito F. Habito recommend approaches that promote
co-benefits and synergies that are useful in multiplying benefits for a
wide range of stakeholders. In the analysis, market disruption, changes
in the marine environment, and marine debris are some areas requiring
a range of approaches to resolve challenges. Capacity development
and international partnerships are indispensable to promote the blue
economy and scale up such concepts. Research institutes can provide
policy options and courses of action to assess the resources locally
available and pursue co-benefits and synergies through conservation
and sustainable use of marine and coastal resources toward achieving a
sustainable blue economy.
Marine litter seriously affects the Philippines, partly due to the
country’s strategic location on regional trade routes. In Chapter 8:
Addressing Marine Litter through Sustainable Tourism: The Case of
the Siargao Islands in the Southern Philippines, Kevin Roy B. Serrona,
Jeongsoo Yu, and Mary Jean A. Camarin explore ways to reduce marine
litter in tourism destinations like Siargao through circular economy
interventions. Innovative legislation and policies, capacity building,
deposit–refund systems, technology innovations, and community-based
approaches to minimize, capture, and process marine litter are some of
the critical areas that need to be tackled to contribute to global practices
on sustainable tourism in island economies.
Renewable energy from the ocean is expected to be one of the

world’s major power supplies, and offshore wind energy has potential
as an alternative energy source in India. In Chapter 9: Offshore Wind
Energy as an Emergent Ocean Infrastructure in India: Mapping and
Measuring Social and Environmental Challenges, Gopal K Sarangi
conducts detailed assessments of policy and institutional mechanisms
governing the development of offshore wind energy in the country
and identifies the possible environmental and social impacts of such
projects on India’s marine environment and livelihoods in the fisheries
sector. He finds that significant gaps exist in policies and regulations.
Moreover, impact mapping shows that India’s offshore wind projects
could adversely impact the marine ecosystem and marine biodiversity,
and he recommends that countries must take necessary preparatory
measures before project implementation.
Coastal and maritime tourism could play a significant role in
realizing the potential of the blue economy given the strategic location
of Bangladesh on the Bay of Bengal. In Chapter 10: Sustainable
Coastal and Maritime Tourism: A Potential Blue Economy
Avenue for Bangladesh, Md. Wasiul Islam and Tapan Sarker investigate
the coastal and marine zones of Bangladesh from sociocultural,
economic, environmental, and institutional perspectives. This chapter
examines the institutions supporting sustainable coastal and maritime
tourism and gives recommendations for policy guidelines on how
development could influence the blue economy, poverty reduction
through new job creation, biodiversity conservation, environmental
pollution control, and promotion of the sustainable use of coastal and
marine natural resources.
Building resilience to disasters continues to pose challenges for
developing countries. Historically, small island developing states
(SIDS) in the Pacific Ocean have suffered from multiple hazards,
such as earthquakes, tsunamis, coastal erosion, floods, and cyclones.
Population increase, uneven progress in socioeconomic development,
and environmental degradation, including climate change, have
exacerbated their vulnerability to disasters. The outbreak of the
coronavirus disease global pandemic in 2020 showed how the small,
remote, and less-diversified economies of SIDS are particularly prone
to additional external shocks. In Chapter 11: Building Back Better in
Small Island Developing States in the Pacific: Initial Insights from
the BinD Model of Disaster Risk Management Policy Options in Fiji,
Nepomuk Dunz, Hajime Tanaka, Nagisa Shiiba, Junko Mochizuki, and
Asjad Naqvi provide insights into the interaction of alternative disaster
risk management policies in the presence of additional demand-
side constraints evaluated through the recently developed binary
constrained disaster (BinD) model. The modeling results show that a

targeted increase of government spending in times of crisis could be
beneficial for the economic recovery of Fiji. However, financing options
have short-term trade-offs. Debt-financed recovery allows a faster
and less painful recovery but requires quick and preferential access to
foreign borrowing, while tax-financed recovery can substitute for short-
term foreign borrowing needs but can have more detrimental impacts
on gross domestic product and private sector consumption.
Monitoring the changes in coastlines has been the subject of great
concern in recent years. In Sri Lanka, the western and northwestern
coasts are economically significant but have highly dynamic natures. In
Chapter 12: Are Coastal Protective Hard Structures Still Applicable
with Respect to Shoreline Changes in Sri Lanka?, L.C.K. Abeykoon,
E.P.D.N. Thilakarathne, A.P. Abeygunawardana, T.W.S. Warnasuriya,
and K.P.U.T. Egodauyana use satellite images from the Google Earth
platform to analyze the changes occurring in the coastal zone during the
period 2005–2019 on the western and northwestern provincial coasts
of Sri Lanka. The results reveal an increase over the past 15 years in the
average coastal erosion rates, caused, paradoxically, by the construction
of hard structures to mitigate the effects of coastal erosion. Due to mega-
development projects, the western province has applied more hard
structures at a higher rate than the northwestern province. Overall,
anthropogenic activities are affecting coastal erosion in that area more
than natural or global factors, and the constructed hard structures show
little capability to control erosion.
The findings in these chapters provide comprehensive information
and policy implications on various blue economy and blue finance
issues, which can significantly contribute to the Asian Development
Bank’s Action Plan for Healthy Oceans 2019–2024 (ADB 2019a) and the
Oceans Financing Initiative (ADB 2019b) to support the blue economy.
The intent of these chapter topics is to find inclusive and effective
policy measures to promote the blue economy for sustainable
development while taking into account the perspective of climate
change. The topics reemphasize the ocean agenda set by the United
Nations Development Programme and advocate collaboration for
creating financing instruments, as exemplified by the experience of
establishing platforms among private sectors and nongovernment
organizations for ocean plastic debris management. We trust that policy
makers, academics, and think tank researchers will find this research
useful.
References
ADB (Asian Development Bank). 2019a. Action Plan for Healthy Oceans.
Manila: Asian Development Bank. https://www.adb.org/sites
/default/files/am-content/484066/action-plan-flyer-20190430.pdf
____. 2019b. ADB Oceans Financing Initiative: Accelerating Blue
Investments in Asia and the Pacific. Manila: Asian Development
Bank. https://www.adb.org/sites/default/files/related/145041
/Oceans%20Financing%20Initiative.pdf
____. 2021. Financing the Ocean Back to Health in Southeast Asia:
Approaches for Mainstreaming Blue Finance. Manila: Asian
Development Bank. https://www.adb.org/sites/default/files
/publication/756686/financing-ocean-health-southeast-asia.pdf
Economist Intelligence Unit. 2015. The Blue Economy: Growth,
Opportunity and a Sustainable Ocean Economy. Briefing Paper for
the World Ocean Summit. London: The Economist Intelligence
Unit.
Organisation for Economic Co-operation and Development (OECD).
2019. Rethinking Innovation for a Sustainable Ocean Economy. Paris:
OECD Publishing. https://doi.org/10.1787/9789264311053-en
Whisnant, R., and A. Reyes. 2015. Blue Economy for Business in East Asia:
Towards an Integrated Understanding of Blue Economy. Quezon City,
Philippines: Partnerships in Environmental Management for the
Seas of East Asia (PEMSEA).
World Bank and United Nations Department of Economic and Social
Affairs. 2017. The Potential of the Blue Economy: Increasing Long-term
Benefits of the Sustainable Use of Marine Resources for Small Island
Developing States and Coastal Least Developed Countries. Washington,
DC: World Bank. https://openknowledge.worldbank.org/bitstream
/handle/10986/26843/115545.pdf?sequence=1&isAllowed=y
PART I
Blue Finance
2
Approaches to Strengthening
Fisheries Financing and
Institutional Mechanisms:
A Cross-Country Comparison of
Cambodia, India, and Indonesia
Raghu Dharmapuri Tirumala and Piyush Tiwari
2.1 Introduction
Using marine resources in a healthy and sustainable manner is at
the center of building a blue economy that will make Sustainable
Development Goal 14, Life Below Water, achievable. Fisheries and related
industries constitute an important component of the blue economy
(World Bank 2017). Fisheries and other coastal, marine resources and
industries have an estimated market value of $3 trillion to $5 trillion,
approximately 5% of the global gross domestic product (FAO 2016). In
2018, the estimated global fish production was 179 million tons (FAO
2020b), its highest peak, representing a rise of over 120% since 1990.
The global aquaculture production experienced even higher growth of
527% from 1990 to 2018. While the extent of aquaculture development
differs across and within geographical regions, the People’s Republic of
China (PRC) (47.6 million tons), India (7.1 million tons), and Indonesia
(5.4 million tons) dominated the production between 2003 and 2018
(FAO 2020b). According to the estimates of the Food and Agriculture
Organization (FAO), about 60 million people work in the fisheries sector
globally, of whom more than 83% are in Asia (FAO 2020b). The FAO has
stated that Asia will continue to dominate the aquaculture sector and
expand its share to more than 89% of global production by 2030. There
is increasing international recognition of developing blue economy
11
principles through agencies such as the World Wide Fund for Nature,
United Nations Development Programme, United Nations Environment
Programme, Asian Development Bank (ADB), and World Bank. Agencies
have developed several tools and guidance documents at the global
level to help countries transition to blue economies. They based many
of these tools on the FAO’s Code of Conduct for Responsible Fisheries,
which more than 170 member countries drafted and adopted, and which
focused on nutritional, economic, social, environmental, and cultural
aspects. Worldwide, efforts are aiming to ensure positive outcomes
for different blue economy–related projects. The blue economy can
substantially improve people’s income and livelihood; the sector has the
potential to create 100 million jobs by 2030 (PEMSEA n.d.), particularly
in Asian countries such as Bangladesh (Hasan et al. 2018) and India
(Pranathi and Gonchkar 2019). Projects like Mozambique’s Mais Peixe
Sustentável aim to reduce rural poverty through investments in the
fisheries sector. In contrast, India’s mapping of the “hazard line” of
the coastline intends to improve the management of coastal spaces and
minimize vulnerabilities through the protection of shorelines and land
use plans.
Despite the importance of the ocean economy, ongoing human
activities that pollute water bodies are negatively affecting the health
of the oceans at an alarming pace. A combination of factors, including
indiscriminate dumping of waste, plastics in the oceans, unsustainable
fishing, unregulated coastal redevelopment, and climate change, are
harming the quantity and quality of the fish produce. The discharging
of untreated effluents from land into water bodies, fishing above the
sustainable levels, and steady damage to the habitat have resulted in
a noticeable reduction in the health of oceans (Halpern et al. 2008;
Cohen et al. 2019), thereby affecting the livelihood and food security of
communities that depend on fishing and exerting a negative impact on
the world economy (Hertel 2016; FAO et al. 2018). The decline in the
percentage of fish stocks within biologically sustainable levels—from
90% in 1974 to 65.8% in 2017—is a disturbing trend (World Bank 2020).
There is an increasing global consensus that continued overfishing will
significantly affect the food security and the livelihoods of vulnerable
people in the future. The seafood industry, which provides nutrition
and livelihoods to millions of people across the globe, is facing a serious
threat from declining fish stocks and degrading ocean habitats. Failure
to adopt adequate and timely measures regarding sustainable ocean
resource mining and the protection of ocean biodiversity could threaten
food security and livelihood opportunities.
According to the estimate of the International Institute for
Environment and Development (IIED), restoring the depleting fisheries
Approaches to Strengthening Fisheries Financing and Institutional Mechanisms:
A Cross-Country Comparison of Cambodia, India, and Indonesia 13
sector globally would require more than $200 billion (IIED 2020).
Governments’ common fiscal policy tools, such as taxes, subsidies,
and budgetary allocations, are unlikely to be adequate to meet the vast
financing needs. These resources must be augmented by attracting
private capital to bridge the financing gap and support the transition
to blue economies. On the other hand, there is growing interest in the
private sector in financing marine conservation and blue economy
initiatives that need leveraging. The Meloy Fund and Althelia Sustainable
Ocean Fund provide evidence of the role that private financing can
play in supporting the growth of the blue economy and improving
the livelihoods of local communities. Much of the success of these
financing instruments will depend on the supporting frameworks that
governments will create. The availability of appropriate institutional
mechanisms and statutory support will incentivize the private sector
to participate in fisheries and aquaculture sectors and other sustainable
ocean-related economic activities (Yoshioka et al. 2020).
Recognizing this gap and enabling the transition to sustainable blue
economies, many countries in the recent past have announced different
institutional and financing mechanisms to promote private capital
and commit public resources through budgetary allocations. Hence,
the question arises: What should be the features of an institutional
and financing mechanism that supports sustainable fisheries sector
development? Achieving the goals that countries set for themselves
would mean moving beyond the operational contours and adopting
a comprehensive approach comprising institutional structures,
governance, financing mechanisms, community engagement, and
stakeholder buy-in (Tirrell 2017).
The research described in this chapter attempted to find an answer
to the above question due to its relevance to many developing nations
as they gear up to meet the targets that the sustainable development
goals have set. The objective of this research was to study the different
responses to the changing blue economy sectors, with particular
reference to fisheries, and to investigate the features of an institutional
and financing mechanism that promotes sustainable fisheries sector
development. The research also investigated whether these financing
structures enable private sector capital flows that can aid the transition
to sustainable and inclusive blue economies.
About 25% of the world’s fish production comes from 10 countries
in the Association of Southeast Asian Nations (ASEAN) region (Invest in
ASEAN 2020). Indonesia is the largest producer of seafood in Southeast
Asia and ranks second globally, after the PRC. In 2018, fisheries
contributed 2.58% of Indonesia’s gross domestic product (GDP),
approximately $26.9 billion (FAO 2020b). The Nature Conservancy
(2020) estimates that the fisheries industry employs about 12 million

people. Cambodia, also an ASEAN member country, is known for its
rich biodiversity and fishery resources owing to the Mekong River.
The country is also home to Tonle Sap, the largest freshwater lake in
Southeast Asia and a rich fishing ground. The fisheries sector contributes
about 17.08% of the country’s GDP, employing about 2 million people
(RGC 2010; FAO 2020b). Globally, India ranks third in fish production
and second in aquaculture. The fisheries sector, which employs over
145 million people in India, accounts for about 1.07% of the country’s
GDP (GoI 2020). These countries vary in size and natural resources
but are committed to improving their blue economy prospects. Though
the approaches that the three countries have taken to build their blue
economies are different, the overarching Sustainable Development
Goals (SDGs) are at the very core of all their development efforts.
This chapter presents a comparative analysis of the institutional
and funding mechanisms of three countries—Cambodia, India, and
Indonesia—to gain a better understanding of how they are addressing
the finance gap in the fisheries sector. We conducted a literature
review to create a framework within which to undertake the country
comparison. This identified various elements that provide a perspective
on the institutional and financial mechanisms. Next, we collected
information about fisheries and financing in the three countries from
their governments and other published sources and then analyzed the
information using the comparative framework to identify the countries’
similarities, differences, and uniqueness. They drew policy implications
from the findings, providing pointers to shape a broader regional
approach.
This chapter focuses on the institutional and financial strategies that
the three countries are proposing to adopt rather than specific technical
practices. Section 2.2 presents a review of the literature. Section 2.3 sets
out the methodology for comparing the approaches that the countries
have adopted. Section 2.4 outlines the backdrop of the fisheries sector
with a focus on the financing and institutional structures of Cambodia,
India, and Indonesia. Section 2.5 discusses the comparison of these
structures. Section 2.6 presents the policy implications, and the chapter
concludes in Section 2.7 by synthesizing the findings of this comparative
analysis and lessons for their adoption for sustainable financing.
2.2 Review of the Literature

The discourse and research on the blue economy have ranged from
determining what constitutes the blue economy (Keen, Schwarz,
and Wini-Simeon 2018; World Bank 2017) to identifying the various
components that comprise this sector and its functional sustenance

(Patil et al. 2016; Smith-Godfrey 2016; Bhattacharya and Dash 2020).
The fisheries sector is an important component of the blue economy,
contributing more than $270 billion per year to the global GDP (World
Bank 2020) and indirect benefits of approximately $2.5 trillion per
year to humankind (Hoegh-Guldberg et al. 2015). The potential for job
creation in the blue economy and the fisheries sector has been a subject
of interest to researchers (Teh and Sumaila 2013; Vyshnavi and Rao
2017; Cai, Huang, and Leung 2019).
A survey of institutional investors globally indicate that nearly 90%
of them are keen to consider blue economy projects to promote SDG 14
and the associated financial benefits (Credit Suisse 2020). However, the
scale of investments that they have deployed in the ocean economy so far
has been limited (Vanderklift et al. 2019), and the multilateral/bilateral
assistance for the marine sector decreased by about 30% during the
period 2010 to 2015 (Blasiak and Wabnitz 2018). A review of countries’
nationally determined contributions and voluntary commitments
showed that approximately 70% are marine related (Gallo, Victor, and
Levin 2017), but the prominence attached to SDG 14 is relatively minor
(Singh et al. 2018). This reflects the shortfalls in conservation funding
across the world (Bos, Pressey, and Stoeckl 2015), in part due to these
sectors’ dependence on the quantification of economic benefits (Fujita
et al. 2013).
The commitments that various countries have made under SDG 14
aim to inculcate sustainable fishing practices through a diverse range
of sectoral reforms. The change from the prevalent practices to more
sustainable approaches will entail substantial costs across the fisheries
value chain. A key challenge that remains is mobilizing the required
financial resources to enable this transition. While the sector already
absorbs a range of public sector, official development assistance, and
private sector funding sources, these reportedly fall short of supporting
sustainability (Bos, Pressey, and Stoeckl 2015). Government budgets can
only partially fill the gap, necessitating the exploration of innovative
financing options to attract capital from private, philanthropic, and
other sources. Many countries are developing innovative institutional
and financial structures to support the development of sustainable
fisheries. At the same time, there is growing interest in financing and
supporting conservation measures and the sustainable use of marine
resources in the private sector. Countries only committed $42 million
of formal private sector capital to sustainable fisheries and aquaculture
projects between 2004 and 2015 (IIED 2020), and, overall, the blue
economy is yet to attract private investment at the scale and pace of other
sectors. While the opportunity to create an inclusive blue economy is
promising, governments must reevaluate their strategies and strengthen

their governance and financing frameworks. To achieve the SDGs and
accelerate blue economy investments, it is imperative to use appropriate
financing instruments and build institutional capacities (Tirumala and
Tiwari 2020).
Given the importance of the sector and its contributions to the
economy, the research attention has also focused on the governance
and institutional structures that countries have adopted. A fundamental
challenge for ensuring a sustainable governance structure in the blue
economy is to balance the needs of a diverse group of stakeholders while
mitigating the potentially disastrous environmental degradation (Cohen
et al. 2019). A comprehensive fisheries governance structure needs to
be flexible to encourage innovative solutions and adapt to the changing
circumstances of the underlying characteristics (Sunil 2006). The
fisheries governance has changed substantially to consider the sea as a
whole (which resulted in the FAO-led ecosystem approach to fisheries)
and to reflect the roles of various stakeholders (Stepanova 2015). The need
for strong leadership, adherence to accepted principles of sustainability,
and clear demarcation of rights relating to capture and transferability
underpin the evolving governance frameworks in the fisheries sector in
the context of global sustainable development. The economic aspects
account for a more significant share of the governance sphere in relation
to the biological, social, or political elements. The expectation is that the
governance frameworks will connect the interdependencies of public
and private participation with the prevailing policies (González Laxe et
al. 2018).
Researchers have considered the estimation of the value of the
marine ecosystem to be important for creating appropriate institutional
structures (Spalding 2016; Keen, Schwarz, and Wini-Simeon 2018),
which could lead to the necessary financing options. Global cooperation
influences the growth of the blue economy and the marine fisheries sector,
having a conservation financing mechanism, and adopting sustainable
practices in the usage of waters and fishing (Thiele and Gerber 2017;
Sarker et al. 2018; Cohen et al. 2019). In addition to the challenges of
overfishing for the sustainability of fishing produce, research has
related a substantial increase in overfishing to a greater impact on the
environment in terms of greenhouse gas emissions (Vivekanandan,
Singh, and Kizhakudan 2013; Parker et al. 2018). This would mean that
countries’ institutional, governance, and financial structures need to
align to consider the cross-impacts of various activities.
The management of the sector needs a shift from business as usual
to an international effort on sustainability ranging across different
subsectors and scales, which the active participation of the stakeholders

concerned will support (Rudolph et al. 2020). The features of such an
institutional mechanism comprise shared objectives across different
entities, the development of frameworks that guide holistic oversight
and require equitable distribution of market and government roles,
and institutional structures (Rudolph et al. 2020). The existing systems
need substantial alteration or redevelopment to effect a large-scale
transformation while facing resistance from existing interests. The
emerging systems need to balance the governance requirements of
the top policy makers and on-the-ground communities and participants.
A potential pathway to a more effective institutional and governance
structure would be (i) to set out the underlying drivers of transformation;
(ii) to demonstrate how the alteration of the drivers can result in the
desired transformation; and (iii) to develop the contours of the desired
new institutional and financing structures (Chaffin, Gosnell, and
Cosens 2014).
Similar to the initial growth phase of green finance and sustainable
finance, the blue economy does not have widely accepted principles or an
investment framework. Frameworks provide the investing community
with reassurance through definitions of eligible projects, information
about the utilization of funds, and monitoring and reporting protocols
(ICMA 2018). The European Commission, European Investment Bank,
World Wide Fund, and the Prince of Wales’s International Sustainability
Unit launched the world’s first framework for a sustainable blue
economy (European Investment Bank 2018). The principles are
broad, enabling them to address various subsectors and sustainability
aspects, seven of them relating to investment and the other seven
focusing on nurturing cooperation, research, data management, and
innovation. The investment guidance regarding environmental, social,
and corporate governance issues, a set of six voluntary principles that
offer a wide variety of actions, is gaining popularity (PRI Association
2021). The World Ocean Summit 2018 launched a different set of
principles, which aims to provide investors with certainty about their
funds (Environmental Defense Fund, Rare/Meloy Fund, and Encourage
Capital 2018). In October 2019, the United Nations Development
Programme introduced its Blue Financial Instrument Framework,
which grades various blue economy projects by their impact, sets out
indicators to measure the impact of interventions, and lists different
potential financial instruments (UNDP 2019).
ADB has committed $5 billion to the blue economy and is in the
process of developing its blue finance framework (ADB 2019). The private
sector, including financial institutions, community-based organizations,
and development think tanks, has been active in promoting the transition
toward the achievement of SDG 14. The existing gap in conservation
funding is huge, an estimated $7 trillion, leading to the need to leverage
private financing to bridge this gap (Tirumala and Tiwari 2020). The
integration of ecological conservation into blue economy projects,
increased access to funds for the stakeholders across the value chain,
cross-functional linkages of maritime and land-based activities, creation
of new markets, and opportunities for participation of a diverse range
of stakeholders are important for the sustainable blue economy (IIED
2020).
2.3 Analytical Framework

From the literature review and preliminary analysis of secondary
information (González Laxe et al. 2018), it was evident that no standard
frameworks are in place across countries for financing the fisheries
sector. Each country has developed its own financing mechanisms and
created institutional capacities that align best with its country context
and local needs. This motivated our research to undertake a comparative
analysis of three countries that are adopting different institutional and
financial elements regarding the principles of blue economy finance
that are undergoing development. This study developed a comparative
framework encompassing the elements that various researchers
have considered to be important for a sustainable fisheries sector.
The growing internationalization of the fisheries sector, coupled with
the need to align toward sustainable practices, implies that the
governments need to balance the commitments that countries make to
achieve the SDGs; follow science-based policies; develop institutional
structures that engage various stakeholders (from catching, processing,
and trading sectors to community and environmental groups); and
configure appropriate financing strategies. We categorized these
features into seven parameters to compare the different countries.
Table 2.1 sets out the adapted framework for the comparative analysis
of the three countries.
We initially carried out a country analysis that set out the important
features of the fisheries sector relating to the size, the constraints
that it faces, and the existing institutional and financing mechanisms.
We based this analysis on secondary information. Using the synthesis
of this analysis and a review of the published policies or strategies of
the respective national documents, we populated the comparative
framework.
Table 2.1: Framework for the Comparative Analysis
Parameter Description
Integration of Do the proposed institutional and financial structures
sustainability consciously integrate biodiversity and climate considerations
considerations (Bos, into the fisheries sector? Is there a mention of adopting any of
Pressey, and Stoeckl the blue finance/sustainable finance principles in the systems?
2015)
Cohesive maritime and The strength of the linkage between the required activities
land-based activities and functions for the maritime and land-based activities that
(Fujita et al. 2013) have a substantial impact on the sustaining of blue economy
projects
Engagement with peer The strength of the coordination and linkage with other
sectors (Bos, Pressey, government functions and ministries, such as environment,
and Stoeckl 2015) health, finance, trade and commerce, and infrastructure and
logistics
Fiscal policy tools and The extent of the commitment through the traditional
instruments (IIED 2020) government tools and instruments (taxes, levies, and
budgetary support)
International Leveraging and strengthening the existing relationships or
development forging new partnerships with international development
partner engagement partners, such as the World Bank and the Asian Development
(Bhattacharya and Dash Bank
2020)
Pathways for market Initiatives allow the participation of a diverse investor base
participation (multilateral, bilateral, private, institutional, commercial
(Bhattacharya and Dash sources, and project-affected stakeholders). Does the
2020) fisheries sector attract the attention of international and
national investors and operators?
Ease of access to funding Ease of funding access of the project proponents developing
(Environmental Defense common infrastructure, such as harbors, jetties, landing sites,
Fund, Rare/Meloy Fund, cold chains, conservation, monitoring, and governance
and Encourage Capital Quicker access for individuals, community-based
2018) organizations, and medium-sized and small enterprises
Source: Authors’ adaptation based on a review of the literature.
2.4 Country Analysis

During the period 2007–2016, 37 countries increased their inland fish
production, representing 58.7% of the global catch. India, Cambodia, and
Indonesia were among the top drivers (FAO 2020b). Below, we describe
each country’s fisheries sector through the specific lens of institutional
and financial mechanisms.
2.4.1 Cambodia
Almost 61% of Cambodia’s animal protein consumption comes from fish,

which contributes 6%–9% of the national GDP (RGC 2010; Lieng et al.
2018). Almost a third of the households in Cambodia engage in fishing
activities. The fish capture in 2019 was an estimated 601,000 tons, of
which the marine catch comprised a 20% share (FAO 2020b). Many
rural poor people in Cambodia depend on fishing for their livelihoods.
However, illegal fishing, rapid coastal development, and climate change
are contributing to the decline of the fishing stock. Besides, the country
suffers from unregulated and unsustainable exploitation practices,
a lack of infrastructure, particularly for post-harvest activities, and
limited access to finance for the fishing sector (small and medium-sized
enterprises).
At the central level, the Ministry of Agriculture, Forestry, and
Fisheries (MAFF) oversees the fisheries sector in Cambodia, and the
Fisheries Administration (FiA) within MAFF is responsible for research
and development, law, and policy making. At the local level, MAFF
has entered into partnerships with various international agencies, like
the World Wide Fund for Nature (WWF) and the International Union
for Conservation of Nature (IUCN) to assist with sustainable fisheries
development and management at the local/community levels. The
Government of Cambodia has also produced the Strategic Planning
Framework for Fisheries 2010–2019, which provides a road map for the
government’s plan for the management, conservation, and development
of sustainable fisheries. It aims to boost tourism, revive industrialization,
significantly augment the post-harvest infrastructure, and improve the
availability of finance for the various individual and small-scale fisheries
operators. There is a substantial overlap between multiple ministries,
including the Ministry of Economy and Finance, Ministry of Planning,
Ministry of Environment, Ministry of Industry and Handicraft, and
Ministry of Commerce, which manage different stakeholders and
functional aspects of the fisheries sector (RGC 2010).
Table 2.2 summarizes the key institutional and financial aspects of
Cambodia’s fishing sector.
Table 2.2: Cambodia’s Fisheries Sector

Marine capture 0.12
production
(million tons—2018)
Fisheries’ contribution to 6%–9%
the GDP
Size of the Provides more than 1.5 million full-time jobs and involves at least 6
fisheries sector million people in fishing activities
Broad sector issues • Long-term trend in declining fish sizes
• Illegal fishing
• Rapid coastal development
• Climate change
• Hydropower
Institutional structures Federal level
The FiA of MAFF of Cambodia is the government agency
responsible for managing, regulating, and promoting the national
fisheries sector.
Local/community level
• Partnership with WorldFish, an international nonprofit research
organization, to strengthen livelihoods and improve food and
nutrition security.
• WWF is working in partnership with the FiA and local
governments to assist local communities in developing
community fisheries.
• Partnership with IUCN to strengthen local-level initiatives.
Financing mechanisms • Funding from EU: Ambassador George Edgar confirmed a $98
million project to support the local fisheries sector from 2019 to
2023.
• IUCN and local NGO partner FACT implemented an EU-
funded project from 2013 to 2016 to establish FCAs with legal
recognition and management from elected fisheries committees.
• In 2018–2019, IUCN established a “mini” trust fund in three
focal communes in Tonle Sap (and two more at the Stung
Treng Ramsar site). Each trust fund received $5,000 in capital
deposited with LOLC, a local bank, and generates 9% annual
interest in local currency or about $35/month. This represents
about half the cash necessary to pay for FCA patrols and other
core management operations.
• The FA of MAFF signed an MoU with IUCN in December
2019 to strengthen collaboration on fisheries management and
livelihoods.
• The Asian Development Bank is exploring the provision of
official development assistance through a targeted sovereign
loan, which also includes the development of a financing facility
that could unite capital from various government, development
partner, and private sources.
• UNIDO has been very active in promoting value chain
investment opportunities, particularly among medium- and
small-scale enterprises.
continued on next page
Table 2.2 continued
Sector financing Substantial multilateral development partner assistance; limited
national budgets.
Private sector interest Increasing interest from international fisheries investors and funds.
Budget/financing Every year, the FA receives approximately $2 million from the
allocation government. Development partners provide roughly $10 million per
year to the FA. Bann and Lieng (2020) suggested that the provincial
treasury or community budget should introduce a budget line
specifically for community fisheries.
EU = European Union, FiA = Fisheries Administration, FACT = Fisheries Action Coalition Team, FCA = fish
conservation area, GDP = gross domestic product IUCN = International Union for Conservation of Nature,
MAFF = Ministry of Agriculture, Forestry, and Fisheries, MoU = memorandum of understanding,
NGO = nongovernment organization, UNIDO = United Nations International Development Organization,
WWF = World Wildlife Fund.
Source: Authors’ compilation from Lieng et al. (2018), Bann and Lieng (2020), and FAO (2020b).
Most of the initiatives have focused on the efforts of the

development partners and international organizations since the
early 2000s. The development of various fisheries frameworks,
the introduction of collaborative management with community
stakeholders, and ecosystem conservation are some of the benefits
that have resulted from these efforts. The Government of Cambodia is
formalizing various institutional structures through its Public Sector
Investment Management Strategy, which marks out the projects that
state-owned entities, international development partners, and public–
private partnerships will implement.
2.4.2 India
Globally, India ranks third in fisheries production and second in

aquaculture. The sector contributes 1.07% of the country’s GDP and
$45 million in exports. The fishing production in 2019 amounted to
an estimated 13.42 million tons (out of the estimated total production
potential of 23.2 million tons) (GoI 2020). Fishing is a direct source
of livelihood for more than 20 million people along the coastline. The
fishing sector has been one of India’s main foreign exchange earners,
accounting for 5% of total exports and nearly 20% of agricultural
exports. Aquaculture has propelled inland fishing in the last decade
but is currently facing challenges due to the limited diversification of
species, the prevalence of diseases, and the high costs of inputs. Overall,
the sector faces challenges due to inefficient management (wastage,
traceability, and certification); limited improvements in the traditional
fishing practices; inadequate infrastructure (landing jetties, harbors,
and post-harvest cold chains); and insufficient skilled worker capacity.
Currently, the sector depends extensively on budgetary funding for
infrastructure and public projects (which, like grants, are limited
to leverage and raising credit). There is also minimal credit funding
available across the value chain, particularly for individuals and small-
scale enterprises (GoI 2020).
The fisheries sector is a state subject in India, with the federal
government (sharing the responsibility for marine fisheries) providing
support for the provincial governments (which manage the inland
fisheries). At the central level, the newly formed Ministry of Fisheries,
Animal Husbandry, and Dairying manages the fisheries sector. At the
state level, separate state fisheries departments govern the industry.
In 2006, the government set up a separate body called the National
Fisheries Development Board exclusively to develop fisheries across the
country. The Coastal Aquaculture Authority is the agency responsible
for the regulation of coastal aquaculture activities. There are numerous
other fisheries institutions, including the Fishery Survey of India,
National Institute of Fisheries Post Harvest Technology and Training,
Central Institute of Coastal Engineering for Fishery, Central Institute of
Fisheries Nautical and Engineering Training, and National Federation
of Fishers Cooperatives Ltd.
The draft National Fisheries Policy proposes to continue the
financial strategy of budgetary support along with the support of
national financial institutions National Bank for Agriculture and Rural
Development and National Cooperative Development Corporation and
the assistance of development partners (including the World Bank, ADB,
and Japan International Cooperation Agency). There is also a proposal
to strengthen public–private partnerships and access to institutional
credit.
India’s fishing sector.
The government has created a separate fund, the Fisheries and
Aquaculture Infrastructure Development Fund, to support marine
and inland fisheries and aquaculture, the modernization of fishing
boats, the construction of fishing harbors, and the creation of allied
infrastructure.
Table 2.3: India’s Fisheries Sector
Marine capture 3.62
production
Fisheries’ contribution 1.07%
to the GDP
Size of the Provides more than 20 million full-time jobs and involves at
fisheries sector least 14.5 million people in fishing activities
Broad sector issues • Declining fish catch and depletion of natural resources
• Overexploitation of coastal fisheries
• Insufficient institutional support
• Weak extension network
• Inadequate legal and political recognition
• Department of Animal Husbandry, Dairying, and Fisheries
• National Fisheries Development Board
• Central Marine Fisheries Research Institute
State/regional level
State Fisheries Department
South Indian Federation of Fishermen Societies, a
nongovernment organization
Financing mechanisms • Budgetary allocations
• Fisheries and Aquaculture Infrastructure Development
Fund—for infrastructure development and the provision of
viability gap funding for setting up processing plants, cold
chain facilities, and marketing activities
• Global Fisheries Sustainability Fund—a sustainable
management plan for bait fisheries
Sector financing Predominantly budgetary support; limited options for
leverage/credit funding
Private sector interest Primarily domestic operators; limited interest of international
funds
Budget/financing In 2020, the Indian government launched a program titled
allocation Pradhan Mantri Matsya Sampada Yojana [Prime Minister
Fishery Resource Scheme] as part of a new blue revolution,
strengthening the fisheries sector. It allocated $2.64 billion to
fund the development of the fisheries sector.
GDP = gross domestic product.
Sources: Authors’ compilation from FAO (2020b), GoI (2020), and Ministry of Fisheries, Animal
Husbandry and Dairying (2020).
2.4.3 Indonesia
Indonesia is Southeast Asia’s largest economy and the second-

largest fish producer in the world after the PRC. The fisheries sector
contributed over $26.9 billion (around 2.6%) to Indonesia’s GDP in
2019, which makes it a leader among its regional peers, namely, the PRC,
the Philippines, Malaysia, and Thailand (FAO 2020b). Over 12 million
people in Indonesia work in fisheries, and 95% of fishery production
there comes from small-scale fishers (Nature Conservancy 2020).
Indonesia’s abundant marine life is facing many threats and challenges
from human activities and natural stressors. Inefficient management of
the fisheries sector costs the country nearly $7 billion per year (Nature
Conservancy 2020). The seas of this region face major concerns in
relation to illegal, unreported, and unregulated fishing; climate change;
illegal wildlife trade; coastal development; and pollution.
At the federal government level, the Ministry of Marine Affairs
and Fisheries is responsible for the fisheries sector in the country.
The government has also created a separate institution for promoting
sustainability and access to finance (the Marine and Fisheries Financing
Institution) to enable private sector fund flows. In 2020, the Ministry
proposed $69 million in stimulus for promoting fisheries and aquaculture.
Indonesia aims to increase the contribution of the blue economy to its
national GDP to 12.5% by 2045. The country is also a leader in attracting
private capital flows to the fisheries sector. The Meloy Fund, the Global
Fisheries Sustainability Fund, and the more recent fishery platform
startup, Aruna, have closed a $5.5 million funding round with the
country’s current investors.
Indonesia’s fishing sector.
Table 2.4: Indonesia’s Fisheries Sector
Marine capture 6.71
production
Fisheries’ contribution 2.6%
to the GDP
Size of the fisheries Provides a livelihood for at least 12 million people in fishing
sector activities
Table 2.4 continued
Broad sector issues • Depleting fish stock—illegal, unreported, and unregulated
fishing combined with legal fishing and expansion of the
domestic fishing fleet is affecting fish stocks
• Data deficiencies and a lack of coordination among
agencies
• Lack of a fishery-specific plan
• High wastage and losses
• Ministry of Marine Affairs and Fisheries
• Planning agency (BAPPENAS)
State/regional level
Provincial governments
• Investments
• MacArthur Foundation
• Rare
Financing mechanisms • Institution for promoting sustainability and access to
finance (Marine and Fisheries Financing Institution)
• Global Fisheries Sustainability Fund
• Meloy Fund
• Aruna
• World Bank—Coastal Fisheries Initiative Challenge Fund
Sector financing A mix of domestic and development partner assistance
Private sector interest Increasing interest from international fisheries investors and
funds
Budget/financing According to the press release that the Cabinet Secretariat of
allocation the Republic of Indonesia published, the Ministry of Marine
Affairs and Fisheries proposed an additional budget of $69
million (Office of Assistant to Deputy Cabinet Secretary for
State Documents and Translation 2020)
BAPPENAS = Ministry of National Development Planning of Indonesia, GDP = gross domestic product.
Source: Authors’ compilation from FAO (2020b), Invest in ASEAN (2020), Nature Conservancy (2020),
Office of Assistant to Deputy Cabinet Secretary for State Documents and Translation (2020).
The Ministry of National Development Planning of Indonesia

(BAPPENAS) is developing an innovative blended finance vehicle: the
Marine and Fisheries Financing Institution (MFFI). The MFFI aims
to harness a blend of commercial capital, concessionary financing, and
philanthropic contributions to deploy in participating provinces. ADB
is assisting BAPPENAS in operationalizing this institution. This MFFI
framework proposes to create contours for the financing of the fisheries
sector; improve the capacities of local governments; create a fund that

it will capitalize with the support of development partners, the private
sector, and impact investors; and set in place effective engagement,
monitoring, and reporting systems. The expectation is that the MFFI
will be in a position to provide local governments of cities and coastal
villages, which do not traditionally have access to capital, with long-
term blended pools of financing. This structure aims to create an
environment that links the need for hard infrastructure with improved
governance and social infrastructure to ensure that the stakeholders
have the necessary tools to be financially self-reliant and sustainable.
2.4.4 Cross-Country Comparison
Figure 2.1 and Table 2.5 present the pattern of increase in aquaculture
production in the three countries. The compound annual growth rate
of aquaculture production was about 18.1% in Cambodia, 12.7% in
Indonesia, and 6.9% in India from 2006 to 2018. Indonesian aquaculture
production, which was about 40% of that of India in 2006, had grown to
nearly three-fourths of its size by 2018.
Table 2.6 presents the growth of total fisheries capture in the three
countries. The growth rates for all three countries are similar, lying
between 4.8% and 6.3%.
Figure 2.1: Aquaculture Production in the Three Countries

(%)
70
60
50
40
30
20
10
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Year
Cambodia India Indonesia
Source: FAO (2020b, 2021).

Table 2.5: Growth in Aquaculture Production
Aquaculture Production
2006 2012 2018 CAGR
Country (million tons) (million tons) (million tons) (%)
Cambodia 34,200 74,000 251,850 18.10
India 3,180,863 4,209,478 7,176,000 6.90
Indonesia 1,292,899 3,067,660 5,426,943 12.70
CAGR = compound annual growth rate.
Source: FAO (2020b, 2021).
Table 2.6: Growth of the Total Fisheries Capture
Total Fisheries Capture

2006 2012 2018 CAGR
Cambodia 482,500 3,844,837 4,792,923 5.1
India 566,695 4,871,641 5,856,860 4.8
Indonesia 689,155 5,320,253 7,216,405 6.3
Source: FAO (2020b, 2021).
The importance of exports, and consequently the need to adhere

to international best practices of catch management, storing, and
processing, has also been rising in these countries. The domestic
consumption remains substantial in relation to the exports in Cambodia.
Figure 2.2 and Table 2.7 present the value of fish and fishery product
exports. The compound annual growth rate of exports was 10.1% in
Cambodia, 7.1% in Indonesia, and 12.1% in India over the period 2006
to 2018.
Figure 2.2: Exports of Fish and Fishery Products

in the Three Countries
($)
8,000,000 90,000
7,000,000 80,000
6,000,000 70,000
60,000
5,000,000
50,000
4,000,000
40,000
3,000,000
30,000
2,000,000 20,000
1,000,000 10,000
0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Note: India and Indonesia appear on the primary axis on the left-hand side, and Cambodia is on the
secondary axis on the right-hand side.
Source: FAO (2020b, 2021).
Table 2.7: Fish and Fishery Product Exports in the Three Countries
Exports
2006 2012 2018 CAGR
Cambodia 26,771 61,000 85,306 10.1
India 1,762,747 3,404,437 6,929,760 12.1
Indonesia 1,954,538 3,592,165 4,465,081 7.1
Source: FAO (2020b, 2021).
2.5 Discussion
The fisheries sector is an important component of the economies of
Cambodia, India, and Indonesia. Indonesia and India appear in the top
five countries in the total fish production, and Cambodia has significant
inland fish production potential, predominantly freshwater fish farming.
While the share of aquaculture in Cambodia increased from about 11%
in 2010 to about 24% in 2017, it remains relatively small in relation to
the total capture. Substantial overfishing has taken place in the Indian
waters, leading to the plateauing of marine fisheries production. India

is contemplating the development of export economic zones to improve
its fisheries sector. All three countries have a long tradition of fishing
practices and face similar challenges in infrastructure gaps, access to
finance, inadequate data management systems, and suboptimal adoption
of sustainable fishing processes.
The financing mechanisms vary between the countries. While
Cambodia has allocated budgets under a national plan for the
improvement of the fisheries sector, India has created a separate fund
for infrastructure development and for providing financing options for
local projects and communities under a 5-year long-term plan. Indonesia
has created a separate financing institution at the central level to enable
private sector funding to flow into the development of the fisheries
sector. There is substantial involvement of development partners in the
financing of the fisheries sector. Private institutional and sector-specific
funds are showing an interest in Indonesia and Cambodia, while their
interest in India is yet to emerge.
On the institutional front, all the countries have a dedicated agency
for fisheries management at the federal level. In addition to the central
ministry, Cambodia and India have set up parastatal institutions with
the specific aim of promoting the fisheries sector, including fisheries
development and management, regulation, research, and development
activities. Due to the sheer size of the country and the fisheries sector,
India has fisheries departments at the state/regional level that solely
govern fisheries and aquaculture activities.
The approaches of the countries differ widely at the community
level. Cambodia has established partnerships with international
organizations and nongovernment organizations (NGOs) that work
with local communities to promote sustainable fisheries. In India,
especially in the southern coastal areas, a newly created NGO supports
smaller fishing communities to organize themselves under formal legal
structures as societies. In Indonesia, RARE and other private sector
agencies and international agencies work with the local administration
and communities to promote sustainable activities in the sector.
Figure 2.3 summarizes the similarities and differences in institutional
and financial mechanisms.
Each country is proposing to adopt a different strategy to address the
changing ecosystem while reiterating the need to uphold the importance
of the fisheries sector to the overall economy. Cambodia is suggesting
the continuance of its engagement with international development
partners while augmenting its public-sector investment strategy and
encouraging private participation. India has created a separate ministry
(until recently, the fisheries sector was part of the agriculture ministry)
SIMILARITIES
Figure 2.3: Institutional Frameworks
Central ministry that governs the fisheries sector.

Budgetary allocations for financing the blue economy.
Partnerships with international agencies and NGOs.
• Central sponsored
• Community- schemes including • Creation of a
based approach the Integrated separate institution
supported by Development and for promoting
multilateral Management of sustainability and
access to finance
DIFFERENCES
agencies. Fisheries, and the

• No private-sector Fisheries and (MFFI).
funding. Aquaculture • Able to attract
• A national plan Infrastucture private sector
for fisheries Development Fund. cash flows.
development has • An overall vision • A speciﬁc plan for
been created. and road map for the fisheries sector is
sector has been not well articulated.
created.
MFFI = Marine and Fisheries Financing Institution, NGO = nongovernment organization.
Source: Authors’ compilation.
to pay more concerted attention to the sector. India has also formulated
a scheme to promote the sector (through a “mission” mode that
allows the allocation of administrative and budgetary resources) and
announced the establishment of a dedicated fund. Indonesia has been
contemplating setting up a separate financing facility that combines
different sources of funding and provides flexibility to attract newer
investor groups. Table 2.8 presents a comparison of these approaches.
Various policy documents have stated the intention to integrate
different sustainability, biodiversity, and climate change practices and
improved fishing practices into the governance structures and projects.
This is generally in consonance with the respective commitments under
various global accords and premises of engagement with international
development organizations (Vanderklift et al. 2019). The translation of
this intention into demonstrable projects is still underway in all three
countries. The development and adoption of international blue finance
frameworks could accelerate the transition to sustainable blue finance

practices.
There is no perceptible discourse or statement of intent on
approaching land-based and maritime activities cohesively in any of the
three countries. They have paid considerable attention to improving the
land-based infrastructure, particularly the landing sites and post-harvest
infrastructure. However, the impact of land-based activities on marine
productivity (pollution, runoff, waste disposal, and ecological damage
due to human activities) are yet to receive adequate consideration.
Indonesia has instituted a National Plastic Action Partnership that
indirectly refers to the initiatives to minimize pollution in water bodies.
The existing ministerial organization structures mean that the
sectors associated with fisheries (such as health, pollution, finance,
and infrastructure) are under different line regimes. However, the
appreciation of the need to coordinate with different ministries has
increased, as the number of committees and the oversight from the
heads of government indicate. Nevertheless, no country has a single
window clearance system, and the nations rely on the conventional
interministerial coordination setups.
Table 2.8: Comparison of the Countries

Parameter Cambodia India Indonesia
Future approach Reliant on Separate ministry Proposal of a marine
development partner formulated; a sector- and fisheries financing
support; initiatives to specific fund and a institution; increased
diversify sources of financing scheme collaboration
funding announced with international
community
organizations
Integration of Substantial discourse The draft national Has taken initiatives
sustainability on incorporating policy acknowledges to achieve SDGs
considerations the principles due the need for and in collaboration
to the involvement relevance of various with international
of international sustainable practices development
development and community
and community organizations
organizations
Cohesive Land-based and No stated principles on A few macro steps
maritime and maritime activities the integration of land are taken to integrate
land-based are addressed and maritime-based these areas (the
activities independently activities. Different National Plastic
institutional setups are Action Partnership,
present for the same etc.), which indirectly
address the fisheries
sector
Table 2.8 continued
Parameter Cambodia India Indonesia
Engagement with Substantial overlap The fisheries The interministerial
peer sectors with other ministries; ministry has come coordination happens
the Ministry of into existence. The through conventional
Economy and Finance interministerial channels. The planning
plays a coordinating coordination happens ministry is engaging
role through its through conventional with the sector-specific
financial powers channels. No separate agencies
mechanism to address
fisheries-specific
constraints
Fiscal policy tools Budgetary support and Budgetary support, Part of nationally
and instruments sovereign backed loans. traditional taxes, and determined
No separate proposals levies. Creation of a commitments;
to increase taxes sector-specific fund budgetary support;
open to innovative
instruments (blue
bonds, etc.)
International Increased activity Continued engagement Increased engagement
development of international with international with international
partner development development partners; development
engagement partners, community limited engagement partners, community
organizations, and with international organizations, and
investors community investors
organizations or
investors
Pathways Current government Largely focused on The proposed
for market rules do not encourage the domestic private structure of a financing
participation commercial funding in sector market given the facility gives adequate
projects; only available size and scale. Public– flexibility to attract
through public– private partnerships different groups of
private partnerships; are being encouraged market participants
substantial interest actively
of the international
community and impact
investor groups
Ease of access to Multilateral Systems are being Substantial push to
funding development partner improved to enable increase access to
funding is expected better access to funding across the
to augment access to funding across the value chain
finance for common fisheries value chain
infrastructure
substantially; initiatives
to strengthen banking
and microfinance
systems for providing
credit to small and
medium-sized
enterprises
SDG = Sustainable Development Goal.
Through focused engagement with international development

organizations, community groups, and the investing community, these
countries are recognizing the role of partnerships. The investing
community has slowly started to participate while also introducing
the necessary frameworks to measure the impacts of the interventions.
Each country is attempting to engage with the private sector to reflect
its overall foreign investment philosophy.
The primary concern for all three countries has been the ease of
access to funding, both at the public-sector level (which provides
for common infrastructure and governance oversight) and among
the market stakeholders, particularly individuals and small and
medium-sized enterprises (SMEs). Cambodia is seeking international
development partner support to increase the access to funds for
the public sector, while India and Indonesia are more reliant on the
budgetary mechanisms. However, both these countries intend to
configure dedicated fund/facility structures to provide tangible means
of raising and disbursing funds. The microfinance sector has been
the most active in all three countries to access funds for individuals
and SMEs. The microfinance institutions, do not, however, categorize
fisheries separately. The dedicated routing through national institutions
passes through “agriculture-based” financial enterprises, with fisheries
representing a small portfolio. There has also been a considerable
focus globally on blended finance, combining public and private sources
of financing (Tirumala and Tiwari 2020). This could be a potential
source of financing for these three countries.
South and Southeast Asia are attracting substantial interest from
all the stakeholders concerned due to various geopolitical factors.
The discourse and action in the blue economy, particularly in the
fisheries sector, have a decisive focus on this region because of the large
population, extensive availability and harvesting of marine catch, and
presence of many polluted rivers. The growing influence of the PRC
(which has substantial interests in Cambodia and Indonesia) through
its Belt and Road Initiative, the expansion of the operations of the Asian
Infrastructure Investment Bank, and ADB’s commitment to upscaling
its investments mean that access to financing is likely to increase.
Indonesia is poised to be the chair of the G20 from 2022, and, through its
National Plastic Action Partnership, is taking a lead role in the ASEAN
region. India, through its diplomacy, is increasingly becoming a favored
partner of Organisation for Economic Co-operation and Development
countries. The expectation is that all three countries, and the others in
the region, will continue to attract investments from donors, which will
also pave the way to greater participation from impact and philanthropic
investors.
2.6 Policy Implications

A cross-country comparison provides useful insights into the
scaling, replication, and readaptation of successes to suit regional
contexts. While different countries are adopting innovative financing
mechanisms to meet the investment requirements for marine and
fisheries sectors, this research contributes to the understanding
of the context in which these mechanisms have evolved and how
countries can strengthen them for the sustainable growth of fisheries.
The transformation of the fisheries sector in the developing world
is contingent on the adoption of accepted inclusive governance
principles while maintaining the agreed path toward the achievement
of SDG 14 (Cohen et al. 2019). The recent public health crisis that the
coronavirus disease (COVID-19) caused has only exacerbated the need
for transformative action from governments to ensure the protection
of fish farmers’ livelihoods and food security for populations (FAO
2020a). The impact of the pandemic has resulted in income losses and
increased the financial risks at every stage in the value chain, ranging
from decreased cash flows to difficulty in meeting loan repayment
obligations and the investment of additional capital to meet safety
and hygiene standards. Therefore, lessons from this research could be
useful in designing appropriate financial mechanisms that boost the
growth of the sector in the long term and address immediate financial
solutions in the short term.
The current approach of extending loans (and limited subsidies)
through microfinance institutions has a limited ability to scale
up and is restricted to a few value chain segments. Policy makers
can consider augmenting the credit delivery mechanisms through
interventions targeting these stakeholders. To strengthen microfinance
institutions and improve their profitability, policy makers and fisheries
administration can facilitate infrastructure development, research
and technology, and improved access to markets and services through
a structured intervention, which can pool various sources of funding
(IDA 2020). This would entail creating the necessary financial
infrastructure through appropriate legal and regulatory frameworks.
The MFFI structure of Indonesia is a step in that direction. More recent
developments include the emergence of impact investors that support
sustainable fisheries management by seeking a return on the capital
deployed. RARE’s work in the Southeast Asian region demonstrates
the potential for transitioning to more sustainable fisheries while
supporting livelihoods and sustaining critical ecosystems. An ability to
earmark dedicated funds for the defined components of the value chain
would also enhance the prospects of sustainable finance, which can
invest in infrastructure, strengthened logistics supply chains, storage

and transportation facilities, safety equipment, and so on.
The governance of fisheries is increasingly leaning toward modern
management systems (González Laxe et al. 2018). The sustainability
principles demand that the economic and social issues are part of
the conceptualization and design of any governance framework. The
structure of governance mechanisms can also benefit from the early
adoption of blue economy principles (as applicable to the fisheries
sector). An institutional design with a specific focus on the fisheries
sector (either as a stand-alone entity or under the umbrella of a line
ministry) with the support of a well-thought-out long-term vision and
plan is crucial in building a more resilient fisheries sector. The design
should act as an enabler to promote constructive collaborations with
multilateral agencies, international organizations, NGOs, and other
stakeholders that are interested in contributing to the sector’s growth.
The presence of environmental community groups and the participation
of impact investors give greater credence to a holistic ecosystem
based on science, stakeholder engagement, and market dynamics and
could result in a less politicized system. An awareness of these facets
would help policy makers in configuring their region-specific responses
to align with sustainable practices, community interests, and industry
expectations.
This research focused on the institutional and financing landscape
of three countries. As the blue finance sector gains pace, and when
the outcomes of investments become available, research can investigate
the efficacy of the approaches in greater detail, expanding the
geographical footprint to the entire region.
2.7 Conclusion
The objective of this research was to study different responses to the
changing blue economy sectors, with particular reference to fisheries,
to understand the features of an institutional and financing mechanism
that promotes sustainable fisheries sector development. A comparative
analysis was undertaken to identify similarities, differences, and
emerging financing frameworks across three countries: Cambodia, India,
and Indonesia. Overall, this chapter presents the initiatives that the three
countries are proposing to adopt in the changing fisheries ecosystem,
providing guidance to shape a broader regional approach. The results
from the analysis indicate that the countries have identified a need to
alter their existing institutional structures and configure newer entities
to attract more funding sources. None of the three countries has radically
transformed its systems to address the cross-ministerial coordination

points or elevate the sector approach to include a comprehensive land-
based and maritime approach. Future research can use the findings to
develop more generalizable frameworks for strengthening financing
interventions in the fisheries sector.
While the trends for financing in the sustainable finance sector, and
consequently the blue finance sector, appear to be ascending (Wabnitz
and Blasiak 2019), it remains unclear whether there will be a tipping
point, whether the changes are tectonic, or whether the adoption of
the principles will occur gradually in accordance with each country’s
bureaucratic pace (Cohen et al. 2019). The financing trends are also
becoming more nuanced with the alignment toward sustainability and
include multiple modalities, such as blended finance instruments and the
attraction of investors from different groups. Nevertheless, the urgency
to respond to the potentially critical damage to fisheries production is
acute. Policy makers need to be aware of the opportunities, constraints,
and bottlenecks involved in transitioning to more sustainable blue
economy finance.
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3
Tracking International Aid
for Ocean Conservation
and Climate Action
Nagisa Shiiba, Miko Maekawa, Tibor Vegh, and John Virdin*
3.1 Introduction
Ensuring ocean conservation and sustainable ocean use has been an
international priority since the United Nations Convention on the Law of
the Sea was adopted in 1982. In particular, coastal developing states and the
small island developing states (SIDS) depend heavily on ocean ecosystems
and resources for economic development and people’s livelihoods. These
states consequently emphasized ocean conservation and sustainable use
goals in national policies (Ghina 2003). However, climate change has
presented numerous challenges to ocean and coastal zones. In September
2019, the Intergovernmental Panel on Climate Change (IPCC) issued the
Special Report on the Ocean and Cryosphere, which alerted the global
community that “over the 21st century, the ocean is projected to transition
to unprecedented conditions” (IPCC 2019: 18). Increased temperatures,
further acidification, and an oxygen decline have been observed over the
past 50 years, and this trend is predicted to continue (IPCC 2019). Climate
change will reduce productivity and change the spatial distribution of
marine species, and it is projected to cause the loss of coral reef cover
and reduce tourism revenues, particularly in SIDS (Gaines et al. 2019).
As such, global agendas, including the Paris Agreement and Sustainable
Development Goals (SDGs), cannot be pursued or achieved without
* The authors are profoundly grateful for the financial support from the Nippon
Foundation and the support provided by colleagues at the Ocean Policy Research
Institute of the Sasakawa Peace Foundation. The authors express deep and sincere
gratitude to Biliana Cicin-Sain for her guidance, advice, and encouragement. We are
greatly indebted to her and dedicate this work to her memory.
43
considering the effects of climate change on the ocean environment and

coastal communities (Singh et al. 2019; Santos et al. 2020) and the role of
the oceans in the global climate system.
On the other hand, there is a growing awareness of a sustainable
ocean economy as part of the solution to climate change. In 2010, the
Organisation for Economic Co-operation and Development (OECD)
estimated that the global gross value added to ocean industries, including
fishing, shipping, offshore wind, maritime and coastal tourism, and
marine biotechnology, would increase from $1.5 trillion to $3.0 trillion
by 2030 (OECD 2016). The trajectory of the ocean economy is upward in
various parts of the world, although the global impact of the coronavirus
disease (COVID-19) may slow the overall growth for a while (Sharma
and Sharma 2020). Researchers also caution that the expansion of
the ocean economy must be pursued in a sustainable manner, with
consideration of environmental as well as social and equity aspects,
which necessitate more sophisticated practice of a “blue economy”
(Lee, Noh, and Khim 2020). Otherwise, ocean economy projects will
end up as mere “ocean grabbing,” which refers to actions, policies, or
initiatives that deprive small-scale fishers of the use of resources and
access to areas of sea (Bennett, Govan, and Satterfield 2015). Although
no universal definition exists for a sustainable ocean economy or blue
economy, a large part of the literature tends to encompass multiple
aspects of economic, ecological, and social dimensions, with a specific
focus on climate change.
Ocean and coastal habitats can play a significant role in mitigating
and adapting to climate change (Duarte et al. 2013; Cooley et al. 2019).
For instance, the High Level Panel for a Sustainable Ocean Economy
published The Ocean as a Solution to Climate Change: Five Opportunities
for Action, indicating the significant potential of ocean-based solutions
for addressing climate crises (Hoegh-Guldberg et al. 2019). This report
estimates that ocean-based climate mitigation can reduce the emissions
gap by up to 21% on a 1.5°C pathway and by approximately 25% on a
2.0°C pathway by 2050. One of the promising measures is ocean-based
renewable energy, such as offshore wind, wave, and tidal power; the
total mitigation potential is estimated to be equal to taking over 1 billion
cars off the road per year (Hoegh-Guldberg et al. 2019). Another method
with significant mitigation potential is coastal and marine ecosystem
conservation. Coastal ecosystems, including mangroves, salt marshes,
and seagrasses that store carbon, are commonly known as “blue carbon”
and account for 46.9% of the total carbon burial in ocean sediments
(Nellemann et al. 2009).
Interest has also been growing in ecosystem-based climate
adaptation in coastal zones. Coastal habitats, for instance, serve as
Tracking International Aid for Ocean Conservation and Climate Action 45
restoration and conservation for protection from flooding and erosion

(Arkema et al. 2013). Analyses of field measurements conducted by
Narayan et al. (2016) indicated that coastal habitats—particularly
coral reefs and salt marshes—have significant potential for reducing
wave heights. Ruckelshaus et al. (2013) reported that ecosystem-based
climate adaptation in fisheries and along coastlines can improve the
resilience of species and habitats to future environmental challenges.
Such restoration and preservation of coastal habitats provide combined
services (coastal protection, nutrient cycling, food provision, etc.) at
relatively low cost and thus constitute a cost-effective strategy (Duarte
et al. 2013).
Against this backdrop, the importance of financing public goods
for ocean conservation and sustainable use is increasing alongside
calls for concrete actions by the international community as a whole.
Ocean-related public goods are attracting interest from both the public
and private sectors, and with the increase in environmental, social,
and governance investments, investors are increasingly turning their
attention to opportunities in ocean conservation and sustainability
(Scott 2020). The Friends of Ocean Action—an informal multi-
stakeholder coalition—was launched at the 2018 World Economic Forum
Annual Meeting in Davos and released The Ocean Finance Handbook
in 2019. The report attests to the growing interest of investors in the
blue economy and the emerging trend of ocean financing for public
goods. However, private funding is not plentiful, as is the case for many
environmental projects (Friends of Ocean Action 2020). Therefore,
the public sector still plays a major role in funding the public goods
required for ocean conservation and climate action. Governments
and multilateral aid agencies have recently committed programs and
funds to provide financing for the sustainable management of public
goods for ocean conservation and climate actions. The World Bank
established a multi-donor trust fund called PROBLUE in 2018 as a
part of its Blue Economy program, aiming to support fisheries and
aquaculture, reduce the amount of plastic pollution, and resolve other
ocean issues. In 2019, the Asian Development Bank (ADB) announced
the launch of the Action Plan for Healthy Oceans and Sustainable
Blue Economies for the Asia and Pacific region and launched the
Oceans Financing Initiative, which aims to expand investment to $5
billion between 2019 and 2024 to promote a blue economy and create
opportunities for the private sector to invest in bankable projects.
The European Investment Bank launched the Blue Sustainable Ocean
Strategy to enhance the sustainability of ocean-related activities,
committing to more than double its lending to sustainable ocean
projects (to €2.5 billion) between 2019 and 2023.
As such, researchers have recently conducted studies on these types

of financial flows as policy instruments to achieve international goals,
including the ocean-related SDGs. For example, Guggisberg (2019)
tracked marine fishery projects financed under the climate change
adaptation funding regime and identified 25 projects. Piñeiro-Antelo,
Villa, and Santos (2019) analyzed official development aid (ODA) in
Galicia, Spain, focusing on the fishery sector. Blasiak and Wabnitz
(2018) examined the global ODA trend from 2010 to 2015 and concluded
that the grant for fisheries decreased by approximately 30%. Berger,
Caruso, and Peterson (2019) analyzed the trends of total ocean-related
grantmaking from philanthropic and ODA sources between 2015 and
2016. Despite the gradual emergence of such attempts, many questions
regarding ocean funding remain unanswered. As indicated by the
aforementioned examples of the World Bank and ADB, multilateral aid
organizations are providing a growing pledge of global ocean funding,
but a question remains of whether the funding reaches each sector in
an unbiased manner and reaches people in need. Do the funds reach
each ocean economy sector effectively, and are they fully utilizing the
available resources? These points should be evaluated, and lessons
should be considered in future projects. However, despite investments
of an estimated $8 billion from philanthropy and $5 billion from ODA
over the past 10 years (Sumaila et al. 2020), this level of investment is
insufficient for the necessary change to a sustainable ocean economy in
the first place, a point made in another Blue Paper commissioned by the
High Level Panel. Despite many organizations having set up mechanisms
to track both aid and climate finance (e.g., the OECD Development
Assistance Committee), such trackers typically do not focus on financial
flows related to ocean conservation and climate action or, particularly
relevant, internationally agreed policy goals such as the Paris Agreement
and SDG 14 for oceans. In the absence of such coordinated tracking and
monitoring of aid projects, it is difficult for policy makers to assess the
attention to, or prioritizing of, international funding mechanisms related
to oceans and ocean-related climate issues. This results in disjuncture
between regional ocean priorities and development assistance (Hills et
al. 2019).
Thus, more detailed monitoring of international aid flows to ocean
conservation and climate change projects should offer greater insights
into the gaps between current efforts and what may be needed to
achieve global goals. With this issue in mind, the objective of the present
study was to track international aid projects for increasing resilience
against environmental stressors by analyzing public financing of ocean
conservation and climate action. This is a crucial step in identifying
the current and future challenges and gaps for ultimately maximizing
the potential of ocean-based solutions to climate change. This study

contributes to current efforts to track aid for ocean conservation and
climate action. The existing ocean-specific trackers that we recognize
include the OECD’s new database, the Sustainable Ocean Economy
Database, which provides data sets of ocean-related funding from the
OECD and partner organizations. FundingTheOcean.org is another
example; it offers a fund map targeting philanthropic, United States
federal, and bi- and multilateral aid grants from the OECD. These
databases showcase efforts toward ocean conservation in general but
do not track specific funding for climate action, and FundingTheOcean.
org does not include the amount of loans provided, which also makes
up a significant part of the overall funding structure. Therefore, our
tracking study will build upon (but not duplicate) such existing tools
by covering multilateral development banks and global climate funds
and identifying a finance gap in ocean and climate actions. Section 3.2
details the methodology used, including the scope of the research and
the analytical framework. Section 3.3 presents the collected baseline
information, followed by an analysis of the progress and challenges
in facilitating ocean conservation and climate action. In Section 3.4,
we discuss the potential gaps between this aid baseline and existing
estimates of the levels of financing for public goods that would be
needed in lower- and lower-middle-income countries to achieve global
ocean sustainability goals and targets. Policy recommendations follow
in Section 3.5, and Section 3.6 gives the conclusion.
Snapshot of Ocean Financing and Multilateral Public Finance

Understanding the scale and impact of aid to developing countries
for ocean conservation and climate action includes tracking financial
flows from national sources (e.g., government aid agencies) as well
as international sources. In this study, aid at the international level is
defined as aid provided by global funds (e.g., the Global Environment
Facility) and multilateral and regional development banks (e.g., the
World Bank Group, the African Development Bank, ADB, and the Inter-
American Development Bank). Additionally, climate funds, which
are developed under the United Nations Framework Convention on
Climate Change (e.g., the Adaptation Fund, Least Developed Countries
Fund, Special Climate Change Fund, and Green Climate Fund) to fulfill
global adaptation needs, play significant and growing roles in funding
ocean conservation and sustainable fisheries in developing countries.
Tracking aid for ocean conservation and climate action could include
tracking grants and concessional investments from public institutions
operating at the national or international level, i.e., public financing, as
well as philanthropy and private capital for public goods (e.g., “impact
investing”), but tracking these sources of funding is outside the scope

of the present analysis. The following is a brief description of the
multilateral financial institutions covered in this chapter and their
activities related to ocean conservation.
The Green Climate Fund (GCF) administers the financing
instruments under the United Nations Framework Convention on
Climate Change (UNFCCC) to help developing countries reduce GHG
emissions (mitigation) and cope with the impacts of climate change
(adaptation). Although the GCF has not identified specific funds for the
ocean, it plays a tremendous role in supporting small island developing
countries, which are particularly vulnerable to climate change and
degraded marine resources. For instance, it upgraded support for Pacific
nations by strengthening its ties with the Pacific Community in 2019
(GCF 2019).
The Adaptation Fund (AF) is another global climate fund, established
in 2001 under the Kyoto Protocol to finance projects that facilitate
adaptation to climate change in developing countries. The financing for
this fund is a share of proceeds from the Clean Development Mechanism
(CDM), which amounts to 2% of certified emission reductions issued
for a project under the CDM. The AF also serves the Paris Agreement,
a new framework for global climate action adopted in 2015. The AF is
active in many developing countries and has a wide range of investment
themes, e.g., urban and rural development, agriculture, disaster risk
reduction, and food security. Coastal zone management is one of the
areas that the AF supports, and it has supported projects globally in
various developing countries.
The Global Environment Facility (GEF) is another of the largest aid
providers for ocean conservation and climate action. The GEF manages
two global climate change funds established under the UNFCCC in
2001: the Least Developed Countries Fund (LDCF) and the Special
Climate Change Fund (SCCF). The LDCF is mandated to address the
needs of least developed countries, particularly the preparation and
implementation of National Adaptation Programs of Action. The SCCF
is designed to finance activities, programs, and measures in developing
countries relating to adaptation, technology transfer and capacity
building, energy, transport, industry, agriculture, forestry and waste
management, and economic diversification (FCCC/CP/2001/13/Add.1).
The World Bank Group has been one of the largest international
aid providers for ocean conservation and climate action projects since
the early 2000s when it launched the Global Program on Fisheries with
development partners and subsequently leveraged fishery investments.
This program has merged with PROBLUE Umbrella 2.0, established
in 2018, to support sustainable development of ocean and coastal

resources more broadly, beyond just fisheries (World Bank Group
2020). PROBLUE has four pillars: (i) improving fishery governance, (ii)
strengthening management of marine litter and pollution, (iii) reducing
the environmental footprint of oceanic sectors, and (iv) supporting
integrated ocean management policies (“seascapes”). Its 2021 annual
report indicates that the PROBLUE initiative had invested $60.3 million
to support 85 activities across 71 countries as of 2021 (World Bank Group
2021).
ADB has traditionally focused on ocean conservation and
sustainable use in the fishery sector. In 2019, ADB created an ocean
financing initiative entitled The Action Plan for Healthy Oceans and
Sustainable Blue Economies with targets from 2019 to 2024, covering a
wide range of fields including sustainable tourism and fisheries, coastal
and marine ecosystem conservation, reduction in land-based sources of
marine pollution, and port and coastal infrastructure development. This
initiative is expected to broaden the scope of ADB’s financing for ocean
issues (ADB 2018).
Additionally, the African Development Bank (AfDB) has traditionally
provided aid to African states for the fishery sector. The Blue Economy
flagship program, which was established under AfDB’s strategy for
agricultural transformation targeting the period 2016–2025, reported an
increase in its investments in agriculture and fisheries of $1.0 billion per
annum (FAO 2016). The AfDB also established a partnership with the
Food and Agriculture Organization of the United Nations and the World
Bank, which was called the African Package for Climate-Resilient Ocean
Economies and planned to contribute $665.4 million for the period
2017–2020, supplemented by other funding through the GCF, the GEF,
and other partners (AfDB 2018).
The Inter-American Development Bank (IDB) is the largest donor
to the Caribbean island states, with numerous projects funding ocean
conservation and sustainable use. In 2018, the IDB implemented the
Blue Tech Challenge to facilitate, pilot, and scale up business models
that are expected to provide technical solutions for the sustainable
management of oceans, marine ecosystems, and coastal resources (IDB
2019).
The European Bank for Reconstruction and Development (EBRD)
is relatively unique among multilateral development banks with
regard to its mandate. Since the EBRD initially supported the system
transformation in the former Eastern Bloc, its focus has been to facilitate
the market economy in targeted regions, including Central Europe and
Central Asia, by providing loans, equities, and credit. It has started to
explore the potential of offshore wind and wave energy in countries

such as Turkey, but there is not yet a substantial amount of ocean-related
investments. Although the EBRD does not pay special attention to ocean
and marine conservation, it has an explicit environmental mandate in
its history and currently takes the Green Economy Transition approach
to accelerate the development of eco-friendly, low-carbon, and resilient
economies. Its main investment tools are not grants but loans, which is
another reason why soft approaches to ocean conservation are outside of
its scope. Of the 39 countries and territories where the EBRD operates,
21 are landlocked, which may be a reason for the few ocean-related
investments made by the EBRD to date.
3.2 Methodology
In this chapter, the international aid flows referred to were compiled
annually by searching relevant databases for key terms related to ocean
and climate goals and targets. The trends of the estimated annual
disbursements provide a current snapshot of the aid provided by global
multilateral financial institutions to governments and stakeholders in
lower- and lower-middle-income coastal and SIDS countries.
We supplemented the analysis of the financial data with a series of
semi-structured interviews with officers, including ocean conservation
or blue economy experts, at four international financing institutions.
We conducted four sessions with five interviewees in total whom we
could contact (two from the AfDB, one from the EBRD, one from ADB,
and one from the GEF) from October to December 2020. We used an
online meeting platform to conduct all the sessions. The interview
questions included the following topics: (i) the extent to which they see
investment in ocean-related sectors as important, (ii) particular areas of
focus in ocean investment for each bank, (iii) challenges of their current
ocean financing initiatives, and (iv) expectations for future investments
in ocean sectors.
3.2.1 Scope of Tracking
The study builds upon recent efforts that have established a baseline for
international institutions operating at the global level, namely, the GEF
and the World Bank, and at the regional level, i.e., ADB, the AfDB, the
IDB, and the EBRD. We also cover the climate funds established under
the UNFCCC regime: the AF and GCF. The other two climate funds, the
LDCF and the SCCF, which are operated by the GEF, are not explicitly
listed to avoid double-counting. We do not include the European

Investment Bank, as it provides loans to countries within the region,
and our focus is the banks that mainly target developing states and
emerging economies. However, we note the European Union’s high level
of ambition, as shown in its commitments at the Our Ocean Conference.1
In total, we include eight multilateral funds in this study, tracked over
the period from 2013 to 2019.
3.2.2 Analytical Framework
We searched the online project databases of selected multilateral finance

providers using search terms tested according to relevance, erring on the
side of inclusiveness. The coding process disaggregated the total project
budgets into nine mutually exclusive project target categories: fisheries,
pollution reduction, protected areas, ecosystem adaptation, GHG sinks,
marine renewables, marine GHG emissions, population adaptation, and
other ecosystem management and protection. For a detailed description
of each category, see Table 3.1, where the project targets are matched
to SDG targets. Table 3.2 presents the search terms used to extract the
intended projects.
1
The European Union made 77 commitments (worth €10 billion) at the Our Ocean
Conference in 2014 and has already achieved approximately 80% of the total.
Additionally, the European Union announced 22 new commitments (worth
€540 million) at the 2019 conference in Oslo. The European Investment Bank
launched the Clean Oceans Initiative in 2018 to provide €2 billion by 2023 to reduce
marine plastic pollution.
Table 3.1: Framework for Analysis of Public Financing

of Ocean Conservation and Climate Action
SDG SDG
Type of Intervention Target Subcategory of Intervention Target
Ocean pollution reduction 14.1
measures
Coastal and ocean ecosystem 14.2 Coastal and ocean protected area measures 14.5
management
and protection measures Measures explicitly Ocean temperature
targeted to help increases
ocean ecosystems
adapt to climate- Sea level rise
related impacts and storm surge
Acidification 14.3
Measures explicitly aiming to enhance
coastal sinks of greenhouse gases
All other coastal and ecosystem
management and protection measure
Ocean fisheries 14.4 Measures targeted to support small-scale 14.7
management measures fisheries
Measures to help coastal 13.1
populations adapt to climate-
related impacts
Measures to reduce ocean- 7.2
linked anthropogenic sources of
greenhouse gases
Measures to increase
ocean-based sources
of renewable energy

Source: Created by authors.
Table 3.2: Search Terms

Type of Subcategory of Finance Search
Intervention Intervention Category Terms
Ocean fisheries Measures Fisheries Marine OR Fish* OR Coral
management targeted to Ocean OR OR Reef
measures support small- Oceanscape
scale fisheries OR Seascape
OR Coastal
Ocean Pollution Marine OR Pollut*
pollution Ocean OR
reduction Oceanscape
measures OR Seascape
OR Coastal

Table 3.2 continued
Type of Subcategory of Finance Search
Intervention Intervention Category Terms
Coastal Ecosystems Ecosystems – Marine OR MPA OR
and ocean Protected Areas Protected Areas Ocean OR Protected Area
protected area Oceanscape OR Park OR
measures OR Seascape Reserve
OR Coastal
Measures Ecosystems Marine OR Adapt* OR Ecosystem
explicitly Adaptation Ocean OR Climate OR Sea
targeted to Oceanscape Level Rise OR
help ocean OR Seascape Coastal Erosion
ecosystems OR Coastal OR Coastal
adapt to Disaster Risk
climate-related
impacts
Coastal Measures Ecosystems Marine OR Methane Sink OR
and ocean explicitly aiming GHG Sinks Ocean OR OR Carbon Sequestration
ecosystem to enhance Oceanscape Dioxide OR OR Storage OR
management coastal sinks OR Seascape Greenhouse Mitigation
and protection of greenhouse OR Coastal Gas OR GHG
measures gases (GHGs) OR Mangrove
OR Seagrass
OR Marsh
OR Coastal
Wetland
All other Ecosystems Marine OR Management Ecosystem
coastal and Management Ocean OR OR Protection
ecosystem Oceanscape OR Ecosystem-
management OR Seascape Based
and protection OR Coastal Adaptation
measures OR Ecosystem
Approach OR
Integrated
OR Zone OR
Spatial Planning
Measures to Marine Marine OR Renewable OR Energy OR
increase ocean- Renewables Ocean OR Wind OR Wave Generat*
based sources Oceanscape
of renewable OR Seascape
energy OR Coastal
Measures Marine GHG Marine OR Methane Mitigat* OR
to reduce Reduction Ocean OR OR Carbon Reduc*
ocean-linked Oceanscape Dioxide OR
anthropogenic OR Seascape Greenhouse
sources of OR Coastal Gas OR GHG
greenhouse
gases
Measures to Coastal Marine OR Population OR
help coastal Populations Ocean OR Displace* OR
populations Oceanscape Migrat*
adapt to OR Seascape
climate-related OR Coastal
impacts
MPA = marine protected area.

Source: Created by authors.
We excluded projects approved before 2013 or after 2019, canceled

projects, projects in landlocked countries, and projects explicitly
targeting inland or freshwater ecosystems (e.g., lakes). Furthermore,
we excluded projects whose objectives involved interventions or
targeted ecosystems that were clearly not related to oceans, according
to the following keywords: “pastoral range management,” “grazing,”
“cloud forests,” “archaeology,” “National Biodiversity Strategy,” “BSAP,”
“terrestrial renewable energy,” “mountain,” “livestock,” “grassland,”
“water supply,” “POPs,” “desertification,” and “health.” Additionally,
“Enabling Activities” to support nationwide assessments or strategies
were excluded. With regard to projects that spanned multiple categories,
we applied the equal division rule; if two categories applied, we divided
the total project budget (less overhead) into two categories (50% each).
If three categories applied, the budget was divided into equal thirds.
3.3 Results
3.3.1 Project Identification
We retrieved publicly available project documents using the search

methodology and subsequently prepared documents summarizing all
relevant projects (n = 306) approved between 2013 and 2019. We found
that the number of projects increases at a steady pace annually (Figure
3.1). With regard to the geographical distribution of these projects, 19%
targeted states in Asia, 15% targeted the Pacific region, 27% targeted
Africa, 26% targeted the Caribbean, 11% targeted South America, and
the remaining 2% targeted Europe. A total of 107 projects (38% of the
total) targeted SIDS (Figure 3.2). Some projects targeted ocean and
marine conservation but were excluded owing to the ambiguity of the
categorization. Building or ramping up a financial mechanism specifically
targeting ocean-related activities is an example. For instance, the project
titled Investment in the Althelia Sustainable Ocean Fund finances the
blue economy in the region, including seafood businesses, ecotourism,
ecosystem conservation, sustainable coastal infrastructure, and access
to energy.
Figure 3.1: Cumulative Number of Projects for Ocean

Conservation and Climate Action
350
306
300
272
250 218
192
200
155
150 115
100
51
50
0
2013 2014 2015 2016 2017 2018 2019
Source: Authors.
Figure 3.2: Distribution of Projects for Ocean Conservation

and Climate Action, 2013–2019
South Europe
America 2%
11%
Asia
19%
SIDS
Caribbean Pacific 38%
26% 15% Non-SIDS
62%
Africa
27%
SIDS = small island developing states.
Source: Authors.
3.3.2 Tracking International Aid for Ocean Conservation

and Climate Action
According to the data collected, we estimate that the total public

financing (or aid) for ocean conservation and climate action increased
from slightly over $579 million in 2013 to over $3.5 billion in 2019
(Figure 3.3). We also identify an increase in the scale both of loans
and non-loan-based projects (including grants and no information
projects). Figure 3.4 shows the total funding by category. More than half
of the total funding aimed to help coastal populations adapt to climate-
related impacts, followed by ecosystem management (excluding
ecosystem adaptation) and fisheries. There was limited funding for
marine GHG emissions and pollution reduction. The funding largely
targeted SDG 13.1 (coastal population adaptation), followed by SDG 14.4
(fisheries) (Figure 3.5), which has grown rapidly since 2017. Conversely,
the level of funding for SDG 14.2 (ecosystem management) and SDG 14.3
(ecosystem adaptation) remained lower than $200 million per year,
with the exception of an increase in 2016. SDG 14.5 (protected areas)
did not receive finance of this magnitude in the study period. As regards
the distribution of the funding, 51% of it went to Asia, 12% to the
Pacific, 18% to Africa, 11% to the Caribbean, and 8% to other regions
(Figure 3.6). Interestingly, Asia attracted the largest amount of funding,
even though it accounted for only 19% of the projects. In contrast, Africa
and the Caribbean received a relatively small percentage of the total
funds, despite their large number of projects. To support SIDS for ocean
conservation, there was total funding of $891 million.
Figure 3.3: Funding Trend, 2013–2019

4,000
3,519
3,500 3,335
3,000
2,449 1,470
1,470
2,500 2,042
1,726 966
2,000
743
1,500 1,010 743
1,865 2,049
579 495 1,483
1,000 1,299
401 983
500 515
178
2013 2014 2015 2016 2017 2018 2019
Non-loan Loan
Source: Authors.
Figure 3.4: Finance by Category, 2013–2019

Fisheries
15%
Pollution reduction
2%
Protected areas
5%
Ecosystem adaptation
Population adaptation
8%
54%
GHG sink
0%
Other ecosystem management

16%
Marine renewables
0%
GHG = greenhouse gas.
Source: Authors.
Figure 3.5: Finance by Sustainable Development Goal Target,

2013–2019
600
500
400
$ million
300
200
100
0
2013 2014 2015 2016 2017 2018 2019
SDG 13.1 - coastal population adaptation

SDG 14.4 - fisheries
SDG 14.2 - ecosystem management
SDG 14.3 - ecosystem adaptation
SDG 14.5 - protected areas
Source: Authors.
Figure 3.6: Distribution of Funding for Ocean Conservation

and Climate Action, 2013–2019
Europe
South
1%
America
7%
Caribbean
11%
Non-SIDS
Asia 36%
51% SIDS
Africa
64%
18%
Pacific
12%
SIDS = small island developing states.
Source: Authors.
Fisheries. Listed projects targeting marine fisheries and aquaculture

can be classified as fishery management, including development plans,
resilience building, and financial mechanism establishment. The
first category includes, for instance, establishment and operation of a
regional system of fisheries; support for a sustainable development
program; and improvement of research, planning, and administration
capabilities. One of the IDB’s representative projects, Support for the
Economic Empowerment of Fly Fishing Guides, attempted to facilitate
a locally driven sustainable fish industry in the Bahamas through
the establishment of an association. In the second category, there
are several projects aimed at strengthening the adaptive capacity of
the fishery and aquaculture sector to climate change. One example
is the project funded by the AF, which is called Adaptation to the
Impacts of Climate Change on Peru’s Coastal Marine Ecosystem and
Fisheries. It supports government agencies, the private sector, and local
communities to strengthen the capacity for climate-resilient artisanal
fishing and reduce the vulnerability of coastal ecosystem management.
The third category is represented by the GEF’s project The Meloy Fund:
A Fund for Sustainable Small-Scale Fisheries in Southeast Asia, which
involves investments in enterprises related to fishing and seafood in the
Philippines and Indonesia.
Pollution reduction. We identify only a few projects that specifically
focus on marine pollution reduction and target plastic pollution. ADB
has implemented “promoting action on plastic pollution from source

to sea in Asia and the Pacific” projects, which helps prepare action
plans, forms policy and regulations to encourage a circular economy,
and provides investments in integrated solid-waste management and
circular economy systems. Another example of a pollution reduction
project is the GEF project, which supports the implementation of action
programs for land-based pollution reduction to protect critical coastal
ecosystems in the Western Indian Ocean, including improving river
basin management.
Ecosystem management. We divide the projects related to
ecosystem management into four subgroups: coastal and ocean
protected area measures, measures explicitly targeted to help ocean
ecosystems adapt to climate-related impacts, measures explicitly aimed
at enhancing coastal sinks of GHGs, and all other coastal and ecosystem
management and protection measures. With regard to marine protected
areas (MPAs), the GEF has been the most active funding provider. Its
activities range from the creation of an MPA to enhancing its governance
and financial sustainability. In contrast, programs targeting ecosystem-
based adaptation have been financed by a variety of funders, such as
the GEF, GCF, and AF. This includes encouraging local action plans to
integrate ecosystem-based adaptation approaches. The GCF undertakes
a unique approach, i.e., the Blue Action Fund, where adaptation
subprojects of nongovernmental organizations have been pooled to
improve climate-resilient coastal management in the Western Indian
Ocean. Programs focusing on the coastal sinks of GHGs involve updating
local inventories for blue carbon ecosystems such as mangroves and
managing production landscapes.
Marine renewable energy. The only identified project involving
marine renewable energy is the Support of Marine Energy Pilot Projects
in Southern Chile funded by the IDB. This project aims to support
the market entry of marine renewables such as wave energy and tidal
energy, which are mostly at the pre-commercial stage of development
in targeted countries. Despite increasing interest in marine renewable
energy, SIDS face challenges, including a lack of available data and
human resources, the need for policy and regulatory frameworks, and
the scarcity of funding (Lucas et al. 2017). Studies have been increasingly
performed on the potential of offshore wind power generation in
developing countries and emerging economies (Waewsak, Landry, and
Gagnon 2015; Nagababu et al. 2017; Rusu and Onea 2017; Rueda-Bayona
et al. 2019), providing insights and evidence to countries that aspire to
develop projects in the future.
Population adaptation. This category lays out a variety of projects
related to climate change adaptation in coastal zones such as coastal
protection, disaster risk management, and resilience building in

industries. It should be noted that investments in infrastructure (e.g.,
coastal roads, ports and shipping, evacuation shelters, or sea walls)
aimed at resilience building are included in this category and are
typically financed by loans. Meanwhile, grant-based approaches such as
disaster information dissemination and coastal governance and support
for policy making are also identified. The project in Timor-Leste
funded by the United Nations Development Programme and the GEF
focuses on reducing climate-induced disaster risks for small-scale rural
infrastructure planning and management by supporting integration
of climate risk into policies, regulations, and institutions. While these
reactive measures are identified, we find no projects that deal with
planned relocation or retreat, which are often cited as adaptation options
(Dannenberg et al. 2019; McMichael, Katonivualiku, and Powell 2019).
Intersection. Some projects bring multiple benefits across
categories. For example, the ecosystem approach to fishery management
implemented by the GEF in Indonesia promotes ecosystem management
for achieving sustainable fisheries. The ridge-to-reef project in Fiji is
another example of approaches that are beneficial in multiple aspects;
preservation of blue carbon ecosystems such as seagrass, mangroves,
and coral reefs by addressing the problem of land-based pollution will
also contribute to enhancing the adaptive capacities of island and coastal
communities.
3.4 Discussion
3.4.1 Total Global Financing for Ocean Conservation
and Climate Actions
In this study, we tracked the international aid/loan projects for ocean

conservation and climate actions funded by multilateral and regional
banks to provide an overview of the past and current trends of these
projects, funding needs, and results to date. Our estimate of the total
global financing for ocean conservation and climate action is $3.5 billion
for the period 2013–2019. The question here is whether this amount
is sufficient as compared to the global demand for ocean and coastal
climate actions. Although there are few estimates of the funding
required specifically for ocean conservation, existing assessments imply
that our estimates of global ocean funding are far from sufficient. For
instance, the OECD reports climate finance provided and mobilized by
developed countries between 2013 and 2018 (OECD 2020). According
to its estimate, total multilateral public climate finance attributable
to developed countries amounts to $128.1 billion for the given years.

Assuming that our estimate covers nearly all outflows from multilateral
institutions to developing countries, only a small amount of funding
is provided for ocean conservation and climate action. The UNEP’s
Adaptation Gap Report indicates that the cost of climate change
adaptation will range from $140 billion to $300 billion per year by 2030
(UNEP 2018). Given that over 3 billion people depend on marine and
coastal biodiversity for their livelihoods (UN 2017), further funding and
efforts to implement it through concrete projects will be needed.
By comparing the current baseline and past investments in ocean
conservation and climate action projects and the estimated future costs
for ocean conservation and climate action, we should be able to evaluate
the overall financing gap for lower- and lower-middle-income countries
to help achieve international targets related to ocean conservation and
climate action. Unfortunately, there are no existing plausible estimates
of the total costs of ocean-based solutions to climate change. In future
studies, the costs should be estimated through scientific and gray
literature or submitted nationally determined contributions (NDCs)
for the Paris Agreement that include cost estimates. Gallo, Victor, and
Levin (2017) analyzed 112 of 161 NDCs (70%), including marine issues,
although few of the contributions identified quantitative targets for
financing and investment.
3.4.2 G
eographic Distribution and Different Types
of Financial Assistance
In regard to geographical distribution, we find that the Asia and Pacific
region accommodates relatively large-scale projects compared with the
rest of the world. These include projects that are fully or partly funded
by loans. We identify 13 loan projects, of which 9 are implemented in Asia
and the Pacific. All are funded either by ADB or the World Bank. Most
loans have been directed to coastal disaster risk mitigation, including
infrastructure construction and coastal fishery development, along with
funded ecosystem preservation projects such as the World Bank’s Coral
Reef Rehabilitation and Management Project in Indonesia. For grant
projects, South Asia and South America receive the largest amounts of
global ocean finance.
The identified predominance of grant projects should be noted.
Comparisons between loans and grants have been made since 2000
(Bulow and Rogoff 2005; Cohen, Jacquet, and Reisen 2007). In numerous
developing countries, small-scale grant-based projects may be ideal and
feasible with regard to implementation and capacity building rather
than large-scale loans at this stage. However, Cordella and Ulku (2007)
argued that neither loan-dependent nor grant-dependent situations
should be the most desirable outcome, albeit the optimal mix of grants
and loans depends on the characteristics of the recipient country. There
is a long-standing debate on which loans or grants are more effective
in supporting the poorest countries. Cohen, Jacquet, and Reisen (2007)
pointed out that loans or grants should not be taken in isolation, and
that a more flexible mechanism that incorporates a mixture of those
two mechanisms performs better than grants only or loans only, offering
empirical evidence. They concluded that there is a rationale for loans
as effective aid delivery mechanisms and that donors should build on a
capacity to use a wide range of financial instruments, including loans. It
is critical to explore other financial schemes for ocean-related projects
rather than depending heavily on grant-based aid. Thus, ensuring the
bankability of ocean and climate actions is a key issue. Interest is growing
in the role of public finance in catalyzing private finance through a mix of
private and public finance schemes such as public–private partnerships
(PPPs). Researchers are increasingly investigating the potential of
PPPs to resolve development issues, e.g., disaster risk reduction, solid-
waste management, and carbon emission reduction (Stewart, Kolluru,
and Smith 2009; Aliu, Adeyemi, and Adebayo 2014; Khan et al. 2020),
whereas few studies have focused on ocean and coastal conservation.
Golden et al. (2017) stated that private capital must play an active role
in helping ocean industries be financed, while public finance is crucial
for the introduction of sustainable policies. They proposed a PPP
focused on the oceans under an international cooperation scheme, such
as the United Nations Convention on the Law of the Sea, to facilitate
international cooperation and support.
Blended finance, which is defined by the OECD as “the strategic use
of development finance for the mobilisation of additional finance towards
the SDGs in developing countries” (OECD 2018: 3), is another possible
method for leveraging public finance to promote private investment
(pump-priming). Recent literature focusing on water resource
management highlighted the role of blended finance in mobilizing
private financing to achieve the SDGs in developing countries (Kolker
et al. 2016; Leigland, Trémolet, and Ikeda 2016; Winpenny et al. 2016).
Additionally, the OECD Development Assistance Committee admits
that blended finance will be crucial for unlocking commercial finance
to satisfy the 2030 Agenda and the Paris Agreement and for developing
a common policy framework and guidance to implement the principles
developed in 2018 (OECD 2018).
To ensure private-sector involvement and achieve bankability,
incorporating ocean conservation into national, regional, or local
economic systems offers stakeholders incentives to sustain investment

in ocean and coastal natural resources. Kathijotes (2013) argued that
introducing innovative technology to generate new cash flows, which
creates jobs and builds social capital, is crucial. However, in reality, the
major challenge in facilitating a sustainable blue economy is the lack
of practical models that indicate how development aid drives regional
and local economic cycles. Although emerging literature reviews the
practices of a successful blue economy (Wenhai et al. 2019), developing
sustainable models is challenging, particularly at the local level.
Bennett et al. (2019) pointed out that assumptions of a “trickle-down”
blue economy are problematic because unregulated economic growth
can produce economic inequality and generate limited local benefits.
Designing blue economy projects that ensure local benefits and private-
sector participation would be a significant step toward maximizing
and maintaining the effect of development aid from public funding
and toward developing sustainable models of ocean conservation. We
identified six projects that are labeled as “blue economy” from the AfDB
and the IDB, and an increase in such projects is expected given the
increasing attention being paid to this field.
3.4.3 Potential for Future Funding
Our findings also reveal that global ocean financing is likely to be directed
toward specific categories such as coastal population adaptation,
ecosystem management, and the fishery industry. A relatively small
amount of finance flows to the MPAs and pollution reduction. In terms
of the balance between climate change mitigation and adaptation, the
current flows of ocean financing have concentrated on the adaptation
side. The total financing scale of projects related to marine carbon
sink, which is known as “blue carbon,” and marine renewable energy
appears to be limited to less than $30 million for the given period.
Additionally, we found few projects targeting GHG emission reduction
in the ocean industry. These findings imply that ocean-based or ocean-
related mitigation measures for climate change and their potential
have not been sufficiently recognized by potential recipients. The
aforementioned Blue Paper provided by the High Level Panel for a
Sustainable Blue Economy indicates the global potential of the ocean
for carbon neutrality, but it is also worthwhile to identify contributions
on regional and local scales. Furthermore, there is a need for efforts to
reduce the uncertainties and limitations of currently available ocean-
based climate change mitigation measures. The carbon sink potentials of
various coastal and marine ecosystems have been assessed with regard
to long-term effectiveness (Howard et al. 2017; Gattuso et al. 2018), and
the results can assist decision makers in designing effective projects.

Marine renewable energy, such as offshore wind power, appears to
take a long time to be expanded to developing countries owing to costs,
legal barriers, and technological challenges, while international donors
such as the World Bank are already seeking opportunities in emerging
markets (World Bank Group 2019).
This study has several methodological limitations. Our estimate
does not represent total outflows from multilateral institutions to
ocean-related projects but only those from several major multilateral
financial institutions with project data sets available online. However,
this study is the first attempt to compile the data from eight regional
development banks and climate funds and provides a rough picture
of the global flows of public multilateral finance to ocean and climate
actions, supplementing the existing ocean finance tracking data sets,
which focus on bilateral finance.
3.5 Policy Recommendations

Tracking multilateral aid flows to lower- and lower-middle-income
coastal areas and SIDS for comparison against required funding to
fully implement and build on NDCs and SDGs allows us to identify
significant gaps and prospects for greater impact of aid for ocean
conservation and climate action. The findings of this study suggest that
adaptation and mitigation efforts in lower- and lower-middle-income
coastal and SIDS countries/communities can receive increased funding
through: (i) directing a significant portion of the current climate funds
to coastal and SIDS issues and (ii) developing supplementary financing
to support adaptation and mitigation methods through innovative
approaches and partnerships. To achieve the first objective, enhancing
access to available financial resources is crucial. Given the recent
wave of commitment to ocean sustainability among political leaders
(UNESCO 2020), without appropriate efforts, a significant gap will
emerge between implementation and available resources. In addition
to identifying the potential needs of ocean-related projects, capacity
building helps countries develop proposals for financial institutions.
To facilitate financing where it is needed and to support matchmaking
between project needs and available financial resources, a practical
guide would be helpful. Such a guide should include a list of available
financial sources, procedures, and guidelines for project formulation
and implementation, a menu of ocean and climate project models, and
necessary environmental safeguarding and restoration measures.
3.6 Conclusion
Comprehending the scale and distribution of international aid is a
critical first step in advancing ocean conservation and climate action on
a global scale. In this study, baseline data were obtained by reviewing
the online project databases of selected multilateral financial providers.
In conclusion, the world has seen a steady increase in investment in
ocean and climate actions. This quantitative analysis is expected to
inform both donors and recipients of the emerging importance of the
roles of multilateral aid in ocean-based solutions to climate change.
We also identify future challenges, including the insufficient scale of
funding, bias between regions and categories, the predominance of grant
projects, and the lack of projects targeting climate change mitigation.
These issues will be addressed by the international community through
a discussion on relevant platforms such as the UNFCCC. To overcome
the challenges and sufficiently leverage the increasing commitments
to ocean financing, we will need tools and communications that
bridge multilateral donors and potential recipients. We propose the
development of a guide that helps lower- and lower-middle-income
countries map out ocean-related projects and access available financial
resources as well as informs climate finance providers. Furthermore, we
propose global efforts to raise ambitions toward sustainable investment
in ocean and coastal climate actions by creating ecosystems, including
universal language for ocean financing, evidence-based bankable
project models, and PPP platforms. This work contributes to enhancing
global ocean financing and, in particular, the linkage between ocean and
climate finance solutions for achieving international goals for ocean
conservation and climate action.
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4
The Blueness Index, Investment
Choice, and Portfolio Allocation
Muhammad Zubair Mumtaz and Zachary Alexander Smith
4.1 Introduction
The ocean absorbs immense heat due to increased greenhouse gas
(GHG) concentrations in the atmosphere, mainly from fossil fuel
consumption. Vanderklift et al. (2019) claim that, due to the degradation
of blue carbon ecosystems, which include mangroves, seagrass, and tidal
marshes, 0.15 to 1.02 billion tons of carbon seeps into the atmosphere
each year, which is one to six times the levels of carbon dioxide (CO2)
that the deforestation of the Amazon releases. Increases in the release
of carbon emissions into the atmosphere cause the temperature to rise,
which leads to coral bleaching and causes a loss of breeding grounds
for marine fish and mammals. The Paris Agreement on climate change
envisages limiting the global average temperature rise to well below
2°C, which will avoid the massive, irreparable effects of ocean warming
on marine ecosystems and services. The ocean emissions include CO2,
sulfur dioxide (SO2), and nitrogen oxide (NOx). About 2% of sulfur oxide
(SOx) emissions originate from the ocean across coastal regions, while
atmospheric NOx contributes 25% of the total emissions. The proportion
of CO2, SO2, and NOx in ocean emissions varies across regions, and ocean
emissions assessment is too uncertain (Ciais and Sabine 2013).
Financial markets and institutions play a critical role in providing
financing for firms that operate in ocean-related businesses, which we
will call ocean firms, and achieving sustainability. Both the public and
private sectors can contribute to achieving sustainability by providing
blue financing to create a stable blue economy. The Sustainable Blue
Economy Finance Principles are elastic in terms of their application
throughout the whole ocean economy, identifying the necessary
modalities to assess the different proposals and their implementation.
The purpose of sustainable investment is to confirm that ocean-related
72
The Blueness Index, Investment Choice, and Portfolio Allocation 73
investment contributes long-term value without hurting marine

ecosystems and reduces carbon emissions. The “blue finance” concept
aims to obtain funds by issuing blue bonds, blue initial public offerings
(IPOs), blue credit, or blue investments. The literature has not provided
a specific definition of blue finance; however, researchers have defined
it from their perspectives. Gulseven (2020) argues that blue finance’s
goal is to promote the execution of projects and achieve the Sustainable
Development Goals (SDGs) relating to marine resources. To achieve
the objective of ocean sustainability, SDG 14 safeguards the interest of
marine resources. We assume that when firms take necessary measures
they will reduce the level of ocean emissions. To test this hypothesis,
this chapter measures the blueness of ocean firms.
According to Tirumala and Tiwari (2020), there have been many
investments in blue finance, ranging from investments in fisheries
and aquaculture to investments in coastal and marine tourism, the
water supply, environmental protection, shipbuilding, ecosystem
conservation, chemicals and pharmaceuticals, ports and shipping,
offshore oil and gas, and energy. The issuance of the first two blue bonds
occurred in 2016 and 2019; these were the Seychelles Blue Bond and
the Nordic–Baltic Blue Bond, which raised $15 million and $213 million.
The purpose of blue bonds is to develop sustainable fisheries and water
resource management and protection (Tirumala and Tiwari 2020). More
recently, investments in blue finance have received more attention, and
there are projections for an estimated $5.22 billion in pursuit of projects
that focus on developing sustainable fisheries and protecting them from
waste: Rare’s Meloy Fund, Encourage Capital, Althelia’s Sustainable
Ocean Fund, and Circulate Capital (Tirumala and Tiwari 2020). Further,
Tirumala and Tiwari (2020) state that the development of blue finance
is in its infancy and looked to green finance initiatives as a reference
point to begin to think about the future growth of the market for
blue bonds; since 2007, green financing channels have raised over $521.
This study has several objectives. First, we estimate the blueness
index, which determines how blue a firm is. To examine the blueness
of a firm, we use the ocean emissions as a percentage of sales. A higher
value of the blueness index for a firm means that it produces lower
emissions. Second, we propose a theoretical model that measures the
portfolio utility function, covering the return, risk, and blueness index.
We assume that investors participate in blue bonds and that they base
their preferences on the blueness of firms. Third, this study proposes
that governments might impose taxes for ocean emissions in the absence
of blueness factors, reducing bonds’ returns. We test this hypothesis
empirically and report that when firms face taxes on emissions, the
returns of non-blue firms are lower. Fourth, we identify the factors
that affect stock returns and find a positive relationship between firms’
blueness and their returns. This study finds that relatively “bluer” firms
may be more socially conscious, leading to them to outperform other
firms.
The rest of this chapter is structured as follows. Section 4.2 explains
the relationship between ocean emissions, financing, and the blue
economy. Section 4.3 provides a brief overview of blue finance. Section
4.4 describes a theoretical model of investors’ utility function, including
the blueness index and emission taxation, and examines the factors
that cause stock returns. Section 4.5 describes the data and sample.
Section 4.6 discusses the empirical results, and Section 4.7 concludes
the chapter.
4.2 Ocean Emissions, Financing,

and the Blue Economy
The blue economy has the potential to enable inclusive economic
growth, generate employment opportunities, and attain sustainable
development goals. The ocean provides an essential source of proteins
for the global economy. Spalding (2016) suggests that half of the world’s
inhabitants live within 100 kilometers of the coast and indicated that
estimates place the global ocean economic activity between $3 trillion
and $6 trillion. Hilborn and Costello (2018) suggest that capture
fishery is the most important or significant human activity in the
economy, playing a central role in the blue economy and blue growth.
The general conclusion that Hilborn and Costello (2018) communicate
is that the fishing yield is likely to increase and that blue growth is
possible if fisheries engage in reforms focusing on enhancing efficiency.
Ocean emissions affect the ecosystem, challenge goals associated with
sustainable development, and affect people living on the world’s coasts
(Steffen 2012).
Eikeset et al. (2018) indicate that the idea of blue growth (by way
of “sustainable development”) stemmed from multiple academic
meetings: (i) the first on sustainable development at a 1972 United
Nations (UN) conference that took place in Stockholm; (ii) the second at
a 1992 UN conference focused on the economic dimension of sustainable
development in Rio; (iii) the third at a 2002 UN conference focused on the
social dimensions of sustainable development in Johannesburg; finally,
(iv) at a fourth meeting held in Rio, the idea of “blue growth” emerged to
“secure or restore the potential of the oceans, lagoons, and inland waters
by introducing responsible and sustainable approaches to reconcile
economic growth and food security with the conservation of aquatic
resources” (Eikeset et al. 2018: 178). According to Niiranen et al. (2018:

321), the European Union sees blue growth as a framework for sustainable
economic growth in our oceans and seas and along our coasts, whereas
the UN Food and Agriculture Organization (FAO) views blue growth as
an “opportunity to promote sustainable socioeconomic management of
capture fisheries and aquaculture.” Niiranen et al. (2018: 321) describe
blue growth as focusing on “using the oceans to create maximal income to
society in a way that is ecologically, socially, and economically sustainable,
i.e., preserving the functioning of all ecosystem services accrued from
the oceans.” Goddard (2015) argues that the blue economy refers to a
sustainable ocean economy in which countries explore marine resources
by balancing ocean systems’ capacity and resilience. In another study,
Smith-Godfrey (2016) contends that the blue economy aims to manage
blue resources while considering societal development without affecting
the ocean systems. Most countries have emphasized restrictions on ocean
pollution, which are an essential component of the Paris Agreement and
the Aichi targets (part of the Convention on Biological Diversity). In
summary, people consider “blue investment” as the pursuit of growth
in an ecological, social, and economically sustainable manner (Bennett
2018) in relation to marine resources.
It is possible to connect the blue economy’s components in terms
of sustainability, human well-being, social equity, and multilateralism
for international cooperation. The European Union has taken various
initiatives to harness marine resources’ economic prospects for
sustainable development and devise a proper utilization mechanism.
The blue economy currently integrates traditional marine-based sectors,
such as fishing, maritime transport, and tourism, and new marine
activities, like aquaculture, biotechnology, offshore renewable energy,
and bioprospecting. In an attempt to develop win-win-win strategies
for aligning the concerns of coastal communities, the environment,
and investors, Barbesgaard (2018) highlights four primary concerns:
(i) the tragedy of the commons and “green grabbing"; (ii) blue growth
as a counter to the destruction of marine and coastal ecosystems;
(iii) incentivizing “sustainable fisheries "; and (iv) blue carbon initiatives.
Overcoming these concerns and balancing the priorities associated with
dealing with each of these issues require targeted efforts. Barbesgaard
(2018) comments on creating a speculative frontier for financers and
describes how blue initiatives can appeal to investors. Today, the
primary sources that countries use to finance ocean activities are based
on the commitments covering the official development assistance
and public budgets (Wabnitz and Blasiak 2019), which are woefully
inadequate. Other funding sources that have recently emerged include
philanthropic grants (Guggisberg 2019).
According to a survey by the World Ocean Initiative (2020), nine

out of ten institutional investors have shown their intent to support
the sustainable ocean economy. This survey evaluated the investors’
likelihood of financing the blue economy, enabling the utilization of
ocean reserves to achieve economic growth and better livelihoods and
to safeguard and reinstate the marine environment. Almost 81% of
investors viewed blue finance as an attractive feature when investing.
The respondents gave similar values to the environmental and social
benefits as they did to obtaining financial returns. Roughly 75% of
thematic investors attempted to invest in assets that would add value
to their investments and ensure ocean sustainability. The respondents
further claimed that a clear definition of blue finance to achieve a
sustainable blue economy does not exist. Additionally, they argued that
there is a lack of investment-grade projects in the blue economy. They
proposed the introduction of innovative financial products covering a
mix of finance and public–private partnerships to gauge and mitigate
risk investments in the blue economy.
We can create a link between ocean emissions, financing, and
the blue economy to explain their relationships. Like environmental
pollution, ocean emissions create various problems for the ecosystem,
which adversely affect the health of the ocean environment. An essential
component of financing ocean firms is to create opportunities to invest
in blue projects through incentives. As a comparison, we can refer to
green finance, whereby firms have different options to raise funds and
benefit the environment. In line with this proposal, ocean firms may
issue blue bonds, blue IPOs, blue loans, and blue investment to gather
funds that contribute to firms’ development and minimize the risk of
ocean emissions, thereby achieving a blue economy. This study examines
the blueness factor of firms and investigates how it helps to increase
investment participation in blue bonds.
4.3 Blue Finance: An Overview

Blue finance is a recently introduced concept that covers (i) blue bonds,
(ii) blue IPOs, and (iii) blue investment. The purpose of blue finance is
to encourage the implementation of projects and attain the SDG that
envisages the preservation and sustainable employment of the oceans,
seas, and marine resources for sustainable development (Gulseven
2020). In the literature, no clear-cut definition of a “blue bond” or “blue
project” is available. It is a financing instrument to gather funds for
fulfilling the sustainable development goals associated with life under
water by strengthening blue natural capital (BNCFF 2019). The good
governance of the ocean and coastal habitats creates long-term value in
marine and coastal ecosystems, mitigates GHG emissions, and enhances

livelihoods that rely on the ocean and resources in an erratic climate.
According to the World Bank, a blue bond is “a debt instrument issued
by governments, development banks, or others to raise capital from
impact investors to finance marine and ocean-based projects that have
positive environmental, economic, and climate benefits” (Bajpai 2021).
The financing principles of the sustainable blue economy developed
in 2018 based on transparency to promote green and social bond markets
to consider the environmental, social, and governance framework in
identifying projects that increase the local community’s livelihoods.
The BNCFF (2019: 7) refers to a blue bond as “a green/environmental,
social or sustainable bond in the market.” This represents undertaking
a project by issuing blue bonds to benefit the environmental condition
of the ocean, seas, and marine resources. The financing of blue bonds
emphasizes coastal ecosystems in alignment with the green bond
principles to achieve environmentally sustainable management of living
natural resources, terrestrial and aquatic biodiversity conservation,
sustainable water and waste management, and climate change
adaptation (International Capital Market Association 2018).
Initially, the Republic of Seychelles introduced the first blue bonds
in October 2018 by raising proceeds of $15 million for a tenure of
10 years. It utilized the funds to extend the marine secured zones, invest
in sustainable fisheries management, and ensure that the blue economy’s
progress persists. Assistance has come from the World Bank with a
finance package of $20 million, the Global Environment Facility (GEF)
with loans of $5 million, and the International Bank for Reconstruction
and Development (IBRD) with a grant of $5 million for financing blue
bonds to preserve the marine ecosystem and enhance the possibilities
for the value chain of the seafood industry. Furthermore, the IBRD
extended a guarantee of €5 million and the GEF provided credit of
$5 million as a non-grant instrument. These credit enhancement
mechanisms aimed to mitigate risk on behalf of investors, thereby
enhancing credit ratings and reducing interest rates to a level between
2% and 3%.
To safeguard and restore the Baltic Sea, the Nordic Investment
Bank raised funds by issuing blue bonds in January 2019. It issued the
blue bonds for 5 years and attracted an amount of $213 million with a
coupon rate of 0.375%, which faced oversubscription by more than two
times. The bank utilized the proceeds to finance projects relating to
water pollution prevention, wastewater treatment, and water-related
climate change adaptation. In short, we can argue that blue bonds aim
to achieve social and sustainable goals to support the blue economy.
Table 4.1 summarizes the details of blue bonds.
Table 4.1: Terms of Blue Bonds
Financing
Bond Purpose Size Duration Investors Terms
Seychelles Transition $15 million 10 years World Bank; The loan from
Blue Bond support to Private the Global
sustainable Placement: Environment
fisheries Calvert Impact Facility decreased
Capital; the interest rate for
Nuveen; and the government
Prudential from 6.5% to 2.8%
Capital Market
Nordic– Water $213 million 5 years 0.375% coupon
Baltic Blue resource
Bond management
and protection
Source: Tirumala and Tiwari (2020).
Over the last decade, there has been a tremendous increase in

green bonds. Initially, government organizations issued green bonds to
benefit the environment and achieve sustainable development in their
economies. Subsequently, corporate firms issued green bonds to raise
funds, assuming that they would contribute to the green environment.
Following a similar pattern, we argue that blue bonds will be a vital
financing instrument through which firms can improve the ocean’s
quality by obtaining funds (similar to Tirumala and Tiwari 2020). To
examine firms’ blueness, this study develops a blueness index that
classifies firms based on the amount of emissions that they produce;
as the blueness of a firm increases, its emissions decrease, which leads
to more sustainable development. However, as the firm’s blueness
decreases, its emissions increase, indicating that it needs funds to invest
in blue technology and mitigate the risk of creating emissions.
4.4 Theoretical Model

4.4.1 The Investor’s Utility Function
To develop the relationship between risk and return, Markowitz (1952)

initially proposed the investor’s utility function associated with a
portfolio. He argued that the proportion of investment is based on the
risk and return relationship. Further, he suggested different efficient
frontiers at which investors can maximize their returns. Investors
participate in treasury securities, stocks, bonds, mutual funds, hedge
funds, real estate,

𝑈𝑈(𝑅𝑅𝑡𝑡 and
, 𝜎𝜎𝑡𝑡2 ) so on
= 𝑅𝑅 to optimize
2
𝑡𝑡 − 𝛽𝛽𝜎𝜎𝑡𝑡
each respective portfolio’s
allocation.
We express𝑅𝑅𝑡𝑡the
= traditional
𝛼𝛼𝑡𝑡 𝑅𝑅𝑡𝑡𝐴𝐴 + (1 portfolio
− 𝛼𝛼𝑡𝑡 )𝑅𝑅𝑡𝑡𝐵𝐵 utility function (Bell 1995) as:
𝑈𝑈(𝑅𝑅𝑡𝑡 , 𝜎𝜎𝑡𝑡2 ) = 𝑅𝑅𝑡𝑡 − 𝛽𝛽𝜎𝜎𝑡𝑡2 , (1)

𝑅𝑅𝑡𝑡𝐴𝐴 𝑅𝑅𝑡𝑡𝐵𝐵
where Rt represents the rate 𝑅𝑅𝑡𝑡 =of𝛼𝛼returns 𝐴𝐴
𝑡𝑡 𝑅𝑅𝑡𝑡 + (1 that − 𝛼𝛼a𝑡𝑡 firm )𝑅𝑅𝑡𝑡𝐵𝐵 obtains by investing
in blue bonds, 𝜎𝜎𝑡𝑡 shows 2
= 𝛼𝛼𝑡𝑡 the 2 (𝜎𝜎 𝐴𝐴 )2
𝑡𝑡 risks + (1associated − 𝛼𝛼𝑡𝑡 ) (𝜎𝜎𝑡𝑡 with
2 𝐵𝐵 2
) + 2𝛼𝛼 the𝑡𝑡 (1 blue − 𝛼𝛼bonds, 𝑡𝑡 )𝜎𝜎𝑡𝑡 and β
𝐴𝐴𝐴𝐴
indicates the sensitivity of 𝑈𝑈(𝑅𝑅 risk.

𝑡𝑡 , 𝐵𝐵𝜎𝜎𝑡𝑡We 2 ) can write the
= 𝑅𝑅𝑡𝑡 − 𝛽𝛽𝜎𝜎𝑡𝑡2 portfolio return (Rt) as:
𝑅𝑅𝑡𝑡𝐴𝐴 𝑅𝑅 𝑡𝑡 𝑈𝑈(𝑅𝑅𝑈𝑈(𝑅𝑅 𝑡𝑡 , 𝜎𝜎𝑡𝑡𝑡𝑡 )
2
, 𝜎𝜎𝑡𝑡= 2 ) 𝑅𝑅
=𝑡𝑡 − 𝑅𝑅𝑡𝑡𝛽𝛽𝜎𝜎 − 𝑡𝑡2𝛽𝛽𝜎𝜎𝑡𝑡2
𝐴𝐴 𝐵𝐵 𝐴𝐴𝐴𝐴
𝜎𝜎𝑡𝑡 𝜎𝜎𝑡𝑡 𝜎𝜎𝑡𝑡
𝑈𝑈(𝑅𝑅𝑡𝑡 , 𝜎𝜎𝑡𝑡2 ) = 𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝛽𝛽𝜎𝜎 = 2𝛼𝛼𝑡𝑡 𝑅𝑅𝑡𝑡𝐴𝐴 + (1 − 𝛼𝛼𝑡𝑡 )𝑅𝑅𝑡𝑡𝐵𝐵 , (2)
𝜎𝜎𝑡𝑡2 =𝑡𝑡 𝛼𝛼𝑡𝑡2 (𝜎𝜎𝑡𝑡𝐴𝐴 )2 + (1 − 𝛼𝛼𝑡𝑡 )2 (𝜎𝜎𝑅𝑅 𝐵𝐵𝑡𝑡 2= 𝑅𝑅𝑡𝑡 𝛼𝛼=𝑡𝑡 𝑅𝑅𝛼𝛼𝑡𝑡𝐴𝐴𝑡𝑡+ 𝑅𝑅− 𝐴𝐴 − 𝛼𝛼
𝑡𝑡(1 +𝛼𝛼𝑡𝑡 𝑡𝑡, (1
𝜎𝜎𝑡𝑡2𝑡𝑡− )𝑡𝑡 )𝑅𝑅𝛼𝛼𝑡𝑡𝐵𝐵𝑡𝑡 )𝑅𝑅 𝐵𝐵
𝑡𝑡 ) + 2𝛼𝛼𝑡𝑡 (1𝑈𝑈(𝑅𝑅 = 𝑅𝑅𝑡𝑡 𝑡𝑡− 𝛽𝛽
)𝜎𝜎 𝐴𝐴𝐴𝐴
𝑈𝑈(𝑅𝑅where 2
𝑡𝑡 , 𝜎𝜎𝑡𝑡 ) α=shows 𝑅𝑅𝑡𝑡 − 𝜎𝜎𝛽𝛽𝜎𝜎 𝐴𝐴 2
= 𝐸𝐸(𝑅𝑅𝐴𝐴𝑡𝑡𝐴𝐴𝑈𝑈(𝑅𝑅 − 𝑅𝑅̅𝑡𝑡𝑡𝑡,𝐴𝐴𝜎𝜎 )𝐵𝐵𝑡𝑡2 )investment= 𝑅𝑅𝑡𝑡 − 𝛽𝛽𝜎𝜎in𝑡𝑡2 blue bond A 𝑈𝑈(𝑅𝑅 , 𝜎𝜎–𝑡𝑡2 )α)= 𝑅𝑅𝑡𝑡 − 𝛽𝛽𝜎𝜎𝑡𝑡2
𝑅𝑅𝑡𝑡 = 𝛼𝛼𝑡𝑡the
𝑅𝑅𝑡𝑡𝑡𝑡 proportion
𝑡𝑡 𝐴𝐴
+ (1 𝑅𝑅𝑡𝑡− 𝑅𝑅𝛼𝛼𝑡𝑡𝐵𝐵𝑡𝑡 )𝑅𝑅
of
𝑈𝑈(𝑅𝑅 2
𝑡𝑡 𝑡𝑡 , 𝜎𝜎𝑡𝑡 ) = 𝑅𝑅𝑡𝑡 − 𝛽𝛽𝜎𝜎𝑡𝑡 𝐴𝐴 𝐴𝐴𝐵𝐵 𝐵𝐵
2 and 𝑡𝑡(1
denotes the percentage of investment
𝐴𝐴 𝐵𝐵 𝐴𝐴𝐴𝐴 in blue bond𝛽𝛽𝜎𝜎 B.2𝑅𝑅𝑡𝑡 and 𝑅𝑅𝑅𝑅𝑡𝑡𝑡𝑡 𝑅𝑅𝑡𝑡 estimate 𝑅𝑅𝑡𝑡 = 𝛼𝛼𝑡𝑡 𝑅𝑅𝑡𝑡𝐴𝐴 + (1 −
𝜎𝜎 𝜎𝜎 𝑈𝑈(𝑅𝑅 𝜎𝜎 𝐴𝐴, 𝜎𝜎𝑡𝑡2 ) = 𝑅𝑅𝑡𝑡 − 𝐵𝐵
in𝑡𝑡 blue𝑅𝑅bonds 𝑡𝑡 = 𝛼𝛼𝑡𝑡A 𝑅𝑅𝑡𝑡and + (1 B,𝐴𝐴 − 𝛼𝛼𝑡𝑡 )𝑅𝑅𝑡𝑡 𝑅𝑅𝑡𝑡𝐴𝐴 + (1 − 𝛼𝛼𝑡𝑡 )𝑅𝑅
𝐴𝐴 𝐵𝐵
𝑅𝑅𝑡𝑡 = the𝛼𝛼rate 𝑡𝑡 𝑅𝑅𝑡𝑡 of + (1 returns− 𝛼𝛼𝑡𝑡 )𝑅𝑅 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡
respectively.
𝑡𝑡 𝑅𝑅𝑡𝑡 = 𝛼𝛼𝑡𝑡the
𝐵𝐵We calculate
𝐴𝐴
𝑅𝑅𝑡𝑡 risk 𝐵𝐵 𝜎𝜎 𝐵𝐵 = 𝐸𝐸(𝑅𝑅 𝐵𝐵2− 𝑅𝑅
𝑅𝑅𝑡𝑡 of𝑡𝑡 a portfolio 𝑅𝑅 = 𝛼𝛼 𝑅𝑅 +
̅𝑡𝑡𝛼𝛼)2𝑡𝑡 (𝜎𝜎 𝐴𝐴 )2𝑡𝑡 +𝑡𝑡 (1 − 𝛼𝛼 )2 𝑡𝑡(𝜎𝜎 𝐵𝐵𝑡𝑡)2 + 2𝛼𝛼 (1 −
𝐵𝐵 2 (1 − 𝛼𝛼 )𝑅𝑅
aggregate 𝜎𝜎𝑡𝑡 𝑡𝑡 =as: 𝐴𝐴 2𝛼𝛼𝐴𝐴𝑡𝑡𝐵𝐵 )𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
) 𝑅𝑅
𝛼𝛼𝑅𝑅𝑡𝑡2𝐴𝐴𝑡𝑡(𝜎𝜎
𝐴𝐴 𝑡𝑡 𝐵𝐵 2
𝐴𝐴 𝑅𝑅𝑡𝑡 = 𝐴𝐴𝛼𝛼𝑡𝑡 𝑅𝑅̅ 𝑡𝑡 𝐴𝐴+ 2(1 − 𝛼𝛼𝑡𝑡 )𝑅𝑅𝑡𝑡𝜎𝜎𝑡𝑡 =
𝑡𝑡 𝑡𝑡 𝑡𝑡
𝜎𝜎
𝐴𝐴 = 𝐵𝐵 𝐸𝐸(𝑅𝑅 − 𝑅𝑅 ) 𝜎𝜎𝑡𝑡2 𝛼𝛼=𝑡𝑡2𝑡𝑡(𝜎𝜎 𝑡𝑡 +𝑡𝑡)2(1 +−(1𝛼𝛼− 2
𝑡𝑡 ) 𝛼𝛼(𝜎𝜎
𝐵𝐵
2
𝑡𝑡 )𝑡𝑡 ()
𝑅𝑅𝑡𝑡𝐴𝐴 𝑅𝑅𝑡𝑡𝐵𝐵 𝑅𝑅𝑡𝑡 𝑡𝑡 𝑅𝑅𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑅𝑅𝑡𝑡𝐴𝐴 𝑅𝑅𝑡𝑡𝐵𝐵
𝐴𝐴 𝐵𝐵
𝜎𝜎𝑡𝑡2 = 𝛼𝛼𝑡𝑡2𝐴𝐴𝐴𝐴 (𝜎𝜎 𝐴𝐴 )2 𝜎𝜎+𝑡𝑡𝐴𝐴(1 𝐴𝐴 𝜎𝜎− 𝐵𝐵𝑅𝑅𝛼𝛼 𝑡𝑡 𝐴𝐴𝐴𝐴 )𝑅𝑅2𝑡𝑡𝐵𝐵(𝜎𝜎𝐵𝐵𝑡𝑡𝐵𝐵 )2 ̅+𝐵𝐵 2𝛼𝛼𝑡𝑡 (1 − 𝛼𝛼𝑡𝑡 )𝜎𝜎 𝐴𝐴𝐴𝐴 . (3)
𝜎𝜎𝑡𝑡 𝑡𝑡= 𝐸𝐸(𝑅𝑅 ̅ 𝜎𝜎𝐴𝐴𝑡𝑡𝑡𝑡)(𝑅𝑅 ) 𝐴𝐴 𝑡𝑡 𝐴𝐴𝐵𝐵 𝐵𝐵𝐴𝐴𝐴𝐴 𝜎𝜎 2 2 (𝜎𝜎 𝐴𝐴 )2
+ (1
𝑡𝑡 − 𝑡𝑡
2𝐵𝐵 2
𝑅𝑅 𝑅𝑅 𝐴𝐴
𝑡𝑡𝑡𝑡 𝑅𝑅
2 (𝜎𝜎
𝑡𝑡 𝑡𝑡 − 𝑅𝑅𝑡𝑡
𝐴𝐴 )2 𝐵𝐵 (1 2
𝜎𝜎 𝑡𝑡𝐵𝐵
𝜎𝜎
2
𝜎𝜎𝑡𝑡 𝑡𝑡 𝜎𝜎𝜎𝜎𝑡𝑡𝑡𝑡 𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴𝑡𝑡 = 𝛼𝛼𝑡𝑡𝐴𝐴𝐴𝐴 𝑡𝑡
𝜎𝜎𝑡𝑡 = 𝛼𝛼𝑡𝑡 𝑡𝑡 + (1 − 𝛼𝛼𝑡𝑡 ) (𝜎𝜎𝜎𝜎𝜎𝜎𝑡𝑡𝑡𝑡𝑡𝑡) =
2 2 (𝜎𝜎 𝐴𝐴 )2 2 𝐵𝐵
= +𝐸𝐸(𝑅𝑅𝛼𝛼2𝛼𝛼 𝑡𝑡 𝑡𝑡𝑡𝑡(1 𝐵𝐵𝑡𝑡 −−𝑅𝑅 ̅+ 𝛼𝛼 ) )𝜎𝜎
2 −𝐴𝐴𝐴𝐴 𝛼𝛼 𝑡𝑡 ) (𝜎𝜎 𝑡𝑡 ) + 2𝛼𝛼
𝜎𝜎 2
𝑡𝑡 (1
= −
𝛼𝛼 2𝛼𝛼(𝜎𝜎𝑡𝑡 )𝜎𝜎𝐴𝐴 )
𝑡𝑡
2
+ (1 − 𝛼𝛼
Equation (3) indicates the𝜎𝜎𝑡𝑡2α=percentage 2 𝑡𝑡 𝐴𝐴 )2 sensitivity
𝑡𝑡
+ (1 − 𝛼𝛼𝑡𝑡 )2 (𝜎𝜎of𝑡𝑡𝐵𝐵 )blue
𝑡𝑡 2𝑡𝑡
bond 𝑡𝑡 𝑡𝑡
(1 − 𝛼𝛼𝑡𝑡 )𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
𝜎𝜎𝑡𝑡𝐴𝐴 𝜎𝜎𝑡𝑡𝐵𝐵 𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 𝐴𝐴 𝐴𝐴 𝛼𝛼𝑡𝑡̅(𝜎𝜎 𝐴𝐴 )𝑡𝑡2 + 2𝛼𝛼 𝑡𝑡
A, and (1 – α) shows the 𝜎𝜎𝑡𝑡percentage
= 𝐸𝐸(𝑅𝑅 𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝐴𝐴 )2 + (1
sensitivity of − blue bond
𝜎𝜎𝑡𝑡2 = =B.+ 𝐴𝐴𝜎𝜎𝑡𝑡𝐴𝐴 𝐴𝐴and 𝜎𝜎−𝐴𝐴𝐵𝐵 2 ̅−𝜎𝜎𝐴𝐴𝑡𝑡𝐴𝐴𝐴𝐴
2 𝐴𝐴2 𝐵𝐵 )2
𝑈𝑈(𝑅𝑅𝑡𝑡 , 𝜎𝜎𝑡𝑡2 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑅𝑅𝑡𝑡 𝛼𝛼−𝑡𝑡 (𝜎𝜎 𝑡𝑡 2 + 𝛾𝛾(Blue 𝛼𝛼𝜎𝜎 𝑡𝑡 )𝑡𝑡 (𝜎𝜎 𝜎𝜎𝑡𝑡𝐴𝐴𝑡𝑡𝐸𝐸(𝑅𝑅
= 𝑡𝑡 2𝛼𝛼
𝐸𝐸(𝑅𝑅 − 𝑅𝑅 𝑡𝑡̅(1𝑡𝑡𝑡𝑡 )𝑅𝑅 )2𝑡𝑡 )𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
𝛼𝛼
𝐴𝐴 𝑡𝑡 )𝐵𝐵 = 𝐴𝐴𝐴𝐴 𝛽𝛽𝜎𝜎 𝑡𝑡 ). 𝐵𝐵 𝑡𝑡 𝐴𝐴𝐴𝐴 𝑡𝑡
𝜎𝜎𝑡𝑡𝐴𝐴 𝜎𝜎𝑡𝑡𝐵𝐵 𝜎𝜎 represent
𝐴𝐴𝐴𝐴
𝑡𝑡 the variance 𝜎𝜎 𝑡𝑡 𝐴𝐴𝐴𝐴 𝑡𝑡of
𝜎𝜎 blue𝜎𝜎 𝑡𝑡 bonds
𝐴𝐴 𝐴𝐴𝐴𝐴̅ 𝐴𝐴 )(𝑅𝑅 𝐵𝐵
𝑡𝑡
A and B, respectively. 𝜎𝜎 𝐴𝐴
𝑡𝑡 𝜎𝜎 𝑡𝑡 𝜎𝜎 𝑡𝑡
represents ̅ 𝐴𝐴 𝜎𝜎2𝑡𝑡 𝜎𝜎= 𝑡𝑡 𝐸𝐸(𝑅𝑅
𝐴𝐴
𝜎𝜎𝑡𝑡𝐵𝐵 𝑡𝑡bond 𝜎𝜎−𝑡𝑡 𝑅𝑅𝑡𝑡A and 𝑡𝑡 − 𝑅𝑅̅𝑡𝑡𝐵𝐵 ) B. We can write
𝜎𝜎𝑡𝑡𝐴𝐴 the
= 𝐸𝐸(𝑅𝑅 covariance
𝑡𝑡 − 𝑅𝑅𝑡𝑡 )𝐵𝐵 between
𝐴𝐴 bond
𝑡𝑡 𝛼𝛼𝜎𝜎
𝜎𝜎𝐸𝐸(𝑅𝑅𝐴𝐴 𝐵𝐵𝐵𝐵 ̅𝐴𝐴𝐴𝐴
𝜎𝜎𝑅𝑅𝑡𝑡 𝐵𝐵 )2
𝐴𝐴
𝜎𝜎 = 𝐸𝐸(𝑅𝑅 𝐴𝐴
− 𝑅𝑅̅ 𝐴𝐴 )2
𝐴𝐴 the variance 𝐴𝐴 ̅ 𝐴𝐴and 𝛼𝛼𝑡𝑡 𝑅𝑅𝑡𝑡𝐴𝐴𝜎𝜎+
𝑅𝑅2𝑡𝑡 =covariance 𝑡𝑡 𝐴𝐴(1=as: −
𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝑡𝑡
𝑡𝑡 −𝐵𝐵
𝑡𝑡)𝑅𝑅 𝐴𝐴 𝑡𝑡 𝑡𝑡̅ 𝐴𝐴 )2 𝜎𝜎 𝐵𝐵 𝐵𝐵 𝐴𝐴 𝐵𝐵 𝑡𝑡𝐵𝐵̅ 𝐵𝐵 )
=
𝜎𝜎 𝐸𝐸(𝑅𝑅
= 𝐸𝐸(𝑅𝑅 − 𝑅𝑅 − 𝐴𝐴 2
𝑅𝑅̅ 𝐵𝐵 )2𝑡𝑡 𝐴𝐴 2 𝑡𝑡
̅
𝑡𝑡 𝑅𝑅𝑡𝑡 )
𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 ) 𝑡𝑡 𝑡𝑡 𝜎𝜎𝑡𝑡 𝑡𝑡= 𝐸𝐸(𝑅𝑅 𝑡𝑡 𝑡𝑡 𝑡𝑡 −
𝐴𝐴 𝐴𝐴 𝐵𝐵 2̅ 𝐴𝐴 )2
𝜎𝜎 2
= 𝛼𝛼 2 (𝜎𝜎 𝐴𝐴 )2
𝑈𝑈(𝑅𝑅 + 𝜎𝜎
,(1𝜎𝜎𝑡𝑡 2− =
, 𝛼𝛼𝐸𝐸(𝑅𝑅
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ) 2 (𝜎𝜎 𝑡𝑡) − = ) 𝑅𝑅𝑅𝑅𝑡𝑡+−2𝛼𝛼𝛽𝛽𝜎𝜎 (1 2 − 𝛼𝛼 )𝜎𝜎 𝐴𝐴𝐴𝐴 ).
+ 𝛾𝛾(Blue

𝑡𝑡 𝑡𝑡
𝜎𝜎𝑡𝑡𝐵𝐵 = 𝐸𝐸(𝑅𝑅𝑡𝑡𝐵𝐵 − 𝑅𝑅̅𝑡𝑡𝐵𝐵 )𝐴𝐴𝐴𝐴 𝑡𝑡 2 𝑡𝑡
𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡𝑡𝑡𝐴𝐴 − 𝑅𝑅̅𝐵𝐵𝑡𝑡𝐴𝐴𝑡𝑡 )2, 𝐵𝐵 𝑡𝑡
𝑡𝑡 𝐴𝐴𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡
2 𝜎𝜎𝑡𝑡 𝐵𝐵 = 𝐸𝐸(𝑅𝑅𝑡𝑡𝐵𝐵𝐴𝐴 − 𝑅𝑅̅𝑡𝑡𝐵𝐵𝐴𝐴 )(𝑅𝑅 − ̅𝑡𝑡 ) 𝐴𝐴𝐴𝐴 𝐴𝐴𝐴𝐴
𝑅𝑅 𝜎𝜎 𝐵𝐵 = 𝐸𝐸(𝑅𝑅𝐵𝐵𝑡𝑡𝐵𝐵 − 𝑅𝑅̅𝐵𝐵𝑡𝑡𝐵𝐵 )2
𝐴𝐴 𝑡𝑡 𝐴𝐴̅ 𝐴𝐴
̅ 𝜎𝜎 ̅ 2 𝑡𝑡
𝜎𝜎 𝜎𝜎 = 𝐸𝐸(𝑅𝑅
= 𝐸𝐸(𝑅𝑅 −𝑡𝑡𝑅𝑅− 𝑡𝑡𝑡𝑡𝐵𝐵)(𝑅𝑅
̅𝑡𝑡𝐴𝐴𝑅𝑅̅𝑡𝑡)(𝑅𝑅
𝑅𝑅 𝐵𝐵−2𝐵𝐵𝑅𝑅 ̅−)𝑅𝑅̅
𝐵𝐵
𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝐵𝐵 𝐵𝐵 )𝑡𝑡2 𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝐴𝐴𝑡𝑡 − 𝑅𝑅𝑡𝑡 ) 𝐵𝐵
𝑡𝑡 𝑡𝑡 𝜎𝜎𝑡𝑡 = 𝐵𝐵 𝑡𝑡 𝐸𝐸(𝑅𝑅 − 𝑡𝑡 ) 𝑡𝑡 𝑡𝑡
𝑅𝑅𝑡𝑡 = 𝛼𝛼𝜎𝜎𝑡𝑡𝑡𝑡𝑅𝑅𝑡𝑡= + (1𝑡𝑡−−𝛼𝛼𝑅𝑅 𝑡𝑡̅)𝑅𝑅
𝐵𝐵 𝐵𝐵 𝐵𝐵 2
𝐸𝐸(𝑅𝑅 𝑡𝑡 ) 𝑡𝑡 ,
𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 = 𝐸𝐸(𝑅𝑅𝑡𝑡𝐴𝐴 − 𝑅𝑅̅𝑡𝑡𝐴𝐴2)(𝑅𝑅𝑡𝑡𝐵𝐵𝐴𝐴𝜎𝜎− 𝐵𝐵 𝑅𝑅
=̅𝑡𝑡𝐵𝐵𝐴𝐴𝐸𝐸(𝑅𝑅
) 2 𝑡𝑡𝐵𝐵 − 𝑅𝑅̅𝑡𝑡𝐵𝐵𝐵𝐵)2 2 2 𝐵𝐵 2 ̅𝑡𝑡𝐴𝐴 )
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝜎𝜎
𝑈𝑈(𝑅𝑅 = 𝛼𝛼
𝑡𝑡 𝑡𝑡 , 𝜎𝜎𝑡𝑡𝑡𝑡, 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 +
2𝑡𝑡2 (𝜎𝜎 (1 )− )𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
+
𝑡𝑡 𝑡𝑡 = 𝑅𝑅𝑡𝑡 − (1 − 𝑡𝑡𝛼𝛼𝑡𝑡 )𝛽𝛽𝜎𝜎 (𝜎𝜎 ) + 2𝛼𝛼2𝑡𝑡 (1
𝑡𝑡𝐵𝐵𝑡𝑡 + 𝛾𝛾(Blue
−𝐴𝐴𝐴𝐴
𝜎𝜎
𝑡𝑡 ).2 𝑡𝑡 )𝑡𝑡 𝑡𝑡
𝛼𝛼 )𝜎𝜎 = 𝐸𝐸(𝑅𝑅 𝐴𝐴𝐴𝐴 𝐴𝐴 − 𝑅𝑅
𝑡𝑡 2
𝐴𝐴𝐴𝐴 ̅ ̅ 𝐴𝐴𝐴𝐴 𝐴𝐴 ̅ 𝐴𝐴 )(𝑅𝑅 𝐵𝐵 ̅ .
𝑈𝑈(𝑅𝑅 𝑈𝑈(𝑅𝑅 , 𝜎𝜎 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝜎𝜎 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 = ) 𝑅𝑅 = −
̅ 𝑅𝑅 𝛽𝛽𝜎𝜎
− 𝛽𝛽𝜎𝜎+
𝑡𝑡 − 𝑅𝑅𝑡𝑡 )
𝐴𝐴 𝐴𝐴 )(𝑅𝑅 𝐵𝐵 𝐵𝐵 𝜎𝜎 = 𝐸𝐸(𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝐴𝐴𝐴𝐴 𝑡𝑡𝑡𝑡 −𝑡𝑡 𝑅𝑅𝑡𝑡 𝑡𝑡)(𝑅𝑅𝑡𝑡𝑡𝑡𝐵𝐵
𝐴𝐴 𝐴𝐴
𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝑡𝑡 − 𝑅𝑅𝑡𝑡 )2𝑡𝑡 𝑡𝑡 𝜎𝜎 𝑡𝑡𝑡𝑡𝑡𝑡 𝑡𝑡 = 𝐸𝐸(𝑅𝑅 𝑡𝑡 −
𝜎𝜎𝑡𝑡 𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡 − 𝑅𝑅̅𝑡𝑡 )(𝑅𝑅𝑡𝑡 − 𝑅𝑅̅𝑡𝑡 )
𝐴𝐴𝐴𝐴 𝐴𝐴 𝐴𝐴 𝐵𝐵 𝐵𝐵
𝐴𝐴 𝐵𝐵
4.4.2 A 𝑈𝑈(𝑅𝑅Model 𝜎𝜎𝑡𝑡2 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 ,𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ) 𝑡𝑡 ==
Incorporating
𝑡𝑡𝑅𝑅 𝑡𝑡 𝑅𝑅𝛼𝛼 𝑡𝑡 𝑡𝑡−𝜎𝜎𝑅𝑅𝑡𝑡𝐴𝐴𝐴𝐴 𝐴𝐴𝛽𝛽𝜎𝜎
𝑡𝑡 + =𝑡𝑡2the
(1 +−𝛾𝛾(Blue
𝐸𝐸(𝑅𝑅 𝐴𝐴
Blueness
𝑡𝑡𝛼𝛼𝑡𝑡− )𝑅𝑅𝑅𝑅̅𝑡𝑡𝐵𝐵𝑡𝑡𝐴𝐴𝑡𝑡 ).
)(𝑅𝑅𝑡𝑡𝐵𝐵Factor − 𝑅𝑅̅𝑡𝑡𝐵𝐵 ) 𝐴𝐴 𝑈𝑈(𝑅𝑅 , 𝜎𝜎 2 𝐵𝐵 𝐵𝐵)
, 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑅𝑅 𝑡𝑡 = 𝑅𝑅𝑡𝑡 𝛼𝛼=𝑡𝑡 𝑅𝑅𝛼𝛼𝑡𝑡 𝑡𝑡+ 𝑅𝑅𝑡𝑡𝐴𝐴(1+− 𝑡𝑡(1 𝛼𝛼𝑡𝑡−𝑡𝑡 )𝑅𝑅 𝛼𝛼𝑡𝑡𝑡𝑡 )𝑅𝑅𝑡𝑡𝑡𝑡 =
into𝑡𝑡 )the = 𝑅𝑅Investor’s Utility 2). Function
2 ) 2 ).
2
𝑈𝑈(𝑅𝑅𝑡𝑡 , 𝜎𝜎𝑡𝑡 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 − 𝛽𝛽𝜎𝜎 2𝑡𝑡𝑈𝑈(𝑅𝑅
2
+
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ,
𝛾𝛾(Blue
2 𝜎𝜎=
(𝜎𝜎 , 𝐴𝐴𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
) (1 𝐴𝐴 = + 𝑅𝑅
(1 −
) −2 (𝜎𝜎𝛽𝛽𝜎𝜎 𝐵𝐵𝑡𝑡)2 + 𝛾𝛾(Blue
𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵 𝑈𝑈(𝑅𝑅
(1 , 𝜎𝜎 2
,
)𝜎𝜎 𝐴𝐴𝐴𝐴 𝑡𝑡 ) = 𝑅𝑅𝑡𝑡 −
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝜎𝜎𝑡𝑡 = 𝛼𝛼𝑡𝑡𝑡𝑡 𝑡𝑡 2+ 𝑡𝑡 − 𝛼𝛼𝑡𝑡
𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 +𝑡𝑡22𝛼𝛼 𝑡𝑡(𝜎𝜎 2𝐴𝐴−
𝑡𝑡𝑡𝑡 𝛼𝛼𝑡𝑡 2 𝑡𝑡
𝑡𝑡
𝑅𝑅𝑡𝑡 = 𝛼𝛼𝑡𝑡 𝑅𝑅𝑡𝑡𝐴𝐴 +𝐴𝐴(1 −2−𝑎𝑎 (𝐶𝐶𝐶𝐶
𝛼𝛼𝑡𝑡1)𝑅𝑅 𝑈𝑈(𝑅𝑅
𝐵𝐵 ) 𝑡𝑡− , 𝜎𝜎𝑎𝑎𝑡𝑡 2, (𝑆𝑆𝑆𝑆
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ) = 𝑅𝑅𝑡𝑡𝑡𝑡 −
2 )𝑡𝑡 − 𝑎𝑎3 (𝑁𝑁𝑁𝑁
𝜎𝜎𝑡𝑡2𝑥𝑥 𝛽𝛽𝜎𝜎
)=𝜎𝜎𝑡𝑡𝑡𝑡2𝛼𝛼=𝑡𝑡2+ 𝑡𝑡 (𝜎𝜎
𝛼𝛼𝛾𝛾(Blue )2𝑡𝑡𝐴𝐴+ )𝑡𝑡(1 ).+−(1𝛼𝛼− 2
𝐵𝐵 )2
2
𝑡𝑡 )𝑡𝑡 (𝜎𝜎
𝑡𝑡 2 𝑅𝑅 = 𝛼𝛼 𝑅𝑅 𝐴𝐴
+ (1 − 𝛼𝛼
𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙𝑡𝑡 =𝜎𝜎𝑡𝑡 𝑈𝑈(𝑅𝑅𝑡𝑡 , 𝜎𝜎𝑡𝑡 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 2
𝐴𝐴 𝑡𝑡 ) = 𝑅𝑅𝑡𝑡 −2 𝛽𝛽𝜎𝜎2𝑡𝑡 + 𝛾𝛾(Blue
2
𝑡𝑡 𝑡𝑡 ).𝑡𝑡 𝑡𝑡
𝑅𝑅𝑡𝑡 =The 𝛼𝛼𝑡𝑡 𝑅𝑅change
𝐴𝐴 2
+ (1 − in 2 industrial
𝛼𝛼 (𝜎𝜎)𝑅𝑅𝐴𝐴 𝐵𝐵
𝑡𝑡 𝜎𝜎𝑡𝑡 = 𝛼𝛼𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 + 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ) 2 𝑅𝑅
(1 innovation
= 𝐴𝐴 𝛼𝛼
𝑡𝑡 − 𝑡𝑡𝛼𝛼𝑡𝑡𝑡𝑡𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ) 𝑅𝑅2 (𝜎𝜎𝐴𝐴 𝐵𝐵𝐵𝐵and
+ ) 2𝑌𝑌𝑡𝑡−business
(1
𝑡𝑡 𝑡𝑡 𝑡𝑡 + 2𝛼𝛼𝑡𝑡𝑡𝑡 𝑡𝑡 − 𝛼𝛼𝑡𝑡 𝑡𝑡 𝛼𝛼 )𝑅𝑅
(1 𝐵𝐵 patterns
𝜎𝜎
)𝜎𝜎𝑡𝑡 𝜎𝜎
𝐴𝐴𝐴𝐴 𝑡𝑡 𝑅𝑅 worldwide
𝑡𝑡 = 𝛼𝛼 𝑅𝑅 𝐴𝐴
+ (1 − 𝛼𝛼 )𝑅𝑅 𝐵𝐵
has adversely affected the2overall 𝑅𝑅𝑡𝑡 2=environment. 𝛼𝛼 𝑡𝑡 𝑅𝑅
𝐴𝐴
+ (1 − Over 𝛼𝛼 )𝑅𝑅𝐵𝐵𝐵𝐵the last 2 decades, 𝜎𝜎𝑡𝑡2𝑡𝑡=𝑡𝑡 𝛼𝛼𝑡𝑡2 (𝜎𝜎𝑡𝑡𝐴𝐴 )2 + 𝑡𝑡
(1𝑡𝑡
(𝜎𝜎 𝐴𝐴 ) 2 𝑡𝑡𝐴𝐴 (1 𝐴𝐴𝐴𝐴 )𝑡𝑡2 (𝜎𝜎𝑡𝑡𝐵𝐵 ) 2 (1 )𝜎𝜎 𝐴𝐴𝐴𝐴
2
𝜎𝜎𝑡𝑡 =there 2 (𝜎𝜎 𝐴𝐴 )22
𝛼𝛼𝑡𝑡 has 𝑡𝑡𝜎𝜎𝑡𝑡 been+ (1a−substantial𝛼𝛼𝑡𝑡 ) (𝜎𝜎𝜎𝜎
2
𝑡𝑡𝑡𝑡 ) =surge
𝐵𝐵 2
+
𝑡𝑡𝑅𝑅=
𝛼𝛼𝑡𝑡2𝛼𝛼 𝑡𝑡in
𝑡𝑡=𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵(1 −
𝑡𝑡𝛼𝛼𝑡𝑡GHG𝑅𝑅𝑡𝑡+ 𝛼𝛼𝐴𝐴+ )𝜎𝜎 𝑡𝑡−−
emissions, 𝛼𝛼 𝑡𝑡 )𝑅𝑅𝑡𝑡𝑡𝑡which
𝐵𝐵+ 2𝛼𝛼
𝑡𝑡 𝐵𝐵 has
2
𝜎𝜎𝑡𝑡 𝑡𝑡 =created −𝛼𝛼𝑡𝑡𝛼𝛼(𝜎𝜎
2
𝑡𝑡 𝑡𝑡 )
𝐴𝐴 2
𝑡𝑡 + (1 − 𝛼𝛼𝑡𝑡 )
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 𝐴𝐴 𝑡𝑡+ 2(1(1 −𝑡𝑡𝛼𝛼𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝜎𝜎𝑡𝑡2𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴 𝐴𝐴
−𝑏𝑏 2 1 (𝐶𝐶𝐶𝐶
𝜎𝜎𝑡𝑡2 =) − 𝛼𝛼𝑡𝑡2𝑏𝑏(𝜎𝜎(𝑆𝑆𝑆𝑆
−𝑎𝑎 𝑡𝑡 ) )+−(1
(𝐶𝐶𝐶𝐶 𝑎𝑎
𝑏𝑏 −(𝑁𝑁𝑁𝑁
(𝑆𝑆𝑆𝑆
2 (𝜎𝜎
𝛼𝛼𝑡𝑡 )𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
) − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 2 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡𝑡𝑡𝑎𝑎)=(𝑁𝑁𝑁𝑁 +𝑡𝑡 = 2𝛼𝛼 ) 𝑡𝑡 (1𝑡𝑡 − +𝑡𝑡𝛼𝛼(1 𝑡𝑡+)𝜎𝜎−(1 𝐴𝐴𝐴𝐴
𝑡𝑡 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵
− 𝛼𝛼)
2 severe problems for𝐵𝐵aquatics 𝜎𝜎 and human 1 beings’
2 survival.
2 2 To 3 2 overcome 𝑥𝑥
𝜎𝜎𝑡𝑡 2
𝐴𝐴 2
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 = 𝑡𝑡𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙𝜎𝜎𝑡𝑡𝑡𝑡2 = 𝛼𝛼𝑡𝑡 (𝜎𝜎𝑡𝑡𝐵𝐵 ) + (1 − 𝛼𝛼 2 2 𝐴𝐴 22 3
𝑡𝑡 )𝑥𝑥2
(𝜎𝜎 𝑡𝑡
𝐵𝐵 𝜎𝜎
) 2
𝑡𝑡 + 2𝛼𝛼 𝑡𝑡 (1 − 𝛼𝛼 𝑡𝑡 )𝜎𝜎 𝐴𝐴𝐴𝐴
𝑡𝑡
the environmental 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 issues, 𝐴𝐴 every 𝐴𝐴 𝜎𝜎𝑡𝑡−firm 𝐵𝐵must 𝑌𝑌𝑡𝑡𝑡𝑡𝐵𝐵 adopt the 𝑌𝑌𝑡𝑡𝐴𝐴measures necessary
𝑡𝑡 + 𝑡𝑡(1 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐴𝐴 +
to circumvent ocean emissions. 𝜎𝜎𝑡𝑡2 In line 𝑡𝑡
with this argument, 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 investors
𝐴𝐴 𝐴𝐴
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 are
𝑡𝑡 𝑡𝑡
𝐴𝐴 𝐵𝐵
in 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 + (1 − emissions. 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐴𝐴 + (1 −
𝐴𝐴 𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
interested + (1 − 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
in𝑡𝑡 investing firms 𝑡𝑡 𝑡𝑡 that reduce ocean 𝐴𝐴 𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴 𝑌𝑌𝑡𝑡𝐴𝐴 𝑌𝑌𝑡𝑡𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 + (1 −) 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 1 (𝐶𝐶𝐶𝐶 2 )2can (𝑆𝑆𝑆𝑆 𝑏𝑏3 (𝑁𝑁𝑁𝑁 𝑡𝑡 ) )
This study investigates
𝑡𝑡 how investors
−𝑎𝑎 𝑡𝑡
−𝑏𝑏 (𝐶𝐶𝐶𝐶 )−− 𝑡𝑡
𝐴𝐴𝑎𝑎𝑏𝑏 2estimate
(𝑆𝑆𝑆𝑆 2 2 )−−𝑎𝑎 the emissions
(𝑁𝑁𝑁𝑁 𝐵𝐵 𝑥𝑥𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵−
1 (𝐶𝐶𝐶𝐶 2 ) −2 )𝑎𝑎 2 (𝑆𝑆𝑆𝑆 2)
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 1
= 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 + (1 − 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 2 3 𝑥𝑥 −𝑎𝑎
𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴 𝐵𝐵
== 2 𝑡𝑡 𝐴𝐴𝐴𝐴
−𝑎𝑎 𝑡𝑡 1 (𝐶𝐶𝐶𝐶 𝑎𝑎2 (𝑆𝑆
that ocean 𝐵𝐵 firms produce. We 𝑡𝑡𝐴𝐴 𝑡𝑡𝐵𝐵 assume 𝐵𝐵 that investors allocate
𝐴𝐴 𝐵𝐵 𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙 𝐴𝐴 𝑡𝑡𝐴𝐴 a certain
𝐴𝐴
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡
1 𝐴𝐴
(𝑅𝑅 −𝑅𝑅 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 )−(𝜎𝜎𝑡𝑡 𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ) −𝜎𝜎𝑡𝑡𝑡𝑡 𝑌𝑌𝑡𝑡𝑌𝑌𝑡𝑡 𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙 =𝑡𝑡 =
𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵 𝐴𝐴 𝐴𝐴
2𝛽𝛽 𝑡𝑡
𝛼𝛼𝑡𝑡 =−𝑎𝑎 (𝐶𝐶𝐶𝐶 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴 𝐵𝐵 𝑡𝑡 𝑌𝑌 𝑌𝑌
𝑡𝑡𝐴𝐴𝐴𝐴 2𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
2 ) 𝐵𝐵 𝑡𝑡 𝑡𝑡
2 𝑡𝑡− ) 𝑎𝑎 2 (𝑆𝑆𝑆𝑆 ) − 𝑎𝑎𝑡𝑡 (𝑁𝑁𝑁𝑁𝑥𝑥 )
2
1 𝑡𝑡𝐴𝐴 ) −(𝜎𝜎
(𝜎𝜎 −2𝜎𝜎 𝑡𝑡𝐴𝐴 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵3 −𝑎𝑎 (𝐶𝐶𝐶𝐶
𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙𝑡𝑡𝐴𝐴 = 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡𝐴𝐴 𝑡𝑡 𝐴𝐴 1 2
𝑌𝑌𝑡𝑡𝐵𝐵𝐴𝐴𝑎𝑎3𝑌𝑌 𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙 = (𝐶𝐶𝐶𝐶 ) − 𝑎𝑎
−𝑎𝑎1 (𝐶𝐶𝐶𝐶2 ) − 𝑎𝑎2 (𝑆𝑆𝑆𝑆 𝑌𝑌𝑡𝑡2𝐴𝐴) − 𝑡𝑡 −𝑎𝑎
(𝑁𝑁𝑁𝑁 𝑥𝑥 1 (𝐶𝐶𝐶𝐶)2 ) − 𝑎𝑎(𝑆𝑆𝑆𝑆
)(𝐶𝐶𝐶𝐶 2 (𝑆𝑆𝑆𝑆)2 ) − 𝑎𝑎(𝑁𝑁𝑁𝑁 3 (𝑁𝑁𝑁𝑁)𝑥𝑥𝐴𝐴 ) 𝑡𝑡−𝑎𝑎 1 2
𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙𝑡𝑡 = 𝐴𝐴 𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙 =−𝑏𝑏1 −𝑎𝑎 2 − 𝑏𝑏2 𝐴𝐴2𝑎𝑎 −
12(𝐶𝐶𝐶𝐶2 )𝑌𝑌−
𝑏𝑏3 − 𝑥𝑥𝑎𝑎 𝑡𝑡(𝑁𝑁𝑁𝑁
2 (𝑆𝑆𝑆𝑆2 )𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙 = 𝑥𝑥(𝐶𝐶𝐶𝐶
(𝐶𝐶𝐶𝐶 )
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴 −𝑌𝑌𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐴𝐴𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵 𝑡𝑡𝐵𝐵𝑡𝑡1= 𝐴𝐴 𝐴𝐴 𝐵𝐵 𝐵𝐵 𝐴𝐴𝐴𝐴 𝐵𝐵𝑡𝑡 𝐵𝐵 𝐵𝐵
−𝑏𝑏 3 1−𝑏𝑏 1 2 ) −2 )𝑏𝑏2 −(𝑆𝑆𝑆𝑆 2)
𝑏𝑏2 (𝑆𝑆𝑆𝑆
𝑅𝑅𝑡𝑡𝐴𝐴 𝑅𝑅𝑡𝑡𝐵𝐵 𝜎𝜎 2 = 𝛼𝛼 2 (𝜎𝜎 𝐴𝐴 )2 + (1 − 𝛼𝛼𝑡𝑡 )2 (𝜎𝜎𝑡𝑡𝐵𝐵
2 2 (𝜎𝜎 𝐴𝐴 )2 𝜎𝜎
2 (𝜎𝜎 𝐵𝐵𝑅𝑅
2𝐴𝐴
𝑡𝑡)𝑡𝑡2=𝑅𝑅𝑡𝑡𝛼𝛼𝑡𝑡 (𝜎𝜎
𝐵𝐵 2 𝐴𝐴 2
𝑡𝑡 ) + (1 − 𝛼𝛼𝑡𝑡 )2 (𝜎𝜎𝑡𝑡𝐵𝐵 )2𝐴𝐴 + 𝐴𝐴2𝛼𝛼
𝐴𝐴𝐴𝐴 𝑡𝑡 (1
𝐵𝐵 − 𝛼𝛼𝑡𝑡𝑡𝑡 )𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 𝑡𝑡 𝑡𝑡
𝜎𝜎𝑡𝑡 = 𝛼𝛼𝑡𝑡 𝑡𝑡 + − 𝛼𝛼𝑡𝑡 (1 ) 𝑡𝑡 (1
+ 2𝛼𝛼𝑡𝑡 − 2𝛼𝛼𝑡𝑡 𝑡𝑡 2 𝐴𝐴 2 𝑅𝑅𝑡𝑡 𝑅𝑅𝑅𝑅𝑡𝑡𝑡𝑡 𝑅𝑅𝑡𝑡2 𝐵𝐵 2 )𝜎𝜎 𝐵𝐵
𝐴𝐴𝐴𝐴
2 2 (𝜎𝜎 𝐴𝐴 )
𝜎𝜎𝑡𝑡 2 = 𝛼𝛼𝑡𝑡 (𝜎𝜎𝑡𝑡 ) 2+ (1 𝐵𝐵 )2
− 𝛼𝛼𝑡𝑡 ) (𝜎𝜎𝑡𝑡 ) + 2𝛼𝛼𝐴𝐴𝐴𝐴 𝑡𝑡 (1 − 𝛼𝛼𝑡𝑡 )𝜎𝜎𝑡𝑡
𝜎𝜎
𝑈𝑈(𝑅𝑅 = 𝛼𝛼 2
, 𝜎𝜎𝑡𝑡2) =𝐴𝐴 𝑅𝑅2𝑡𝑡 − 𝛽𝛽𝜎𝜎𝑡𝑡 + (1 − 2 𝛼𝛼 ) (𝜎𝜎 + 2𝛼𝛼 (1 − 𝐴𝐴 𝛼𝛼 )𝜎𝜎
𝐵𝐵 𝐴𝐴𝐴𝐴
𝑡𝑡
2 𝐵𝐵2 𝑡𝑡 2𝐴𝐴𝐴𝐴
𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝜎𝜎𝑡𝑡 𝜎𝜎𝑡𝑡 𝜎𝜎 𝑡𝑡 𝑡𝑡
𝑡𝑡
𝜎𝜎𝑡𝑡𝐴𝐴and
𝑈𝑈(𝑅𝑅 𝑡𝑡𝜎𝜎,𝜎𝜎
𝑈𝑈(𝑅𝑅 𝑡𝑡𝜎𝜎𝑡𝑡𝑡𝑡𝑡𝑡= 𝑡𝑡𝛼𝛼
,)𝜎𝜎𝑡𝑡Finance:
=)𝑡𝑡 𝑅𝑅 (𝜎𝜎=𝑡𝑡 𝑡𝑡− 𝑅𝑅)Toward
𝑡𝑡 𝛽𝛽𝜎𝜎
− + 𝑡𝑡2(1 −
𝛽𝛽𝜎𝜎Sustainable 2
𝑡𝑡 𝛼𝛼𝑡𝑡 ) (𝜎𝜎Development
2 𝐵𝐵 2
𝑡𝑡 )2 +2 2𝛼𝛼 (1and −2Ocean 𝛼𝛼 )𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
𝐴𝐴
𝜎𝜎𝑡𝑡𝐵𝐵 𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 80 Blue Economy Blue
2 ) 𝜎𝜎 𝐴𝐴 𝜎𝜎 𝐵𝐵 𝜎𝜎 𝐴𝐴𝐴𝐴2 𝜎𝜎 𝑡𝑡 =𝜎𝜎 𝑡𝑡 𝑡𝑡 =
𝛼𝛼 2𝑡𝑡(𝜎𝜎 𝛼𝛼 2𝐴𝐴(𝜎𝜎
𝑡𝑡 ) 𝑡𝑡 +
𝐴𝐴 )𝑡𝑡 2
(1 +Governance
−(1𝛼𝛼− 2 )2𝐵𝐵(𝜎𝜎
2 𝐵𝐵 )2 + 2𝛼𝛼
𝑡𝑡 𝑡𝑡 ) 𝑡𝑡+ 2𝛼𝛼𝑡𝑡 (1 𝑡𝑡− (
𝑈𝑈(𝑅𝑅 , 𝜎𝜎 𝐴𝐴= 𝑅𝑅 − 𝛽𝛽𝜎𝜎 𝐵𝐵
𝜎𝜎𝑡𝑡𝑅𝑅𝑡𝑡 = 𝜎𝜎𝑡𝑡 𝐴𝐴𝛼𝛼𝜎𝜎𝑡𝑡𝑡𝑡𝑅𝑅𝐴𝐴𝑡𝑡 + (1 − 𝛼𝛼𝐵𝐵𝑡𝑡 )𝑅𝑅
𝐴𝐴 𝑡𝑡𝐵𝐵 𝑡𝑡 𝐴𝐴𝐴𝐴 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡
𝑡𝑡
𝑅𝑅𝑡𝑡 = 𝑅𝑅 𝛼𝛼 = 𝑅𝑅𝐵𝐵𝛼𝛼𝑡𝑡 𝑡𝑡 𝑅𝑅 +𝐴𝐴𝑡𝑡𝐴𝐴𝐴𝐴 (1 +− ̅(1 𝛼𝛼−)𝑅𝑅 𝛼𝛼𝑡𝑡 )𝑅𝑅𝑡𝑡𝐵𝐵 𝜎𝜎𝑡𝑡𝐴𝐴 = 𝐸𝐸(𝑅𝑅𝑡𝑡𝐴𝐴 − 𝑅𝑅̅𝑡𝑡𝐴𝐴 )2
̅ 𝜎𝜎𝜎𝜎𝑡𝑡𝐴𝐴𝑡𝑡𝑡𝑡𝐴𝐴=𝑡𝑡𝜎𝜎𝐸𝐸(𝑅𝑅 𝑡𝑡 𝜎𝜎𝑡𝑡𝑈𝑈(𝑅𝑅 𝑡𝑡 − 𝑅𝑅 ,𝑡𝑡𝐴𝐴𝜎𝜎)𝑡𝑡22𝑡𝑡)to= 𝑅𝑅𝑡𝑡 𝐵𝐵−bonds 𝛽𝛽𝜎𝜎𝑡𝑡2𝐴𝐴 and
𝐴𝐴
𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝐴𝐴 proportion
𝐴𝐴 )2 of their investments
𝑅𝑅𝑡𝑡 = 𝛼𝛼𝑡𝑡 𝑅𝑅𝑡𝑡 +𝐴𝐴(1 − 𝛼𝛼𝑡𝑡 )𝑅𝑅 𝐴𝐴 𝑡𝑡 blue 𝐴𝐴 𝑡𝑡 ̅ 𝐴𝐴𝜎𝜎2𝑡𝑡 𝜎𝜎𝜎𝜎
𝐴𝐴𝐵𝐵
𝑡𝑡 𝑡𝑡 𝜎𝜎 that,
𝜎𝜎𝑡𝑡𝑡𝑡 𝜎𝜎𝑡𝑡 such, they
𝐵𝐵 𝐴𝐴𝐴𝐴 as
𝐴𝐴𝐴𝐴
𝑅𝑅𝜎𝜎𝑡𝑡𝐴𝐴the 𝐴𝐴𝑅𝑅𝑡𝑡𝐵𝐵optimal
𝜎𝜎 =𝐴𝐴 𝐸𝐸(𝑅𝑅
𝐴𝐴 𝑡𝑡 allocation 𝑡𝑡 − 𝑅𝑅𝑡𝑡 )
have determined 𝐵𝐵= 𝐸𝐸(𝑅𝑅 − 𝑅𝑅𝑡𝑡 )𝐴𝐴 ̅ 2 among 𝐵𝐵 these investments. As
investors are 𝑅𝑅𝑡𝑡𝐴𝐴concerned
𝑅𝑅𝑅𝑅𝑡𝑡𝐴𝐴𝑡𝑡𝐵𝐵 𝑡𝑡𝑅𝑅 𝑅𝑅
about
𝑡𝑡 = 𝛼𝛼̅firms’
𝐴𝐴𝑅𝑅 + (1
blueness, − 𝛼𝛼 )𝑅𝑅 they prefer 𝐵𝐵 invest𝐵𝐵 in ̅ 𝐵𝐵 )2
𝐴𝐴 𝜎𝜎𝐴𝐴𝑡𝑡to
𝐴𝐴 𝑡𝑡 𝑡𝑡𝐴𝐴 𝑡𝑡 2
𝜎𝜎 =𝐵𝐵 𝐸𝐸(𝑅𝑅
𝜎𝜎𝑅𝑅𝑡𝑡𝐵𝐵𝑡𝑡𝐴𝐴𝑡𝑡=𝑅𝑅𝐸𝐸(𝑅𝑅 𝐵𝐵 𝑡𝑡 −
𝑡𝑡 − 𝑅𝑅𝑡𝑡 )
̅ 𝐵𝐵𝑅𝑅𝑡𝑡2 ) 𝜎𝜎𝑡𝑡𝐴𝐴 𝜎𝜎 =𝑡𝑡𝐴𝐴𝐸𝐸(𝑅𝑅 = 𝐸𝐸(𝑅𝑅 −𝑡𝑡 𝑅𝑅̅−
= ̅2𝐸𝐸(𝑅𝑅
𝐴𝐴 )𝑅𝑅𝑡𝑡𝐴𝐴 )2 𝑡𝑡
− 𝑅𝑅𝑡𝑡
𝐵𝐵
𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝐵𝐵 ̅
firms
𝐵𝐵 )2 that reduce ocean
2
𝑡𝑡 emissions.
2 (𝜎𝜎 𝐴𝐴 )𝐵𝐵2 In light 2 of blue
𝐵𝐵 )2 bonds, 𝑡𝑡 the 𝑡𝑡 portfolio
𝐴𝐴𝐴𝐴
𝜎𝜎𝑡𝑡 = 𝛼𝛼𝑡𝑡 𝑡𝑡𝜎𝜎𝑡𝑡 = (1 )
+ 𝐸𝐸(𝑅𝑅−𝑡𝑡 𝛼𝛼−𝑡𝑡 𝑅𝑅𝑡𝑡 )𝑡𝑡 + 2𝛼𝛼𝑡𝑡 − 𝛼𝛼𝑡𝑡 𝑡𝑡
𝐵𝐵 ̅ (𝜎𝜎
𝐵𝐵 2 (1 )𝜎𝜎
utility function 𝜎𝜎𝑡𝑡2 𝜎𝜎 is
=𝜎𝜎 𝑡𝑡 based
2 𝐵𝐵 2 (𝜎𝜎2𝐴𝐴on
𝑡𝑡𝛼𝛼
=𝑡𝑡=𝛼𝛼𝐸𝐸(𝑅𝑅 𝑡𝑡𝑡𝑡𝑅𝑅(𝜎𝜎)𝑡𝑡𝐴𝐴2𝑡𝑡𝐵𝐵𝐴𝐴the
+)−
𝑅𝑅 2 ̅
𝐵𝐵
𝑡𝑡 (1 +𝑅𝑅risk, 𝐵𝐵(1
𝑡𝑡− )2𝛼𝛼− the 2 rate
𝑡𝑡 )𝛼𝛼(𝜎𝜎
2𝐵𝐵 )2of
𝑡𝑡 ) 𝑡𝑡 (𝜎𝜎
𝐵𝐵 )2return,
𝑡𝑡 + 2𝛼𝛼
+ 𝑡𝑡2𝛼𝛼 (1𝑡𝑡− and
(1 𝛼𝛼− 𝑡𝑡 )𝜎𝜎the
𝛼𝛼𝑡𝑡𝐴𝐴𝐴𝐴)𝜎𝜎blueness
𝑡𝑡
𝐴𝐴𝐴𝐴
𝐵𝐵 𝐴𝐴 )2̅ 𝐵𝐵 )(1
factor. We follow𝐴𝐴𝐴𝐴 the
2 methodology
𝐵𝐵
𝜎𝜎 = 𝐸𝐸(𝑅𝑅 2 (𝜎𝜎
𝛼𝛼𝑡𝑡 𝐴𝐴𝑡𝑡 𝑡𝑡−̅𝑅𝑅𝐴𝐴+ 2of Yoshino,
𝐵𝐵− 𝛼𝛼𝑡𝑡̅ 𝐵𝐵 ) 2 (𝜎𝜎 𝐵𝐵Taghizadeh-Hesary,
) 2
𝑡𝑡 𝐵𝐵 +𝐵𝐵2𝛼𝛼𝑡𝑡 𝐵𝐵 − (1 𝐴𝐴𝐴𝐴 )𝜎𝜎 𝐴𝐴𝐴𝐴 and
𝜎𝜎 𝛼𝛼𝐵𝐵𝑡𝑡 =̅2 𝐵𝐵𝑡𝑡𝐸𝐸(𝑅𝑅 𝐴𝐴
− 𝑅𝑅̅𝑡𝑡𝐴𝐴 )(𝑅𝑅𝑡𝑡𝐵𝐵 − 𝑅𝑅̅𝑡𝑡𝐵𝐵 )
𝐴𝐴 Otsuka̅ 𝐴𝐴 )(𝑅𝑅(2021) ̅ 𝜎𝜎𝜎𝜎𝑡𝑡 𝐴𝐴𝑡𝑡 =𝜎𝜎 𝐵𝐵𝐸𝐸(𝑅𝑅 𝜎𝜎 𝐴𝐴𝐴𝐴
𝑡𝑡
𝑡𝑡 − 𝑅𝑅𝑡𝑡 )(𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 ) 𝜎𝜎𝑡𝑡 𝜎𝜎 =𝑡𝑡 𝐸𝐸(𝑅𝑅 = 𝐸𝐸(𝑅𝑅 −𝑡𝑡𝐵𝐵𝑡𝑡𝑅𝑅̅− )𝑅𝑅𝑡𝑡 )2 𝑡𝑡
𝐴𝐴𝐴𝐴
𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝐵𝐵
𝑡𝑡 − 𝑅𝑅𝐴𝐴
𝐵𝐵 ) and
𝑡𝑡 𝐴𝐴𝑡𝑡𝐵𝐵 𝐵𝐵𝐴𝐴𝐴𝐴 Mumtaz 𝑡𝑡 𝑡𝑡 and Yoshino (2021a) and assume 𝑡𝑡 that
𝑡𝑡 a firm
𝜎𝜎𝑡𝑡as 𝜎𝜎a𝜎𝜎 𝜎𝜎𝜎𝜎𝑡𝑡𝑡𝑡 𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 𝜎𝜎𝑡𝑡2 𝐴𝐴= 𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴𝛼𝛼𝑡𝑡2=(𝜎𝜎 𝐸𝐸(𝑅𝑅𝐴𝐴 2 𝐴𝐴
𝑡𝑡 )𝐵𝐵𝑡𝑡+−(1 𝑅𝑅̅𝑡𝑡− 𝐴𝐴 )(𝑅𝑅 𝐵𝐵2
𝛼𝛼𝑡𝑡 )𝑡𝑡 − (𝜎𝜎𝑅𝑅 ̅ 𝐵𝐵2) + 2𝛼𝛼 (1 − 𝛼𝛼 )𝜎𝜎 𝐴𝐴𝐴𝐴
𝐵𝐵
𝑡𝑡 𝑡𝑡)obtaining
issues bonds 𝑡𝑡 𝑡𝑡determinant
𝜎𝜎𝐴𝐴𝑡𝑡
𝐴𝐴𝐴𝐴
=
𝐵𝐵 𝐸𝐸(𝑅𝑅 𝐴𝐴𝐴𝐴 𝑡𝑡 − of𝑅𝑅its ̅𝑡𝑡𝐴𝐴 )(𝑅𝑅 blueness − 𝑅𝑅̅𝑡𝑡𝐵𝐵in ) terms of 𝑡𝑡 funds. 𝑡𝑡 𝑡𝑡
𝜎𝜎𝑡𝑡 𝐴𝐴𝐴𝐴𝜎𝜎𝑡𝑡 𝜎𝜎𝑡𝑡 𝐴𝐴 ̅ 𝐴𝐴 𝑡𝑡
̅
We can express the 𝜎𝜎 utility
𝜎𝜎𝑡𝑡𝑡𝑡𝐴𝐴𝑡𝑡 , = function
= 𝐸𝐸(𝑅𝑅𝐴𝐴𝑡𝑡 −−𝑅𝑅̅𝑅𝑅𝐴𝐴𝑡𝑡)2 𝑡𝑡 − 𝑅𝑅2𝑡𝑡 𝐴𝐴𝐴𝐴 𝐴𝐴𝐴𝐴 in
)(𝑅𝑅 this
𝐵𝐵 regard𝐵𝐵 ) as: 𝐴𝐴 𝑈𝑈(𝑅𝑅
2
𝐴𝐴̅𝑡𝑡𝐴𝐴, 𝜎𝜎̅𝑡𝑡𝐴𝐴,)(𝑅𝑅 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵) ̅=𝐵𝐵 𝑅𝑅𝑡𝑡 − 𝛽𝛽𝜎𝜎𝑡𝑡2
2𝑈𝑈(𝑅𝑅 𝜎𝜎𝑡𝑡2𝐴𝐴𝐸𝐸(𝑅𝑅
, 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 𝐴𝐴𝑡𝑡𝐵𝐵 )2𝐴𝐴= 𝑡𝑡 𝐴𝐴𝐴𝐴𝑅𝑅𝑡𝑡 − 𝛽𝛽𝜎𝜎𝑡𝑡 +𝜎𝜎𝛾𝛾(Blue 𝑡𝑡 𝜎𝜎𝑡𝑡= 𝐸𝐸(𝑅𝑅 𝑡𝑡= ). 𝐸𝐸(𝑅𝑅𝑡𝑡 −𝑡𝑡 𝑅𝑅− 𝑡𝑡 )(𝑅𝑅𝑅𝑅𝑡𝑡 𝑡𝑡𝐵𝐵 −𝑡𝑡𝐵𝐵𝑅𝑅̅𝑡𝑡− 𝑡𝑡 )𝑅𝑅𝑡𝑡 ) (4)
𝑈𝑈(𝑅𝑅𝑡𝑡 , 𝜎𝜎𝑡𝑡2 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 ) = 𝑅𝑅𝑡𝑡 − 𝛽𝛽𝜎𝜎 𝐴𝐴 +
𝜎𝜎𝑡𝑡 𝜎𝜎=𝑡𝑡 𝐸𝐸(𝑅𝑅 𝐴𝐴 𝛾𝛾(Blue
= 𝐸𝐸(𝑅𝑅 𝑡𝑡 𝜎𝜎−
𝐴𝐴𝐴𝐴).
𝑡𝑡𝑡𝑡𝑡𝑡 𝑅𝑅−
̅ 𝜎𝜎
𝑡𝑡𝑈𝑈(𝑅𝑅
̅ 2
𝑡𝑡)𝑅𝑅𝑡𝑡𝜎𝜎)𝑡𝑡, 𝜎𝜎 2 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ) = 𝑅𝑅 − 𝛽𝛽𝜎𝜎 2 + 𝛾𝛾(Blue ).
𝜎𝜎𝑡𝑡𝐴𝐴 =𝑡𝑡 , 𝜎𝜎
𝑈𝑈(𝑅𝑅 𝐸𝐸(𝑅𝑅 2 𝐴𝐴 − 𝑅𝑅
𝑡𝑡 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡
̅ 𝐴𝐴 =2 𝑅𝑅𝑡𝑡 − 𝛽𝛽𝜎𝜎𝑡𝑡2 + 𝛾𝛾(Blue𝑡𝑡 ). (4)𝐴𝐴
𝑡𝑡
𝑡𝑡 )𝑡𝑡 )
𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡
𝐴𝐴2 𝐵𝐵 2 𝑅𝑅𝑡𝑡 = 𝛼𝛼𝑡𝑡 𝑅𝑅𝑡𝑡 + (1 − 𝛼𝛼𝑡𝑡 )𝑅𝑅𝑡𝑡𝐵𝐵
𝑅𝑅 =
𝑡𝑡 𝑈𝑈(𝑅𝑅 𝛼𝛼
𝐵𝐵 𝑡𝑡 , 𝜎𝜎
𝜎𝜎𝑡𝑡 = 𝐸𝐸(𝑅𝑅 𝑅𝑅 𝑡𝑡 +, 𝐵𝐵 (1
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 − 𝐸𝐸(𝑅𝑅− ̅
𝑅𝑅 ) 𝛼𝛼
𝐵𝐵 ) =
𝑡𝑡 )𝑅𝑅
2 𝑅𝑅 𝑡𝑡 − 𝛽𝛽𝜎𝜎 + 𝛾𝛾(Blue ).
𝐴𝐴
= 𝛼𝛼𝑡𝑡 𝑅𝑅𝑡𝑡 + (1 − 𝛼𝛼𝑡𝑡 )𝑅𝑅𝑡𝑡 𝐵𝐵 𝑡𝑡 𝐴𝐴
𝜎𝜎𝐵𝐵𝑡𝑡𝑡𝑡𝑅𝑅 = 𝑡𝑡 𝐴𝐴 𝑡𝑡 ̅ ) 𝑈𝑈(𝑅𝑅𝑈𝑈(𝑅𝑅
𝐴𝐴 2 𝑡𝑡 2
, 𝜎𝜎𝑡𝑡𝑡𝑡 , 𝜎𝜎 𝑡𝑡 2
𝑡𝑡 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ) = 𝑡𝑡 )2𝑅𝑅 = 𝑡𝑡 − − 𝑡𝑡2𝛽𝛽𝜎𝜎+𝑡𝑡2 𝛾𝛾(Blue
𝐴𝐴𝑅𝑅)𝑡𝑡2𝛽𝛽𝜎𝜎 + 𝛾𝛾(Blue ).
Equation (4)𝜎𝜎is 𝐵𝐵 subject
2𝜎𝜎 = 𝐵𝐵
𝐸𝐸(𝑅𝑅
= 𝐵𝐵 to
2𝐸𝐸(𝑅𝑅 − 𝐴𝐴 𝑅𝑅̅2− 𝐵𝐵
𝑡𝑡 )𝑅𝑅 =̅2𝑡𝑡𝐵𝐵𝑡𝑡)𝛼𝛼2𝑡𝑡𝑡𝑡𝑅𝑅𝑡𝑡− 𝐴𝐴 𝑅𝑅
+2𝐵𝐵𝑡𝑡(1𝐵𝐵−2𝛼𝛼𝑡𝑡 )𝑅𝑅𝑡𝑡𝑡𝑡𝐵𝐵 and 𝜎𝜎𝑡𝑡2 𝑡𝑡=𝐴𝐴𝐴𝐴𝛼𝛼 𝑡𝑡 (𝜎𝜎 𝑡𝑡 + (1 − 𝛼𝛼𝑡𝑡 )2 (𝜎𝜎𝑡𝑡𝑡𝑡𝐵𝐵 )
𝜎𝜎
𝑡𝑡
𝑡𝑡 𝑅𝑅 =𝑡𝑡
= 𝛼𝛼 𝑡𝑡𝛼𝛼 (𝜎𝜎
𝑡𝑡
𝑅𝑅𝑡𝑡
𝑡𝑡
𝐴𝐴 ) + 𝑡𝑡 + (1 (1 −
̅𝑡𝑡𝐵𝐵𝑡𝑡𝐴𝐴𝐴𝐴− 𝛼𝛼 𝛼𝛼 )𝑅𝑅
𝑡𝑡 ) (𝜎𝜎 𝑡𝑡 ) + 2𝛼𝛼 𝑡𝑡 (1 − 𝛼𝛼 𝑡𝑡 )𝜎𝜎 𝑡𝑡
2
= 𝛼𝛼𝑡𝑡2 (𝜎𝜎𝑡𝑡𝐴𝐴 )2 + (1 − 𝛼𝛼𝑡𝑡 )2 (𝜎𝜎𝑡𝑡𝐵𝐵 )2𝜎𝜎 𝑡𝑡+ 𝐵𝐵
𝑡𝑡 2𝛼𝛼 = 𝐸𝐸(𝑅𝑅 𝑡𝑡 (1𝐴𝐴−
𝑡𝑡 𝑡𝑡 𝐵𝐵 −
𝑡𝑡𝜎𝜎 2𝛼𝛼𝑡𝑡= )𝜎𝜎
𝑅𝑅 )22 ,𝑡𝑡 where 𝑡𝑡
𝐴𝐴𝐵𝐵2 Rt indicates 𝐵𝐵 )the return of )𝜎𝜎 𝐴𝐴𝐴𝐴
2𝑅𝑅𝑡𝑡2 = 𝛼𝛼𝑡𝑡2𝑅𝑅𝑡𝑡 𝐴𝐴 +𝑡𝑡 2(1 − 𝛼𝛼𝑡𝑡𝛼𝛼 (𝜎𝜎
𝑡𝑡 )𝑅𝑅 𝑡𝑡 𝑡𝑡) 2+ (1 − 𝛼𝛼𝑡𝑡 )2 (𝜎𝜎 𝑡𝑡 𝜎𝜎
22
𝐴𝐴𝑡𝑡 + 2𝛼𝛼𝐴𝐴𝐴𝐴 𝑡𝑡 (1 − 𝛼𝛼
2 the portfolio, 𝜎𝜎 shows
𝑡𝑡 𝜎𝜎𝑡𝑡𝜎𝜎 𝐴𝐴𝐴𝐴 == 𝛼𝛼𝑡𝑡𝐸𝐸(𝑅𝑅the riskiness
(𝜎𝜎𝐵𝐵𝑡𝑡 )𝐴𝐴 −+𝑅𝑅̅(1 𝐴𝐴𝐵𝐵 of
− 𝛼𝛼𝑡𝑡𝐵𝐵̅𝑡𝑡 −
)(𝑅𝑅 the )𝐵𝐵 (𝜎𝜎 𝑅𝑅bonds, 𝐵𝐵
2̅𝑡𝑡𝐵𝐵𝑡𝑡𝑅𝑅)
2
)𝑡𝑡 = 𝑅𝑅 and
+𝑡𝑡 2𝛼𝛼 𝛼𝛼=𝑡𝑡 𝑅𝑅𝑡𝑡𝛼𝛼(1Blue
𝐴𝐴
𝑡𝑡 𝑡𝑡 𝑅𝑅
+−𝑡𝑡t(1 refers
𝛼𝛼+𝑡𝑡− (1𝛼𝛼
)𝜎𝜎 𝑡𝑡 − to
𝑡𝑡 )𝑅𝑅𝛼𝛼𝑡𝑡 )𝑅𝑅𝑡𝑡𝐵𝐵𝑡𝑡 𝑡𝑡
the
𝐵𝐵
𝑡𝑡 𝜎𝜎 𝑡𝑡 =
2 𝐸𝐸(𝑅𝑅 𝑡𝑡 − 𝑅𝑅 )
blueness of the 𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴bonds.
𝜎𝜎 = 2𝐴𝐴𝐴𝐴
=𝐸𝐸(𝑅𝑅 =𝛼𝛼β represents
2𝐴𝐴 𝑡𝑡𝐴𝐴
𝑡𝑡𝑡𝑡 (𝜎𝜎
𝐸𝐸(𝑅𝑅 −𝑡𝑡𝜎𝜎𝑅𝑅)̅𝑡𝑡− 2𝐴𝐴 ̅ 𝐴𝐴(1
𝑡𝑡 )(𝑅𝑅+𝑅𝑅𝑡𝑡 )(𝑅𝑅 𝑡𝑡 the
𝐵𝐵𝑡𝑡 −𝐵𝐵𝛼𝛼
𝑡𝑡 𝑅𝑅−
̅sensitivity
𝐵𝐵𝑡𝑡 2̅(𝜎𝜎
𝑡𝑡 ))𝑅𝑅
𝐵𝐵 𝐵𝐵 2 +of
𝑡𝑡 )𝑡𝑡𝜎𝜎)2 = 2 2𝛼𝛼 risk, (1 − and 𝛼𝛼 γ)𝜎𝜎suggests 𝐴𝐴𝐴𝐴
the weight of blueness 𝜎𝜎𝑡𝑡𝑡𝑡2 𝐴𝐴𝐴𝐴 related 𝐴𝐴 to ̅bonds. 𝐴𝐴 )(𝑅𝑅 𝐵𝐵 This ̅ 𝐵𝐵study 𝑡𝑡 𝜎𝜎𝑡𝑡 𝛼𝛼 =𝑡𝑡2𝑡𝑡(𝜎𝜎
examines
𝛼𝛼𝑡𝑡2𝐴𝐴(𝜎𝜎 )2𝑡𝑡𝐴𝐴+)𝑡𝑡 2(1
the
+𝑡𝑡 − (1𝛼𝛼− 2 )2𝐵𝐵(𝜎𝜎
𝑡𝑡 ) 𝛼𝛼(𝜎𝜎 )2 𝐵𝐵+)22𝛼𝛼 (1 𝑡𝑡−
+ 2𝛼𝛼
of 𝑡𝑡 𝑡𝑡𝑡𝑡𝐴𝐴 +𝑡𝑡 (1 − 𝑡𝑡𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵
(1
𝜎𝜎2 𝑡𝑡 = 𝐸𝐸(𝑅𝑅𝑡𝑡 −𝐴𝐴 𝑅𝑅𝑡𝑡 𝑡𝑡 − 𝑅𝑅𝑡𝑡 𝐵𝐵 ) 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 level
= 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐴𝐴 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝜎𝜎𝑡𝑡 𝐵𝐵 𝑡𝑡 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 + (1 − 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵2𝑡𝑡 2
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 the 𝑡𝑡 + blueness of bonds,
(1 − 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑈𝑈(𝑅𝑅 , which
𝜎𝜎 2 , 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 we) can write as: 𝐴𝐴𝜎𝜎2 𝑡𝑡𝐵𝐵 𝜎𝜎𝑡𝑡 𝐵𝐵 ). 𝑡𝑡𝐵𝐵
𝑡𝑡 = =𝑡𝑡𝐴𝐴𝑅𝑅𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 − 𝑅𝑅̅2𝑡𝑡𝐴𝐴𝛽𝛽𝜎𝜎 +(1𝛾𝛾(Blue
𝑡𝑡 𝐴𝐴𝐴𝐴𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ̅ 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
2 𝑡𝑡 2𝑡𝑡 𝜎𝜎𝑡𝑡 ) =)𝑡𝑡 𝐸𝐸(𝑅𝑅 𝐴𝐴 − 𝑡𝑡2𝑡𝑡 +
)(𝑅𝑅 𝑡𝑡 −
−
𝐵𝐵 𝑅𝑅𝑡𝑡 ) 𝑡𝑡
𝑈𝑈(𝑅𝑅𝑈𝑈(𝑅𝑅 , 𝜎𝜎𝑡𝑡𝑡𝑡 ,, 𝜎𝜎
𝑡𝑡𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡=, 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 =
𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 𝑅𝑅 𝑡𝑡= 𝑡𝑡 + −𝑅𝑅(1 𝑡𝑡 𝛽𝛽𝜎𝜎
−−𝑡𝑡𝛽𝛽𝜎𝜎 +𝑡𝑡 𝛾𝛾(Blue
𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 + 𝑡𝑡 𝑡𝑡 ). 𝑡𝑡 ). 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵
𝛾𝛾(Blue
𝐴𝐴 𝐵𝐵 𝑡𝑡 𝑡𝑡
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑈𝑈(𝑅𝑅 𝑡𝑡 𝑡𝑡𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡, 𝜎𝜎 =𝑡𝑡2 , 𝑡𝑡𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴
𝑡𝑡 )𝑡𝑡 = + 𝑅𝑅 (1𝑡𝑡 − 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝛽𝛽𝜎𝜎𝑡𝑡2 +𝑡𝑡𝐵𝐵𝛾𝛾(Blue , (5) 𝑡𝑡 ).
𝐵𝐵𝐵𝐵𝑡𝑡𝐴𝐴 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵 𝑅𝑅𝑡𝑡 = 𝛼𝛼𝑡𝑡 𝑅𝑅𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴
+ (1𝑡𝑡− 𝛼𝛼 𝐴𝐴 )𝑅𝑅 𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 = 𝑡𝑡 =
𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴 𝐴𝐴 + (1 − 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 + 𝑡𝑡 (1 − 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵 𝑡𝑡𝐵𝐵
𝐴𝐴𝐴𝐴 𝐴𝐴 𝐵𝐵
2 𝐵𝐵𝑡𝑡 𝐵𝐵𝑡𝑡) 2
𝑅𝑅 = 𝑅𝑅𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 𝛼𝛼 = 𝑅𝑅𝛼𝛼 𝑅𝑅 + 𝑡𝑡 𝑈𝑈(𝑅𝑅
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 (1 +− 𝑡𝑡(1𝑡𝑡2,𝛼𝛼 𝜎𝜎− 𝑡𝑡𝑡𝑡)𝑅𝑅, 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝛼𝛼 𝑡𝑡 )𝑅𝑅 𝑡𝑡 𝑡𝑡 2= 𝑅𝑅 − 𝛽𝛽𝜎𝜎𝑡𝑡 + 𝛾𝛾(Blue𝑡𝑡 ). −𝑎𝑎 (𝐶𝐶𝐶𝐶 ) − 𝑎𝑎 (𝑆𝑆𝑆𝑆 )
where α and𝑡𝑡 (1𝜎𝜎 2–𝑡𝑡 α𝑡𝑡𝐴𝐴𝑡𝑡)𝑡𝑡 indicate
=𝐴𝐴𝑡𝑡 𝛼𝛼 𝛼𝛼𝑡𝑡𝑡𝑡2𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
(𝜎𝜎 𝐴𝐴𝑡𝑡𝐴𝐴 ) +the (1 − proportion ) (𝜎𝜎
𝛼𝛼2𝑡𝑡𝐵𝐵𝑡𝑡(𝑆𝑆𝑆𝑆 𝐵𝐵𝑡𝑡)2 of the
2𝛼𝛼𝐴𝐴𝑡𝑡 (1
𝑎𝑎+3𝐴𝐴(𝑁𝑁𝑁𝑁 blueness 𝛼𝛼𝐵𝐵𝑡𝑡 )𝜎𝜎𝑡𝑡𝐴𝐴𝑡𝑡𝐴𝐴𝐴𝐴=factor1
𝑥𝑥 ) −
𝐵𝐵(𝐶𝐶𝐶𝐶 ) ) 2 2 2
𝑅𝑅 𝑡𝑡 = 𝑅𝑅 −𝑎𝑎 +1 (1 −2 𝛼𝛼− 𝑎𝑎
)𝑅𝑅 2 𝑡𝑡 − 𝐵𝐵𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙
−𝑎𝑎 1 (𝐶𝐶𝐶𝐶
associated2 ) − 𝑎𝑎 (𝑆𝑆𝑆𝑆
with 2 𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙
2 𝜎𝜎𝑡𝑡 𝜎𝜎 = )
2bonds
2𝑡𝑡 𝛼𝛼 −
𝑡𝑡 2𝑎𝑎
=𝑡𝑡𝑡𝑡(𝜎𝜎 𝛼𝛼3= (𝑁𝑁𝑁𝑁
2 A
𝐴𝐴(𝜎𝜎 2 𝑡𝑡
and
) 𝑡𝑡𝑥𝑥+ (1𝐴𝐴 ) 2𝑡𝑡
B,
+− respectively.
(1𝛼𝛼− 𝑡𝑡 2
)𝛼𝛼(𝜎𝜎 ) 2 𝐵𝐵 (𝜎𝜎
) 2 𝐵𝐵
+ ) 2
2𝛼𝛼+ 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
(1
2𝛼𝛼 and 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
− (1 𝛼𝛼 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
− )𝜎𝜎𝛼𝛼 𝐴𝐴𝐴𝐴
)𝜎𝜎 show
𝐴𝐴𝐴𝐴 the 𝑌𝑌 𝐴𝐴
𝐴𝐴
𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙𝑡𝑡 = 𝑡𝑡
𝑡𝑡 𝑡𝑡 −𝑎𝑎
𝑡𝑡 𝑡𝑡 𝐴𝐴 (𝐶𝐶𝐶𝐶
𝑡𝑡 ) − 𝑎𝑎2
𝑡𝑡 𝑡𝑡 𝑡𝑡(𝑆𝑆𝑆𝑆
𝑡𝑡 𝑡𝑡 )
2 − 𝑎𝑎3 𝐴𝐴𝐴𝐴 𝑥𝑥
𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 (𝑁𝑁𝑁𝑁 ) 𝑡𝑡
𝛼𝛼𝑌𝑌
2 1 𝐵𝐵2))2𝐵𝐵
blueness of𝑌𝑌𝑡𝑡bonds 𝐴𝐴 𝜎𝜎 𝜎𝜎𝑡𝑡𝑡𝑡2 A=and B,−𝑎𝑎
2 (𝜎𝜎 𝐴𝐴 )2 (𝐶𝐶𝐶𝐶
respectively. 𝐴𝐴 )𝑡𝑡22(𝑆𝑆𝑆𝑆
𝑡𝑡 𝑅𝑅𝑡𝑡(1 (𝜎𝜎 (1𝑥𝑥− ) 𝛼𝛼𝑡𝑡 )𝜎𝜎𝑡𝑡
𝐴𝐴 )
𝛼𝛼
𝐴𝐴 𝑡𝑡𝑅𝑅𝑡𝑡 𝑡𝑡= 𝛼𝛼
1+ 𝑡𝑡 2= +−− (1 𝑎𝑎
𝑡𝑡 − 𝛼𝛼𝑡𝑡𝑡𝑡)𝑅𝑅 2 𝑡𝑡 − +𝑎𝑎2𝛼𝛼 3 (𝑁𝑁𝑁𝑁𝑡𝑡𝐴𝐴
𝜎𝜎𝑡𝑡2 𝜎𝜎𝑡𝑡2𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙 = (𝐶𝐶𝐶𝐶 ) (𝑆𝑆𝑆𝑆 ) 𝑌𝑌
(𝑁𝑁𝑁𝑁
In this study,2 we 𝑡𝑡propose −𝑎𝑎 to estimate − 𝑎𝑎 the −
blueness 𝑎𝑎 𝑥𝑥 )
𝐴𝐴 𝑡𝑡 index, which is 𝑎𝑎𝐴𝐴𝐴𝐴(𝑆𝑆𝑆𝑆
1 2 2𝑌𝑌 2 3
𝜎𝜎𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙𝑡𝑡𝐴𝐴 𝜎𝜎 =𝑡𝑡2 = 𝛼𝛼𝑡𝑡2 (𝜎𝜎𝑡𝑡𝐴𝐴 )2 + (1 𝑡𝑡 − 𝛼𝛼 )2 (𝜎𝜎 𝐵𝐵 )2−𝑎𝑎
𝑡𝑡 𝐵𝐵 𝐴𝐴 𝑡𝑡 𝐴𝐴 + 2𝛼𝛼 1−𝑎𝑎(𝐶𝐶𝐶𝐶 (𝐶𝐶𝐶𝐶
𝑡𝑡1(12 −−
) 2𝛼𝛼)𝑎𝑎𝑡𝑡 − 2 (𝑆𝑆𝑆𝑆
)𝜎𝜎 2 2) − 2 )𝑎𝑎− 𝑎𝑎3 (𝑁𝑁𝑁𝑁
3 (𝑁𝑁𝑁𝑁 𝑥𝑥 )
equal to the sum𝑡𝑡𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 of ocean emissions 𝐴𝐴 scaled 𝐴𝐴 by𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙
𝑡𝑡 ) − 𝑏𝑏𝑡𝑡𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙
𝑌𝑌𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 the firm’s
𝑡𝑡 =𝑡𝑡 = net sales. This−𝑏𝑏1𝑡𝑡𝐴𝐴(𝐶𝐶𝐶𝐶𝐴𝐴2 ) − 𝑏𝑏2 (𝑆𝑆𝑆𝑆2 )
𝑡𝑡 =−𝑏𝑏 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵(𝐶𝐶𝐶𝐶 𝑡𝑡 ) +−(1 𝑏𝑏 −(𝑆𝑆𝑆𝑆 (𝑁𝑁𝑁𝑁 ) 𝐵𝐵 𝑌𝑌 𝑌𝑌
measure
−𝑏𝑏1 (𝐶𝐶𝐶𝐶 2 ) − 𝑏𝑏indicates
2 (𝑆𝑆𝑆𝑆𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
2𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 −𝑡𝑡 = the =percentage
𝑏𝑏𝑡𝑡𝐵𝐵𝑡𝑡3 (𝑁𝑁𝑁𝑁
=𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 2 1𝐴𝐴 𝐴𝐴2 of ocean
𝑥𝑥 ) 𝑡𝑡 +𝑡𝑡 (1
𝜎𝜎𝑡𝑡𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 +− (1𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
− 2
𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵2emissions
𝐵𝐵 𝐵𝐵 3
𝑡𝑡 )𝑡𝑡 that 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑥𝑥 the net 𝑡𝑡 =sales𝑡𝑡 𝑡𝑡
𝑌𝑌𝑡𝑡𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵 = 𝐴𝐴𝐵𝐵 −𝑏𝑏 𝑌𝑌 𝐵𝐵 (𝐶𝐶𝐶𝐶 2 − 𝐵𝐵 𝑏𝑏2 (𝑆𝑆𝑆𝑆2 ) − 𝑏𝑏3 (𝑁𝑁𝑁𝑁𝑥𝑥 )
produce. To 𝐵𝐵capture
𝑌𝑌𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 the𝑡𝑡 = effect 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
−𝑏𝑏 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 of
(𝐶𝐶𝐶𝐶 𝑡𝑡 =ocean
+ (1 − emissions,
1𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
) − 𝑏𝑏2 (𝑆𝑆𝑆𝑆2 ) −𝑡𝑡 𝑏𝑏3 (𝑁𝑁𝑁𝑁
𝑡𝑡 we use
𝐵𝐵 𝑥𝑥 )
the emissions
𝐴𝐴𝐵𝐵 𝐵𝐵 1 𝑡𝑡 2 𝑌𝑌emissions
of CO2, SO2, and𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐴𝐴 NO 𝐴𝐴𝑡𝑡x𝑡𝑡.𝐵𝐵 A𝐵𝐵 lower
= −𝑏𝑏
𝐵𝐵𝑡𝑡 1 (𝐶𝐶𝐶𝐶 percentage2 ) − 𝑏𝑏2𝐴𝐴𝑌𝑌(𝑆𝑆𝑆𝑆 𝐵𝐵 of2 )ocean − 𝑏𝑏3 (𝑁𝑁𝑁𝑁 𝑡𝑡
𝑥𝑥𝐵𝐵) 𝐴𝐴 to sales
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐴𝐴𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡𝐵𝐵 𝑡𝑡𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 =𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 𝑡𝑡 = 𝛼𝛼𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 𝑡𝑡+ (1 − 𝛼𝛼)𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 −𝑏𝑏 𝑡𝑡𝑌𝑌𝑡𝑡1−𝑏𝑏 (𝐶𝐶𝐶𝐶 𝑌𝑌 (𝐶𝐶𝐶𝐶
1𝑡𝑡𝐵𝐵 2) − 2 )𝑏𝑏− 2 (𝑆𝑆𝑆𝑆𝑏𝑏2 (𝑆𝑆𝑆𝑆
2) − 2 )𝑏𝑏− 𝑏𝑏3 (𝑁𝑁𝑁𝑁
3 (𝑁𝑁𝑁𝑁 𝑥𝑥 )
represents lower 𝑌𝑌𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 emissions
𝑌𝑌𝑡𝑡 𝑡𝑡𝐴𝐴 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵 that a firm produces 𝐵𝐵
𝑌𝑌𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 (Yoshino,
𝐵𝐵
𝑡𝑡 =𝑡𝑡 =
𝐵𝐵 Taghizadeh-
𝐴𝐴 𝐵𝐵 𝐵𝐵 𝐵𝐵
𝑌𝑌𝑡𝑡 Hesary, and Otsuka 2021). We as:𝐴𝐴−𝑅𝑅𝐵𝐵𝑌𝑌)−(𝜎𝜎 𝑡𝑡 𝑌𝑌𝐵𝐵
𝐴𝐴 1 (𝑅𝑅 𝐵𝐵𝐴𝐴𝐴𝐴 =
𝑌𝑌𝑡𝑡𝐴𝐴 1compute
−𝑎𝑎 𝑌𝑌 𝐵𝐵 2 )𝐴𝐴𝐴𝐴− 𝑎𝑎the
(𝐶𝐶𝐶𝐶
𝐵𝐵 )𝑡𝑡2 −𝜎𝜎
blueness of the bond1 (𝑅𝑅
2 (𝑆𝑆𝑆𝑆2 ) − 𝑎𝑎3 (𝑁𝑁𝑁𝑁𝑥𝑥 ) 2𝛽𝛽 𝑡𝑡 𝑡𝑡
𝑡𝑡 2 𝐴𝐴𝐴𝐴
𝑡𝑡 ) −𝜎𝜎𝑡𝑡
1 2 𝑌𝑌 𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙 𝑌𝑌
𝑡𝑡 𝐴𝐴 2𝛽𝛽𝐴𝐴𝑡𝑡𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 −𝑎𝑎
𝑡𝑡 −𝑅𝑅 −𝑎𝑎𝐵𝐵 )−(𝜎𝜎
(𝐶𝐶𝐶𝐶 𝐴𝐴(𝐶𝐶𝐶𝐶
1 𝑡𝑡1 2 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 )
𝑡𝑡 − ) 𝑎𝑎 − 𝐵𝐵(𝑆𝑆𝑆𝑆𝑎𝑎 (𝑆𝑆𝑆𝑆
2 𝑡𝑡2 2 2 𝐴𝐴 2 2 3 3 𝑥𝑥 𝑥𝑥 𝛼𝛼𝑡𝑡 =
𝑡𝑡 ) − ) 𝑎𝑎 − (𝑁𝑁𝑁𝑁
𝑎𝑎 (𝑁𝑁𝑁𝑁 ) )
(𝑅𝑅𝐴𝐴 −𝑅𝑅𝑡𝑡𝐵𝐵 )−(𝜎𝜎𝑡𝑡𝐵𝐵 ) −𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 𝛼𝛼𝑡𝑡𝑌𝑌
𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙 =
𝐴𝐴 =𝑡𝑡 𝐵𝐵= 2 𝑌𝑌𝑡𝑡 𝐵𝐵) −𝜎𝜎𝐴𝐴𝐴𝐴 2 2
1 (𝜎𝜎𝑡𝑡𝐴𝐴 ) −(𝜎𝜎𝑡𝑡𝐵𝐵 ) −2𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
𝑡𝑡𝑡𝑡 𝑌𝑌
2𝛽𝛽 𝑡𝑡
𝐵𝐵 )12(𝐶𝐶𝐶𝐶 22)𝑡𝑡 𝑌𝑌 (𝑆𝑆𝑆𝑆 ) −𝑡𝑡𝐴𝐴𝑎𝑎𝐵𝐵3 (𝑁𝑁𝑁𝑁 𝐵𝐵 𝑥𝑥 )
𝐴𝐴 −𝑅𝑅 𝐵𝐵 )−(𝜎𝜎
= 𝑡𝑡1𝐴𝐴𝐴𝐴 ) 𝐴𝐴−(𝜎𝜎 −𝑎𝑎 (𝑅𝑅
𝐴𝐴𝐴𝐴 −𝐴𝐴𝐴𝐴 𝐴𝐴𝑡𝑡𝑎𝑎2𝐴𝐴
𝑌𝑌 𝑡𝑡 2 𝐴𝐴
𝑌𝑌 𝑌𝑌
(𝜎𝜎𝑡𝑡𝐴𝐴 ) −(𝜎𝜎𝑡𝑡𝐵𝐵 ) −2𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
2 2 (𝜎𝜎
𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙2𝛽𝛽𝑡𝑡 (𝑅𝑅=𝑡𝑡 −𝑅𝑅 𝑡𝑡 𝛼𝛼𝑡𝑡𝑡𝑡 )−(𝜎𝜎
𝐵𝐵
𝑡𝑡 −2𝜎𝜎
= 𝑡𝑡 )2−𝜎𝜎
2𝛽𝛽𝐵𝐵 𝑡𝑡
𝑡𝑡𝑡𝑡 𝑡𝑡 𝑌𝑌 𝑡𝑡 𝑌𝑌
𝑡𝑡 𝑡𝑡 𝑡𝑡 , (6)
𝐴𝐴 )2𝐴𝐴𝐴𝐴 −(𝜎𝜎𝑌𝑌 𝐵𝐵 𝐴𝐴2
𝛼𝛼𝑡𝑡 = 1 (𝑅𝑅𝐴𝐴𝑡𝑡𝐴𝐴−𝑅𝑅 2 𝑡𝑡𝐵𝐵 )−(𝜎𝜎 𝐵𝐵 2𝑡𝑡𝐵𝐵(𝜎𝜎)−𝑎𝑎 𝑡𝑡−𝜎𝜎
𝐴𝐴𝐴𝐴 𝑡𝑡 (𝐶𝐶𝐶𝐶 𝑡𝑡 𝑡𝑡) )−2𝜎𝜎 −
𝐴𝐴𝐴𝐴
𝑡𝑡 (𝑆𝑆𝑆𝑆 1) − 𝑎𝑎 (𝑁𝑁𝑁𝑁2 ) 2
𝑎𝑎
2𝛽𝛽(𝜎𝜎 ) −(𝜎𝜎 1 2 2 1 2 𝐴𝐴 𝐴𝐴
𝐵𝐵 3 𝐵𝐵 )−(𝜎𝜎𝐵𝐵 𝑥𝑥𝐵𝐵 )𝐴𝐴𝐴𝐴 𝐴𝐴𝐴𝐴
𝛼𝛼𝑡𝑡 = 𝑡𝑡𝐵𝐵𝑙𝑙𝑙𝑙𝑙𝑙 𝐴𝐴 𝑡𝑡 )=−2𝜎𝜎𝑡𝑡 (𝑅𝑅2𝛽𝛽 𝑡𝑡 −𝑅𝑅 −𝑅𝑅
(𝑅𝑅𝑡𝑡𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
)−(𝜎𝜎 𝑡𝑡 𝑡𝑡𝐴𝐴 )−−𝜎𝜎 𝑡𝑡 −𝜎𝜎𝑡𝑡𝐵𝐵
𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐴𝐴 𝐴𝐴 )2−𝑏𝑏 𝐵𝐵 1 𝑡𝑡𝐵𝐵(𝐶𝐶𝐶𝐶 2 ) − 𝑏𝑏 (𝑆𝑆𝑆𝑆 ) − 𝑏𝑏
2𝛽𝛽 (𝑁𝑁𝑁𝑁 ) 𝑡𝑡 𝑡𝑡
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 2 𝐴𝐴𝐴𝐴 2 𝛼𝛼
2 =𝛼𝛼 𝑌𝑌 =
𝐴𝐴
3 𝑥𝑥
𝐵𝐵𝐵𝐵𝑡𝑡𝐴𝐴 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵 2 𝐴𝐴 2, (7)
(𝜎𝜎
𝐵𝐵 𝑡𝑡 𝑡𝑡 𝑡𝑡 −(𝜎𝜎 ) −2𝜎𝜎 𝑡𝑡 𝑡𝑡𝑡𝑡
𝑡𝑡
𝑡𝑡 −𝑏𝑏 =1−𝑏𝑏 (𝐶𝐶𝐶𝐶 1 (𝐶𝐶𝐶𝐶
2 ) 𝐴𝐴 − 2 ) 𝑏𝑏 −2
𝑡𝑡
(𝑆𝑆𝑆𝑆
𝑏𝑏 2 (𝑆𝑆𝑆𝑆
𝐵𝐵
2 ) 𝐵𝐵− 2 ) 𝑏𝑏 −
3 (𝑁𝑁𝑁𝑁
𝑏𝑏 3 (𝑁𝑁𝑁𝑁
(𝜎𝜎
𝑥𝑥 ) 𝐴𝐴 )(𝜎𝜎
𝑥𝑥 )−(𝜎𝜎 ) 𝐵𝐵
−(𝜎𝜎
)
2 𝐵𝐵 2𝐴𝐴𝐴𝐴 𝐴𝐴𝐴𝐴
−2𝜎𝜎
𝐴𝐴 ) −2𝜎𝜎 𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵 𝐵𝐵
𝑡𝑡 𝐴𝐴=> 𝑡𝑡𝐴𝐴 = 𝐵𝐵 𝐵𝐵 𝑡𝑡 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑌𝑌𝑡𝑡 𝑡𝑡
𝑡𝑡 𝑡𝑡
𝑡𝑡 > 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡
𝐴𝐴 𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 𝑡𝑡 𝐵𝐵− 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 −𝑏𝑏 𝑡𝑡 𝑡𝑡1 (𝐶𝐶𝐶𝐶2 ) 𝑌𝑌 −𝐵𝐵𝑏𝑏𝑌𝑌2𝑡𝑡 𝐵𝐵(𝑆𝑆𝑆𝑆 2 ) − 𝑏𝑏3 (𝑁𝑁𝑁𝑁𝑥𝑥 )
𝐵𝐵𝐵𝐵𝑡𝑡 > 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 where CO , SO ,𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 = x𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 𝑡𝑡𝐵𝐵
2 and
𝐴𝐴𝑡𝑡 NO refer 𝐵𝐵 𝐴𝐴 to the ocean emissions that a firm
2 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡𝐴𝐴 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡𝐵𝐵 𝑡𝑡 > 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡𝑌𝑌𝑡𝑡𝐵𝐵 𝐴𝐴 𝐴𝐴)− 𝐵𝐵
produces. The coefficients 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐴𝐴 𝑡𝑡 𝐵𝐵> 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 (a , a , a −𝑏𝑏 ) 1 (𝐶𝐶𝐶𝐶
and (b 2 ), 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
− 𝑏𝑏𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 2 (𝑆𝑆𝑆𝑆
𝑡𝑡 −𝑡𝑡2𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 −𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑏𝑏𝑡𝑡𝐵𝐵3 (𝑁𝑁𝑁𝑁 𝑡𝑡 𝑥𝑥 )
𝑌𝑌𝑡𝑡 𝑌𝑌𝐴𝐴𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵1𝑡𝑡𝐵𝐵 = 𝑡𝑡
𝐵𝐵 2 3 1 b2, b3) differ from one firm
to another. 𝑌𝑌𝑡𝑡𝐴𝐴 𝑌𝑌 and𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐴𝐴𝐵𝐵 𝐵𝐵 > 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡
𝑡𝑡𝑌𝑌𝑡𝑡 𝑌𝑌𝑡𝑡𝑡𝑡 show the net sales of firms 𝑌𝑌𝐴𝐴𝑡𝑡𝐵𝐵and
A 𝐴𝐴 B. 𝐵𝐵 𝐵𝐵
𝐴𝐴 𝐵𝐵 (𝑅𝑅𝐴𝐴 −𝑅𝑅𝐵𝐵 )−(𝜎𝜎 𝐵𝐵 )2 −𝜎𝜎 𝐴𝐴𝐴𝐴
1 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 >𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 > 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 𝑡𝑡
Equation (8) 𝑌𝑌𝑡𝑡1 reveals 𝑌𝑌1𝐴𝐴2𝛽𝛽
𝑡𝑡 𝐴𝐴𝐵𝐵𝑡𝑡 𝐵𝐵the 𝑡𝑡 2 proportion 𝑡𝑡 2 𝑡𝑡 of investment in bond A
𝛼𝛼2𝛽𝛽 𝑡𝑡 (𝑅𝑅=2𝛽𝛽 𝑡𝑡 −𝑅𝑅(𝑅𝑅𝑡𝑡𝑡𝑡 −𝑅𝑅 )−(𝜎𝜎)−(𝜎𝜎 𝐵𝐵
𝑡𝑡 )𝐵𝐵−𝜎𝜎
𝐵𝐵 𝐴𝐴𝐴𝐴
𝑡𝑡2)𝑡𝑡 −𝜎𝜎𝐴𝐴𝐴𝐴
𝐴𝐴𝐴𝐴
(Yoshino, Taghizadeh-Hesary,
𝛼𝛼𝑡𝑡 = 𝛼𝛼𝑡𝑡 = 𝐴𝐴 12(𝜎𝜎 𝐴𝐴 )2𝑡𝑡−(𝜎𝜎
𝑡𝑡𝐴𝐴𝐴𝐴 𝐵𝐵𝑡𝑡and ) 𝐵𝐵 −2𝜎𝜎 Otsuka
2 𝑡𝑡 𝐴𝐴𝐴𝐴 2020). If firms do not account
𝑡𝑡
(𝑅𝑅 𝑌𝑌
𝐴𝐴 𝑡𝑡2−𝑅𝑅 𝐵𝐵 𝑌𝑌
2 𝐵𝐵 )−(𝜎𝜎
𝑡𝑡
𝐵𝐵 2 𝐴𝐴𝐴𝐴 ) 𝐴𝐴𝐴𝐴−𝜎𝜎𝑡𝑡
for the necessary 𝛼𝛼𝑡𝑡 (𝜎𝜎 =measures
𝑡𝑡 )(𝜎𝜎−(𝜎𝜎
2𝛽𝛽 𝑡𝑡
𝑡𝑡 ) 𝑡𝑡−(𝜎𝜎
𝑡𝑡
) −2𝜎𝜎 𝑡𝑡to ) 𝑡𝑡−2𝜎𝜎 reduce
𝑡𝑡
𝑡𝑡 the ocean emissions, then the
𝐴𝐴 2 𝐵𝐵 2
1 ) 𝐴𝐴−2𝜎𝜎𝐵𝐵
(𝜎𝜎𝑡𝑡 ) −(𝜎𝜎 𝐵𝐵 𝐴𝐴𝐴𝐴 𝐴𝐴𝐴𝐴 2
𝐵𝐵 (𝑅𝑅𝑡𝑡 −𝑅𝑅𝑡𝑡 )−(𝜎𝜎𝑡𝑡 ) −𝜎𝜎𝑡𝑡
𝑡𝑡 𝑡𝑡
𝐴𝐴
share of bond A𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
will − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵2𝛽𝛽
𝐴𝐴 𝐴𝐴𝑡𝑡be 𝛼𝛼𝑡𝑡𝐵𝐵 =𝐵𝐵𝑡𝑡 𝐴𝐴 2 𝐵𝐵 2
.
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 −𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐴𝐴𝐴𝐴
𝑡𝑡 𝑡𝑡 𝐵𝐵(𝜎𝜎𝑡𝑡 ) −(𝜎𝜎𝑡𝑡 ) −2𝜎𝜎𝑡𝑡
𝐴𝐴
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝑡𝑡𝐴𝐴 −
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 > 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵𝑡𝑡
𝐴𝐴 𝐴𝐴 𝐵𝐵 𝐵𝐵
𝑡𝑡 >𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
> 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 𝑡𝑡
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐴𝐴 >𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐴𝐴 𝐵𝐵 𝐵𝐵
𝑡𝑡 𝑡𝑡− 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡
𝑌𝑌𝑡𝑡𝐴𝐴 𝑌𝑌𝑡𝑡𝐵𝐵
𝑌𝑌𝑡𝑡𝐴𝐴 𝑌𝑌𝑡𝑡𝐵𝐵
1 2
1 2 (𝑅𝑅𝐴𝐴 −𝑅𝑅𝑡𝑡𝐵𝐵 )−(𝜎𝜎𝑡𝑡𝐵𝐵 ) −𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
2𝛽𝛽 𝑡𝑡
(𝑅𝑅𝐴𝐴 −𝑅𝑅𝑡𝑡𝐵𝐵 )−(𝜎𝜎𝑡𝑡𝐵𝐵 ) −𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
2𝛽𝛽 𝑡𝑡 𝛼𝛼 =
𝑡𝑡 2 2
𝛼𝛼𝑡𝑡 = Index,(𝜎𝜎
𝐴𝐴 𝐵𝐵 −2𝜎𝜎𝐴𝐴𝐴𝐴
𝑡𝑡 ) −(𝜎𝜎𝑡𝑡 )Choice,
(𝜎𝜎𝑡𝑡𝐴𝐴 ) −(𝜎𝜎The
𝐵𝐵 2 Blueness Investment
2 𝐴𝐴𝐴𝐴 𝑡𝑡 and Portfolio Allocation 81
𝑡𝑡 ) −2𝜎𝜎𝑡𝑡
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐴𝐴 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐴𝐴 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵 distinguishes between the allocation of bond A and
the allocation
𝐴𝐴 of bond 𝐵𝐵 B. If 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐴𝐴 > 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵 , then the portfolio allocation
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 > 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
of bond 𝑡𝑡A will be𝑡𝑡 larger. However, the firm’s blueness index varies,
and investors choose to allocate their portfolio based on the firm’s
consideration of blueness measures.
1 𝛾𝛾
(𝑅𝑅 𝐴𝐴 − 𝑅𝑅𝑡𝑡𝐵𝐵 ) − (𝜎𝜎𝑡𝑡𝐵𝐵 )2 − 𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 + (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐴𝐴 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡𝐵𝐵 )
2𝛽𝛽 𝑡𝑡 2𝛽𝛽
𝛼𝛼𝑡𝑡 = (8)
(𝜎𝜎𝑡𝑡𝐴𝐴 )2 − (𝜎𝜎𝑡𝑡𝐵𝐵 )2 − 2𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
4.4.3 Emission Taxation and Portfolio Allocation

𝑈𝑈𝑈𝑈𝑈̃𝑡𝑡 , 𝜎𝜎𝜎𝑡𝑡2 ) = 𝑅𝑅̃𝑡𝑡 − 𝛽𝛽𝛽𝛽𝛽𝑡𝑡2 1
(𝑅𝑅 𝐴𝐴 − 𝑅𝑅𝐵𝐵 ) − (𝜎𝜎 𝐵𝐵 )2 −
This section argues that tax 1 incentives exist for firms 𝛾𝛾 that behave
2𝛽𝛽 𝑡𝑡 in 𝑡𝑡
𝛼𝛼𝑡𝑡 =𝐴𝐴 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵 )
𝑡𝑡
1 𝐴𝐴 𝛾𝛾 (𝑅𝑅
𝐴𝐴 𝐴𝐴
− 𝑅𝑅 𝐵𝐵 )
− (𝜎𝜎 𝐵𝐵 )2
𝐴𝐴 − 𝜎𝜎 𝐴𝐴𝐴𝐴
+ (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
(𝑅𝑅 − 𝑅𝑅a𝑡𝑡 socially
𝐴𝐴 𝐵𝐵 )𝑇𝑇−𝐴𝐴(𝜎𝜎 =𝑡𝑡 )𝑡𝑡1responsible
𝐵𝐵 2
(𝐶𝐶𝐶𝐶
− 𝜎𝜎𝑡𝑡 21+)(𝑅𝑅+𝐴𝐴 (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐴𝐴𝐴𝐴
𝑡𝑡manner.
(2𝛽𝛽 𝑆𝑆𝑆𝑆
𝐵𝐵
𝐴𝐴
−(𝜎𝜎 𝑡𝑡) In+2the
𝐵𝐵 𝑡𝑡𝑡𝑡𝑡𝑡3)(𝜎𝜎𝑁𝑁𝑁𝑁
𝐵𝐵
presence
𝐴𝐴𝐴𝐴 𝑡𝑡 )𝛾𝛾 (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 of𝑡𝑡 noncompliance,
𝐴𝐴12𝛽𝛽 𝐴𝐴 𝐵𝐵 )𝑡𝑡𝐵𝐵 the 𝑡𝑡
𝐴𝐴
(𝜎𝜎𝑡𝑡 )2𝛾𝛾− (
2𝛽𝛽 𝑡𝑡 𝑡𝑡𝛼𝛼 −2 𝑅𝑅 𝑡𝑡 ) − 𝑡𝑡 𝑡𝑡 ) − + 𝑡𝑡 −(𝑅𝑅 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡 2
2𝛽𝛽 𝑡𝑡 2𝛽𝛽 = 1 𝑡𝑡 𝑥𝑥𝑡𝑡
2𝛽𝛽 − 𝑡𝑡𝛾𝛾𝑅𝑅𝑡𝑡 ) − (𝜎𝜎𝑡𝑡𝐵𝐵 )2 − 𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 + (𝐵𝐵
𝛼𝛼𝑡𝑡 = government 𝐴𝐴1 2(𝑅𝑅𝛼𝛼𝐴𝐴𝑡𝑡 − =may𝐵𝐵𝑅𝑅2𝐵𝐵 ) impose (𝜎𝜎
𝑡𝑡 𝐵𝐵 )2 emission 𝐴𝐴𝐴𝐴 (𝑅𝑅2𝑡𝑡 𝛾𝛾− (CO
𝐴𝐴 𝐵𝐵 𝐴𝐴 ,)𝐴𝐴2SO
𝑡𝑡 )2𝑡𝑡2−
𝑅𝑅𝐵𝐵(𝜎𝜎
(𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 (𝜎𝜎 𝐵𝐵
(𝜎𝜎,)𝑡𝑡𝐵𝐵2NO)− 2 −𝜎𝜎)2𝜎𝜎
𝐵𝐵 2𝛽𝛽 taxation,
𝐴𝐴𝐴𝐴 𝑡𝑡
+
𝐴𝐴𝐴𝐴 (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 which 𝐴𝐴
𝑡𝑡 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 )
𝐵𝐵 (8) 2𝛽𝛽
𝑡𝑡 −− −2𝛽𝛽 𝜎𝜎(𝜎𝜎
𝐵𝐵𝑡𝑡 𝑡𝑡𝐴𝐴 )+ − 𝑡𝑡𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 )x 𝑡𝑡 𝑡𝑡 2𝛽𝛽
(𝜎𝜎2𝛽𝛽 𝐴𝐴𝐴𝐴
𝑡𝑡 ) −𝑡𝑡 (𝜎𝜎 𝑡𝑡 )𝐵𝐵 2𝜎𝜎 2𝛼𝛼
𝑡𝑡 𝑡𝑡 2𝛽𝛽
− (𝜎𝜎 ) − 𝑡𝑡 2𝜎𝜎
𝐵𝐵 𝐴𝐴𝐴𝐴 𝑡𝑡 =
emphasizes
𝛼𝛼𝑡𝑡𝑇𝑇=𝐵𝐵 = 1 𝑡𝑡1𝐴𝐴(𝐶𝐶𝐶𝐶 that )firms +𝐴𝐴𝑡𝑡𝛼𝛼𝐵𝐵2𝑡𝑡(2= 𝑆𝑆𝑆𝑆2𝐵𝐵𝑡𝑡𝐴𝐴𝐴𝐴)to
need + 𝑡𝑡𝛾𝛾invest 3( 𝑡𝑡𝑁𝑁𝑁𝑁 in
𝐴𝐴𝑡𝑡 )𝐴𝐴 blue 𝐵𝐵 )projects. Applying
𝑡𝑡 𝐴𝐴
(𝜎𝜎𝑡𝑡 ) − (𝜎𝜎𝑡𝑡 ) − 2𝜎𝜎𝑡𝑡
2 𝐵𝐵 2 𝐴𝐴𝐴𝐴
(𝑅𝑅𝑡𝑡 − 𝑅𝑅2𝑡𝑡𝐵𝐵𝑡𝑡) −(𝜎𝜎(𝜎𝜎 𝑡𝑡 2)−− (𝜎𝜎𝜎𝜎𝑡𝑡𝑡𝑡 )2 + (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑥𝑥(𝜎𝜎 𝑡𝑡 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵 2
2𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴
𝑡𝑡 ) of− returns 𝑡𝑡(𝜎𝜎 𝑡𝑡 ) − on
2𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 2
ocean 2𝛽𝛽emission taxation 𝑡𝑡 ) decreases − 2𝛽𝛽 the rate assets A
𝛼𝛼𝑡𝑡 =𝐴𝐴 𝑈𝑈𝑈𝑈𝑈̃ , 𝜎𝜎𝜎𝑡𝑡 ) = 𝑅𝑅̃𝑡𝑡 − 𝛽𝛽𝛽𝛽𝛽𝑡𝑡2
2
and𝑅𝑅 ̃𝑡𝑡 B= (Yoshino, 𝑅𝑅𝐴𝐴𝑡𝑡 − 𝑇𝑇𝐴𝐴 (𝜎𝜎 Taghizadeh-Hesary,
𝐴𝐴 2
𝑡𝑡 ) − 2 (𝜎𝜎𝑡𝑡𝐵𝐵 )2 − 2𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 and Otsuka 2021;𝑡𝑡 Mumtaz
𝑈𝑈𝑈𝑈𝑈̃𝑡𝑡 , 𝜎𝜎𝜎𝑡𝑡2 ) = 𝑅𝑅̃𝑡𝑡 − 𝛽𝛽𝛽𝛽𝛽𝑡𝑡2 𝑈𝑈𝑈𝑈𝑈̃ , 𝜎𝜎𝜎 2 ) 𝑈𝑈𝑈𝑈𝑈 ̃ , 𝜎𝜎𝜎𝑡𝑡 ) =2 𝑅𝑅̃𝑡𝑡 − 𝛽𝛽𝛽𝛽𝛽𝑡𝑡2
and Yoshino𝑡𝑡 2021b). 𝑡𝑡 = 𝑅𝑅̃𝑡𝑡𝑡𝑡 We − 𝛽𝛽𝛽𝛽𝛽assume 𝑡𝑡 that 𝑈𝑈𝑈𝑈𝑈̃𝑡𝑡 , 𝜎𝜎𝜎𝑡𝑡2 ) = 𝑇𝑇𝐴𝐴𝑅𝑅̃=−𝑡𝑡1 𝛽𝛽𝛽𝛽𝛽 (𝐶𝐶𝐶𝐶2 𝐴𝐴2𝑡𝑡 ), + 𝑡𝑡2 (𝑆𝑆𝑆𝑆𝐴𝐴2𝑡𝑡 ) +
𝑡𝑡 𝑡𝑡
𝑈𝑈𝑈𝑈𝑈 ̃ 𝜎𝜎𝜎𝑡𝑡2𝐴𝐴) = 𝑅𝑅̃𝑡𝑡 − 𝛽𝛽𝛽𝛽𝛽 2
2 𝐴𝐴 𝐴𝐴 2 𝐴𝐴
𝑇𝑇𝐴𝐴 = 𝑡𝑡1 (𝐶𝐶𝐶𝐶𝐴𝐴2𝑡𝑡 ) where + 𝑡𝑡2 𝑡𝑡(𝐵𝐵,𝑆𝑆𝑆𝑆 ) + 𝑡𝑡 ( 𝑁𝑁𝑁𝑁 𝐴𝐴𝑡𝑡)= ̃𝑡𝑡1,(𝜎𝜎
𝑇𝑇𝐴𝐴𝐴𝐴𝑈𝑈𝑈𝑈𝑈 𝐶𝐶𝐶𝐶
𝜎 )
𝑡𝑡1𝑇𝑇(𝐶𝐶𝐶𝐶𝑡𝑡22𝑡𝑡 ) + 𝑡𝑡2 (𝑆𝑆𝑆𝑆2𝑡𝑡 ) + 𝑡𝑡3 (𝑁𝑁𝑁𝑁𝑥𝑥𝑡𝑡𝑇𝑇) =and 2𝑡𝑡𝐴𝐴) +𝑅𝑅̃𝑡𝑡2−
= (𝑆𝑆𝑆𝑆𝛽𝛽𝛽𝛽𝛽 2𝑡𝑡 ) 𝐴𝐴 + 𝑡𝑡3 (𝑁𝑁𝑁𝑁𝑥𝑥𝑡𝑡 )𝑇𝑇𝐴𝐴 = 𝑡𝑡 (𝐶𝐶𝐶𝐶𝐵𝐵𝐴𝐴 ) + 𝑡𝑡 (𝑆𝑆𝑆𝑆𝐵𝐵𝐴𝐴) +
𝑈𝑈𝑈𝑈𝑈
̃̃ 𝑡𝑡, 𝜎𝜎𝜎=2 )𝑡𝑡𝑇𝑇𝑅𝑅=
𝑅𝑅 2 𝐴𝐴𝑡𝑡 =−
𝐵𝐵
̃ −
3 𝑥𝑥 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡1 (𝐶𝐶𝐶𝐶2𝐵𝐵𝑡𝑡 ) + 𝑡𝑡12 (𝑆𝑆𝑆𝑆22𝑡𝑡𝑡𝑡 ) + 𝑡𝑡23 (𝑁𝑁𝑁𝑁2𝑡𝑡𝑥𝑥𝑡𝑡 )
𝐴𝐴 𝑅𝑅 𝐵𝐵𝛽𝛽𝛽𝛽𝛽𝑡𝑡 𝐴𝐴
𝐵𝐵𝑁𝑁𝑁𝑁𝐴𝐴 )
𝐴𝐴
𝐵𝐵 𝑇𝑇𝐴𝐴 =𝑡𝑡 𝑡𝑡1𝑡𝑡(𝐵𝐵𝐶𝐶𝐶𝐶2𝑡𝑡 )𝑡𝑡+ 𝑡𝑡2 ( 𝑇𝑇𝐵𝐵𝑆𝑆𝑆𝑆 = )𝑡𝑡
𝐵𝐵). =1 𝑡𝑡 𝐵𝐵(𝐶𝐶𝐶𝐶
+( 𝑡𝑡
𝐶𝐶𝐶𝐶 ( ) 𝐴𝐴 + 𝑡𝑡 ( 𝑆𝑆𝑆𝑆 𝐵𝐵
) + 𝐴𝐴 𝑡𝑡 ( 𝑁𝑁𝑁𝑁 𝐵𝐵
) 𝐵𝐵𝐴𝐴 𝐴𝐴 ) 𝐴𝐴 𝐵𝐵
𝑇𝑇𝐵𝐵 = 𝑡𝑡1 (𝐶𝐶𝐶𝐶2𝑡𝑡 ) + 𝑡𝑡2 (𝑆𝑆𝑆𝑆2𝑡𝑡𝑇𝑇) +=𝐴𝐴𝑡𝑡3𝑡𝑡(𝑁𝑁𝑁𝑁 ( 𝐶𝐶𝐶𝐶 𝑥𝑥𝐵𝐵 𝑇𝑇 )
2 𝑡𝑡
+ 𝑡𝑡 (
3
𝑆𝑆𝑆𝑆 2𝑡𝑡𝐵𝐵 ) +
)
𝑥𝑥 𝑡𝑡
+ 2 𝑡𝑡 (
𝑡𝑡 ( 𝑁𝑁𝑁𝑁 2𝑡𝑡𝑆𝑆𝑆𝑆
𝐵𝐵
) ) 3 + 𝑡𝑡 𝑥𝑥( 𝑡𝑡 𝑁𝑁𝑁𝑁
̃𝑡𝑡 )𝑥𝑥=+
𝑅𝑅 𝑅𝑅 − 𝑇𝑇 ) + 𝑡𝑡3 (𝑁𝑁𝑁𝑁𝐵𝐵𝑥𝑥 )
𝑇𝑇𝐴𝐴 𝑅𝑅 ̃=𝑡𝑡 𝑡𝑡=1 (𝐶𝐶𝐶𝐶 ̃
𝛼𝛼 𝐵𝐵 ̃
𝑅𝑅
𝐴𝐴
) ++1 (
𝑡𝑡 1( 𝑆𝑆𝑆𝑆
𝑡𝑡2 𝐴𝐴
− 𝑡𝑡 𝛼𝛼𝐴𝐴̃ ) ) + ̃
𝑅𝑅2 1
𝑡𝑡 ( 2
𝑁𝑁𝑁𝑁
2
𝑡𝑡 𝐴𝐴
𝑡𝑡
) 3 2 𝑥𝑥 𝑇𝑇
𝑡𝑡 𝐵𝐵
2 𝑡𝑡 = 𝑡𝑡1 (3 𝐶𝐶𝐶𝐶 2𝑡𝑡 𝑡𝑡 𝑡𝑡2𝑡𝑡(𝑆𝑆𝑆𝑆2𝐴𝐴
By adjusting 𝑡𝑡 𝐵𝐵 𝑡𝑡 the ocean 𝐵𝐵 𝑡𝑡 emissions,
𝑡𝑡 𝐵𝐵 we obtain the new utility function 𝑡𝑡 𝑡𝑡
̃𝐴𝐴𝑡𝑡 = 𝑅𝑅𝐴𝐴𝑡𝑡 − 𝑇𝑇𝐴𝐴 𝑇𝑇𝐵𝐵 = 𝑡𝑡1 (𝐶𝐶𝐶𝐶
2 ) + 𝑡𝑡2 (𝑅𝑅 2
2𝑡𝑡 )𝑅𝑅+ −
2 3
𝑡𝑡3 (𝑇𝑇𝑁𝑁𝑁𝑁 𝑥𝑥 )
𝑅𝑅 𝐴𝐴2𝑡𝑡
𝑡𝑡
̃𝑆𝑆𝑆𝑆 𝐴𝐴
=
𝑡𝑡 𝐴𝐴
𝐵𝐵𝑥𝑥𝑡𝑡
𝑡𝑡
𝐵𝐵𝐴𝐴 𝐵𝐵
covering ̃𝑡𝑡 𝐵𝐵=
the after-tax𝑅𝑅𝑡𝑡 − 𝑇𝑇rate
𝐴𝐴 𝑡𝑡
𝐴𝐴𝐵𝐵 = 𝑡𝑡 (𝐶𝐶𝐶𝐶2𝑡𝑡𝐵𝐵)and
𝑡𝑡 𝐴𝐴
2 (𝑆𝑆𝑆𝑆𝑅𝑅
+ 𝑡𝑡after-tax ̃2𝑡𝑡𝑡𝑡 )= +𝑅𝑅𝑡𝑡𝐴𝐴3The (𝑁𝑁𝑁𝑁tax 𝑥𝑥 )rates are
𝑇𝑇 = 𝑡𝑡1 (𝐴𝐴𝐶𝐶𝐶𝐶 𝑅𝑅
2𝑡𝑡 ) + 𝑡𝑡2 (𝑆𝑆𝑆𝑆
𝐵𝐵 ) of +1𝑡𝑡return 3 (𝑁𝑁𝑁𝑁𝑥𝑥𝑡𝑡 )
risk. 𝑡𝑡 − 𝑇𝑇𝐵𝐵𝐴𝐴 𝑡𝑡
̃𝐵𝐵𝐴𝐴𝑡𝑡 =
the
𝑅𝑅 same 𝑅𝑅𝑡𝑡 1for − 𝑇𝑇
𝐴𝐴
(𝑅𝑅̃ −𝑅𝑅 firms 𝐵𝐵
𝐴𝐴 ̃ 𝑡𝑡 )−(𝜎𝜎 A 𝐵𝐵 and
̃𝑡𝑡 ) 𝐴𝐴−𝜎𝜎
2 2𝑡𝑡 𝐴𝐴𝐴𝐴
̃𝑡𝑡 B. We can obtain an after-tax rate ̃
𝑅𝑅 𝑡𝑡 = return
of 𝑅𝑅𝐵𝐵𝑡𝑡 − 𝑇𝑇as 𝐵𝐵
𝐴𝐴
̃𝑡𝑡 𝛼𝛼̃=𝑡𝑡 =𝑅𝑅𝐴𝐴𝑡𝑡 −
2𝛽𝛽 𝑡𝑡
̃ ̃𝑡𝑡=𝐴𝐴𝐴𝐴=𝑅𝑅𝐵𝐵𝑅𝑅
𝑅𝑅
𝐵𝐵 𝐴𝐴
. −𝑡𝑡 𝑇𝑇− 𝑇𝑇
̃𝐵𝐵𝑡𝑡 = 𝑅𝑅𝐵𝐵𝑡𝑡 − 𝑇𝑇𝐵𝐵 𝑅𝑅
𝑅𝑅 𝐵𝐵 𝑇𝑇
̃(𝜎𝜎̃𝑡𝑡 𝑡𝑡 =
𝐴𝐴 2 and
𝐴𝐴 𝐵𝐵
𝐵𝐵 𝑅𝑅
2
𝑡𝑡 𝑡𝑡 𝐵𝐵 . 𝐴𝐴
̃ ̃ 𝑡𝑡 𝑅𝑅
𝐴𝐴
̃𝑡𝑡 + (1 − 𝛼𝛼̃ 𝑡𝑡 )𝑅𝑅 ̃𝐵𝐵𝑡𝑡
𝐵𝐵 Resultantly,
𝑅𝑅 ) −(𝜎𝜎 𝑅𝑅̃𝑡𝑡𝑡𝑡 )−−2𝜎𝜎
we
𝑇𝑇̃𝐵𝐵𝑡𝑡
can determine the optimal ̃𝐵𝐵𝑡𝑡 = allocation
𝑅𝑅 𝑅𝑅𝐵𝐵𝑡𝑡 −𝑅𝑅𝑇𝑇𝑡𝑡 𝐵𝐵= of 𝛼𝛼
assets
̃𝑡𝑡 = 𝛼𝛼̃ 𝑡𝑡 𝑅𝑅 ̃𝐴𝐴𝑡𝑡 + (1between ̃𝑡𝑡 = 𝑅𝑅̃𝑡𝑡𝐵𝐵 − 𝑇𝑇𝐵𝐵
𝑅𝑅 𝐵𝐵
̃𝑡𝑡 = 𝛼𝛼̃ 𝑡𝑡 𝑅𝑅
𝐴𝐴𝑅𝑅
𝐴𝐴
̃𝑡𝑡 + 𝐵𝐵(1 − 𝛼𝛼̃ 𝑡𝑡 )𝑅𝑅 ̃𝑡𝑡 𝐵𝐵
𝑅𝑅 − 𝛼𝛼 ̃ 𝑡𝑡 )𝑅𝑅𝑡𝑡 A and ̃B. ̃We compute ̃the optimal rate
̃𝑡𝑡 =of𝑖𝑖𝑖𝑖𝛼𝛼̃return
̃= (1 − ̃ 𝑡𝑡𝐵𝐵)𝛽𝛽𝑅𝑅 (and
̃𝐴𝐴𝑡𝑡𝛽𝛽4+𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 risk𝜀𝜀̃as: 𝐵𝐵
̃𝐵𝐵𝑡𝑡 =𝑆𝑆𝑆𝑆𝑆𝑆 𝐵𝐵𝑖𝑖𝑖𝑖𝑅𝑅 𝑡𝑡 =𝛼𝛼𝑖𝑖𝑖𝑖𝛼𝛼 𝑡𝑡+ 𝑅𝑅 𝑡𝑡𝛽𝛽 + ̃ 𝐵𝐵
𝑅𝑅𝑅𝑅𝑅𝑅 𝛼𝛼
+ 𝑡𝑡𝐼𝐼𝐼𝐼𝑖𝑖𝑖𝑖 + 𝛽𝛽 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑅𝑅 𝑡𝑡+𝑅𝑅 1 1−𝑖𝑖𝑖𝑖(𝑅𝑅̃+ )̃𝑅𝑅𝑖𝑖𝑖𝑖𝐵𝐵)−(𝜎𝜎
̃𝐴𝐴𝑡𝑡−𝑅𝑅
𝛼𝛼
𝑅𝑅
̃𝑡𝑡 = 𝛼𝛼̃ 𝑡𝑡𝑡𝑡𝑅𝑅
𝑅𝑅
𝑅𝑅 −
𝐴𝐴 𝑇𝑇
̃𝑡𝑡 + 𝐵𝐵(1 − 𝛼𝛼̃ 𝑡𝑡 )𝑅𝑅 1 𝑅𝑅 𝐵𝐵
̃𝑡𝑡 𝑡𝑡 . = 𝑖𝑖𝑖𝑖 𝑅𝑅
𝑡𝑡 −
2 𝑇𝑇 𝐵𝐵 3
2𝛽𝛽 𝑡𝑡 𝑡𝑡
𝑡𝑡 ̃𝑡𝑡𝐵𝐵 )2 −𝜎𝜎̃𝑡𝑡𝐴𝐴𝐴𝐴
1 2 𝛼𝛼
̃ 𝑡𝑡 = 𝐴𝐴 2 𝐵𝐵 2 𝐴𝐴𝐴𝐴
.
𝐴𝐴 𝐵𝐵 (𝑅𝑅2̃ 𝑡𝑡 −𝑅𝑅̃𝑡𝑡 𝐴𝐴
=By ̃ applying the first-order condition
2 𝐴𝐴 𝐵𝐵 𝐵𝐵 ̃𝑡𝑡 of the𝐵𝐵utility function,(𝜎𝜎
𝐴𝐴𝐴𝐴
we
̃𝑡𝑡 ) −(𝜎𝜎
find ̃𝑡𝑡 ) −2𝜎𝜎 ̃𝑡𝑡
1
(𝑅𝑅̃𝐴𝐴 −𝑅𝑅̃𝑡𝑡𝐵𝐵 )−(𝜎𝜎 ̃𝑡𝑡𝐵𝐵)𝑡𝑡 −𝜎𝜎
̃𝑅𝑅 ̃𝑡𝑡𝐴𝐴𝐴𝐴
𝛼𝛼 ̃
𝑅𝑅 + ( 1
1 − 𝐴𝐴 ̃
𝛼𝛼 𝐵𝐵)̃ ̃
𝑅𝑅
̃𝑡𝑡𝑡𝑡𝑡𝑡𝑅𝑅)−(𝜎𝜎
=𝑡𝑡 𝑡𝑡̃=
2𝛽𝛽
𝑡𝑡 ) 𝛼𝛼
𝐵𝐵 ̃
)−(𝜎𝜎 ̃𝑡𝑡 ) −𝜎𝜎
̃
̃̃𝑡𝑡2𝑡𝑡𝑅𝑅𝑡𝑡 𝐵𝐵+2 (1𝐴𝐴𝐴𝐴− 𝛼𝛼̃. 𝑡𝑡 )𝑅𝑅𝑡𝑡 2𝛽𝛽(𝑅𝑅̃𝑡𝑡𝐴𝐴−𝑅𝑅̃𝑡𝑡𝐵𝐵)−(𝜎𝜎̃𝑡𝑡𝐵𝐵) −𝜎𝜎̃𝑡𝑡𝐴𝐴𝐴𝐴
𝐴𝐴𝐴𝐴
2𝛽𝛽 𝑡𝑡 𝛼𝛼
2𝛽𝛽 𝑡𝑡 𝑡𝑡. 𝑡𝑡 ̃
(𝑅𝑅 −𝑅𝑅 ̃ −𝜎𝜎 1 2
𝛼𝛼̃𝑡𝑡 = ̃.𝑡𝑡 ) −2𝜎𝜎
̃𝑡𝑡𝐵𝐵 ) the optimal 𝛼𝛼̃ allocation
= ̃ 𝐵𝐵)2𝐴𝐴−𝜎𝜎 2̃ 𝐴𝐴𝐴𝐴 of the ̃𝑡𝑡𝐴𝐴 )portfolio ̃𝑡𝑡as follows:
2 2
̃𝑡𝑡𝐴𝐴 ) −(𝜎𝜎
(𝜎𝜎 −2𝜎𝜎 ̃𝑡𝑡𝐴𝐴𝐴𝐴 1
(𝑅𝑅̃𝐴𝐴 −𝑅𝑅̃𝑡𝑡𝐵𝐵 )−(𝜎𝜎 𝐵𝐵 2
(𝜎𝜎
𝐴𝐴𝐴𝐴
−(𝜎𝜎 𝛼𝛼̃𝑡𝑡 = 2 . (9)𝛽𝛽2 𝐼𝐼
2𝛽𝛽 𝑡𝑡 𝑡𝑡 ̃𝑡𝑡 ) −(𝜎𝜎
𝑡𝑡(𝜎𝜎 𝑡𝑡 ̃𝑡𝑡 ) −2𝜎𝜎 ̃𝑡𝑡 𝑆𝑆𝑆𝑆𝑆𝑆 =𝑡𝑡𝐴𝐴𝐴𝐴𝛼𝛼𝑖𝑖𝑖𝑖 2
+ 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 +
𝛼𝛼̃𝑡𝑡 = 1
̃̃𝑡𝑡𝐴𝐴
(𝜎𝜎
2
𝐴𝐴)−𝑅𝑅
̃
−𝑎𝑎 (𝐶𝐶𝐶𝐶 ). − 𝑎𝑎 (𝑆𝑆𝑆𝑆 ) − 𝑎𝑎 (𝑁𝑁 𝑂𝑂)
2 2 𝐴𝐴𝐴𝐴
𝐵𝐵 ̃ 𝐵𝐵 )̃ −2𝜎𝜎
−(𝜎𝜎 1) ̃−𝜎𝜎
𝐵𝐵 𝐴𝐴𝐴𝐴2 2 𝑥𝑥 23 𝐴𝐴𝐴𝐴 2
(𝜎𝜎 ̃𝑡𝑡𝐵𝐵 ) −2𝜎𝜎
𝑖𝑖𝑖𝑖 ̃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵+ 𝛽𝛽= 𝐼𝐼𝐼𝐼 + 𝛽𝛽 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵

(𝑅𝑅
𝑆𝑆𝑆𝑆𝑆𝑆 = 𝛼𝛼 ++
2𝛽𝛽 𝑡𝑡 𝑡𝑡 )−(𝜎𝜎
𝑡𝑡
𝛽𝛽 𝛽𝛽
𝑡𝑡 𝑡𝑡 ̃
𝑅𝑅𝑅𝑅𝑅𝑅 ++
𝑡𝑡
𝜀𝜀 𝛽𝛽𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐼𝐼𝐼𝐼𝑖𝑖𝑖𝑖 + 𝛽𝛽3 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑖𝑖𝑖𝑖 + 𝛽𝛽4 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝜀𝜀𝑖𝑖𝑖𝑖
1
̃ 𝐴𝐴 ̃ 𝐵𝐵 1 ̃𝑡𝑡𝐵𝐵 ) 𝑖𝑖𝑖𝑖−𝜎𝜎
𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑖𝑖𝑖𝑖 + 𝛽𝛽𝛼𝛼̃1𝑡𝑡𝑅𝑅𝑅𝑅𝑅𝑅 𝑆𝑆𝑆𝑆𝑆𝑆 = 𝛼𝛼 𝛼𝛼̃+. =
𝑖𝑖𝑖𝑖 𝑡𝑡𝐴𝐴 2 2 𝐵𝐵𝑖𝑖𝑖𝑖2 𝛽𝛽𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑖𝑖𝑖𝑖 𝑡𝑡𝑖𝑖𝑖𝑖−𝑅𝑅𝑡𝑡4 )−(𝜎𝜎
̃𝑡𝑡𝑖𝑖𝑖𝑖 2
=
𝑖𝑖𝑖𝑖 2𝛽𝛽(𝑅𝑅
𝛽𝛽 𝑅𝑅𝑅𝑅𝑅𝑅𝑌𝑌 + 𝑖𝑖𝑖𝑖 𝐼𝐼𝐼𝐼 + 𝛽𝛽
3 𝑖𝑖𝑖𝑖
𝐴𝐴𝐴𝐴 . (9)
. 𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖𝑖𝑖 =𝑖𝑖𝑖𝑖 +
𝑖𝑖𝑖𝑖
𝑡𝑡2𝛼𝛼𝑖𝑖𝑖𝑖𝛽𝛽4+𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
𝑖𝑖𝑖𝑖
𝑖𝑖𝑖𝑖 + 𝑖𝑖𝑖𝑖
𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅
𝑖𝑖𝑖𝑖 𝜀𝜀𝑖𝑖𝑖𝑖+ 𝛽𝛽 𝐼𝐼𝐼𝐼 + 𝛽𝛽 𝐵𝐵𝐵𝐵𝐵𝐵
(𝜎𝜎 ̃𝑡𝑡 ) −2𝜎𝜎 ̃𝑡𝑡 𝑡𝑡 1 2 2 3 2 𝑖𝑖𝑖𝑖 3
̃𝑖𝑖𝑖𝑖𝑡𝑡𝐴𝐴+
𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝛽𝛽2 𝐼𝐼𝐼𝐼
(𝜎𝜎 𝐵𝐵 ̃𝑡𝑡𝐴𝐴𝐴𝐴𝑖𝑖𝑖𝑖 + 𝛽𝛽 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝜀𝜀𝑖𝑖𝑖𝑖
𝛽𝛽3̃𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
) −(𝜎𝜎 𝑡𝑡 ) −2𝜎𝜎 4
−𝑎𝑎1 (𝐶𝐶𝐶𝐶2 ) − 𝑎𝑎2 (𝑆𝑆𝑆𝑆
𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖𝑖𝑖 = 1
𝛼𝛼𝑖𝑖𝑖𝑖 (+𝑅𝑅𝛽𝛽𝐴𝐴1 𝑅𝑅𝑅𝑅𝑅𝑅 𝐵𝐵 + 𝛽𝛽 𝐼𝐼𝐼𝐼𝑖𝑖𝑖𝑖𝐵𝐵 +2 𝛽𝛽 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐴𝐴𝐴𝐴
𝑡𝑡 ) −2(𝜎𝜎𝑡𝑡 ) − 𝑖𝑖𝑖𝑖 + 𝛽𝛽4 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 +𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝜀𝜀𝑖𝑖𝑖𝑖
𝑡𝑡 − 𝑅𝑅𝑖𝑖𝑖𝑖 3 𝜎𝜎𝑡𝑡 𝑡𝑡 =
−𝑎𝑎1 (𝐶𝐶𝐶𝐶2 )𝛼𝛼Equation
−= 𝑎𝑎22𝛽𝛽 (𝑆𝑆𝑆𝑆𝑥𝑥 )(9) − shows 3 (𝑁𝑁
𝑎𝑎−𝑎𝑎 𝑆𝑆𝑆𝑆𝑆𝑆
𝑂𝑂the ) 𝑖𝑖𝑖𝑖)−𝑎𝑎= 1𝛼𝛼(𝑖𝑖𝑖𝑖𝐶𝐶𝐶𝐶
proportion + )𝛽𝛽 −𝑅𝑅𝑅𝑅𝑅𝑅
𝑆𝑆𝑆𝑆2 𝑥𝑥 )1 −
(𝑖𝑖𝑖𝑖𝑆𝑆𝑆𝑆+𝑥𝑥 )𝛽𝛽−
of𝑎𝑎𝑎𝑎2investment 𝐼𝐼𝐼𝐼 (+
𝑎𝑎𝑖𝑖𝑖𝑖3after )𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑖𝑖𝑖𝑖 + 𝛽𝛽4 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖𝑌𝑌𝑡𝑡+
𝑁𝑁2𝛽𝛽𝑂𝑂3considering
1 (2𝐶𝐶𝐶𝐶 22 − 𝑎𝑎2 (𝐴𝐴𝐴𝐴 3 (𝑁𝑁2 𝑂𝑂)
2
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 = the ocean 𝑡𝑡
emission 𝐴𝐴= 2 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡𝐵𝐵=
taxation. After imposing international −𝑎𝑎1 (𝐶𝐶𝐶𝐶emission 2 ) − 𝑎𝑎2 (𝑆𝑆𝑆𝑆𝑥𝑥 ) − 𝑎𝑎3 (𝑁𝑁2
𝑌𝑌𝑡𝑡 1((𝜎𝜎
−𝑎𝑎 𝑡𝑡 𝑡𝑡 ) ) −
𝐶𝐶𝐶𝐶 (𝜎𝜎 ) − 2𝜎𝜎
2 − 𝑎𝑎2 (𝑡𝑡𝑆𝑆𝑆𝑆𝑥𝑥 ) − 𝑎𝑎𝑌𝑌3𝑡𝑡𝑡𝑡(𝑁𝑁2 𝑂𝑂)
𝑌𝑌𝑡𝑡 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 = 1
taxation,
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 = we assume that the optimal allocation of a portfolio 𝑅𝑅𝐴𝐴𝑡𝑡 −
(shifts 𝑌𝑌𝑡𝑡𝑅𝑅𝐵𝐵𝑡𝑡 ) − (𝜎𝜎𝐵𝐵𝑡𝑡 )2
−𝑎𝑎 ( 𝐶𝐶𝐶𝐶 ) − 𝑎𝑎 (
𝑌𝑌 𝑆𝑆𝑆𝑆
1 ) − 𝑎𝑎 ( 𝑁𝑁 𝑂𝑂 ) 2𝛽𝛽
downward. 1 1 𝐴𝐴1𝐴𝐴𝐴𝐴 (𝜎𝜎in𝐵𝐵𝑡𝑡 𝛾𝛾)blue
(𝜎𝜎𝐵𝐵𝑡𝑡 )2 This (−𝑅𝑅𝜎𝜎𝑡𝑡 𝑡𝑡−implies 𝐵𝐵 2 𝑡𝑡that 𝑅𝑅𝐵𝐵𝑡𝑡investment 𝜎𝜎bonds
𝐴𝐴𝐴𝐴 𝐴𝐴 𝛼𝛼decreases
1 𝑡𝑡 = 𝐵𝐵 ) 𝐴𝐴if 2a
2 𝑥𝑥 𝐴𝐴 3 𝐵𝐵 2 2
(𝑅𝑅𝐴𝐴 − 𝑅𝑅 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵
𝑡𝑡 ) − 𝑡𝑡 = ) 𝑌𝑌− 𝐵𝐵(( 𝜎𝜎)−𝐴𝐴𝐴𝐴
)(𝜎𝜎2−𝐵𝐵−𝑅𝑅)(2𝑡𝑡𝐶𝐶𝐶𝐶 − 𝐴𝐴𝐴𝐴 (−(𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
2𝛽𝛽 𝑡𝑡 firm does 2𝛽𝛽
not account (𝑅𝑅𝑅𝑅𝐴𝐴𝑡𝑡 𝑡𝑡 −for 𝑅𝑅2𝛽𝛽𝑡𝑡 )
the
𝜎𝜎− −𝑎𝑎
𝑡𝑡blueness 𝑡𝑡1
𝑡𝑡 𝜎𝜎
2 ) +
factors
𝑡𝑡 − 2𝛽𝛽 𝑎𝑎 2 and 𝑆𝑆𝑆𝑆 𝑡𝑡 1 𝑡𝑡 −𝐴𝐴𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
a𝑥𝑥 ) −
regulator
( 𝑅𝑅 𝑎𝑎 3 (𝑅𝑅
− ) ()𝜎𝜎(𝑡𝑡𝜎𝜎)𝐵𝐵 )−2 −
𝑁𝑁𝐵𝐵𝑡𝑡2𝑡𝑡imposes
𝑂𝑂− (𝜎𝜎𝜎𝜎𝐵𝐵𝑡𝑡 𝐴𝐴𝐴𝐴
)2 − 2𝜎𝜎
𝛼𝛼𝑡𝑡 = ̂ )= 1 2𝛽𝛽 𝛼𝛼 = 𝑡𝑡
𝐴𝐴𝐴𝐴 2𝛽𝛽
𝐴𝐴𝐴𝐴𝑅𝑅𝑡𝑡 ) −𝐴𝐴𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝛼𝛼 𝐴𝐴
(taxation. 𝐵𝐵 𝑡𝑡 ( 𝐵𝐵 )2 = 𝐴𝐴 𝐴𝐴𝐴𝐴
𝑅𝑅2𝜎𝜎 − 𝜎𝜎 𝑡𝑡 𝐴𝐴− (𝐵𝐵𝜎𝜎 𝜎𝜎 2 − (𝐵𝐵𝜎𝜎 𝐵𝐵 2
emission
(𝜎𝜎𝐴𝐴𝑡𝑡 )2 − (𝜎𝜎𝐵𝐵𝑡𝑡𝑡𝑡 2𝛽𝛽
1
2 − 𝛼𝛼 𝑡𝑡𝑡𝑡 =
𝑡𝑡 ( 𝜎𝜎 ) 2 𝑡𝑡−(𝜎𝜎 ( 𝜎𝜎
𝑡𝑡 ))2𝑡𝑡2𝑡𝑡)𝐴𝐴𝐴𝐴
−− (2𝜎𝜎 𝜎𝜎𝑡𝑡𝐴𝐴𝐴𝐴 )𝑡𝑡 2) −−2𝜎𝜎 2𝜎𝜎
𝑡𝑡
𝑡𝑡 =
𝛼𝛼𝐴𝐴𝐴𝐴
𝑡𝑡𝑌𝑌 𝑡𝑡 (𝜎𝜎𝐴𝐴𝑡𝑡 )2 − 1(𝜎𝜎(𝐵𝐵𝑡𝑡 𝑅𝑅)2𝐴𝐴𝑡𝑡 − − 2𝜎𝜎
𝐴𝐴𝐴𝐴
𝑅𝑅𝐵𝐵𝑡𝑡 𝑡𝑡) − (𝜎𝜎𝐵𝐵𝑡𝑡 )2
𝛼𝛼𝑡𝑡 = 𝐴𝐴
((𝑅𝑅𝐴𝐴𝑡𝑡 )− 𝑅𝑅 𝐵𝐵
) − 𝑡𝑡
( 𝜎𝜎𝐵𝐵 ) 2
− 𝑡𝑡
𝜎𝜎 𝑡𝑡
2
2𝛽𝛽 𝜎𝜎𝑡𝑡 − 𝜎𝜎𝑡𝑡 𝛾𝛾− 12𝜎𝜎𝑡𝑡 𝐴𝐴𝐴𝐴 𝑡𝑡( 𝐵𝐵 2 𝑡𝑡
) 𝐴𝐴𝐴𝐴 𝑡𝑡
𝛾𝛾𝛼𝛼 2𝛽𝛽
1 (𝐴𝐴𝐴𝐴 𝐵𝐵 𝐵𝐵
(𝜎𝜎𝐵𝐵𝑡𝑡 )2 𝛾𝛾− 𝜎𝜎2𝐴𝐴𝐴𝐴 ̂ 𝑡𝑡 (= 𝐴𝐴 𝐵𝐵
=
(𝑅𝑅𝐴𝐴 − 𝑅𝑅𝛼𝛼𝐵𝐵𝑡𝑡𝑡𝑡 )𝛼𝛼
̂−>(𝜎𝜎𝛼𝛼(𝐵𝐵𝑡𝑡 𝜎𝜎)𝐴𝐴2 )−2 − 𝜎𝜎1𝐴𝐴𝐴𝐴 + (2𝛽𝛽𝐵𝐵 1
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑅𝑅𝑡𝑡 − −𝐴𝐴𝐵𝐵𝑅𝑅 2𝑡𝑡 ) −
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡𝐵𝐵 ))𝐴𝐴𝐴𝐴 𝐵𝐵 ) 𝑡𝑡 1 +𝐴𝐴𝐴𝐴𝐴𝐴 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝐵𝐵 𝐵𝐵 𝑡𝑡 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 ) (𝐴𝐴𝐴𝐴 𝐴𝐴 2 𝛾𝛾
) −
2𝛽𝛽 𝑡𝑡 1 2𝛽𝛽
𝐵𝐵𝐴𝐴 2− 𝑅𝑅
𝑡𝑡 ((𝜎𝜎𝑅𝑅 )
𝑡𝑡
𝑡𝑡̂ = 2𝛽𝛽 − 2𝜎𝜎
𝑡𝑡 ) − (
𝑡𝑡(𝑅𝑅 𝜎𝜎 𝑡𝑡
𝑡𝑡 )− −𝑅𝑅
𝛾𝛾 𝑡𝑡𝜎𝜎 𝑡𝑡 − + ( 𝜎𝜎
2𝛽𝛽 𝑡𝑡 ( −
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝜎𝜎
( 𝑅𝑅
𝑡𝑡 2𝛽𝛽
𝑡𝑡 −
𝐴𝐴 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
− 𝑅𝑅 )
𝑡𝑡 )− ( 𝜎𝜎𝐵𝐵 ) 2
− 𝜎𝜎𝑡𝑡𝜎𝜎𝑡𝑡 +
̂ 𝑡𝑡 =
𝛼𝛼 𝑡𝑡
𝐴𝐴 𝐵𝐵 𝛼𝛼 𝐵𝐵 22𝛽𝛽 𝑡𝑡
𝐴𝐴𝐴𝐴 𝐴𝐴 2𝛽𝛽 𝐵𝐵 𝑡𝑡 𝑡𝑡 𝑡𝑡 2𝛽𝛽
𝜎𝜎1𝐴𝐴𝑡𝑡 )(𝛼𝛼 −(𝜎𝜎𝑅𝑅𝐵𝐵𝑡𝑡))2 − −𝛼𝛼(2𝜎𝜎 ) − 𝜎𝜎𝑡𝑡𝐴𝐴 2+ ((𝐵𝐵𝜎𝜎𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
𝑡𝑡
̂ 𝑡𝑡𝑡𝑡−=
𝑅𝑅 𝜎𝜎 𝐴𝐴𝐴𝐴 ) 𝑡𝑡−̂ − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 )2𝜎𝜎𝑡𝑡
𝐴𝐴 𝐵𝐵 𝐴𝐴𝐴𝐴
(2𝛽𝛽 2
𝑡𝑡 𝑡𝑡= 2𝛽𝛽
2
𝐵𝐵 −2𝐴𝐴𝛼𝛼
𝑡𝑡 2 (𝜎𝜎𝐴𝐴𝐴𝐴
𝑡𝑡 = 𝑡𝑡 )𝐴𝐴𝐴𝐴−
2
̂ 𝑡𝑡 =
𝛼𝛼 𝐴𝐴
𝑡𝑡
𝐵𝐵
𝑡𝑡 ( 𝜎𝜎
( 𝜎𝜎𝑡𝑡 )
𝐴𝐴 2
) − 𝛾𝛾( 𝜎𝜎 (
− (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 )
𝜎𝜎𝑡𝑡 − ) 2𝜎𝜎 𝑡𝑡2𝜎𝜎𝑡𝑡 ) 𝐵𝐵 ̂
𝛼𝛼 > 𝛼𝛼 ( 𝐴𝐴 2
)
𝜎𝜎𝑡𝑡 − 𝜎𝜎𝑡𝑡 − 2 ( 𝐵𝐵 2
)
(𝑅𝑅 − 𝑅𝑅𝑡𝑡 ) −( (𝐴𝐴𝜎𝜎)𝐵𝐵𝑡𝑡2)2 −( 𝜎𝜎𝐵𝐵𝐴𝐴𝐴𝐴 𝑡𝑡 𝑡𝑡2 + 2𝜎𝜎𝐴𝐴𝐴𝐴 𝑡𝑡 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
2𝛽𝛽 𝑡𝑡 ̂ 𝜎𝜎>𝑡𝑡 𝛼𝛼 − 𝜎𝜎𝑡𝑡 ) − 2𝛽𝛽
𝑡𝑡
𝛼𝛼 𝑡𝑡
= 𝑡𝑡1 (𝐶𝐶𝐶𝐶𝐴𝐴2𝑡𝑡 ) + 𝑡𝑡2 (𝑆𝑆𝑆𝑆𝐴𝐴2𝑡𝑡𝑇𝑇) +=𝑡𝑡3𝑡𝑡((𝑁𝑁𝑁𝑁 𝐴𝐴
𝑥𝑥𝐵𝐵) 𝐵𝐵 𝐵𝐵
𝐵𝐵 1 𝐶𝐶𝐶𝐶2𝑡𝑡 𝑡𝑡 ) + 𝑡𝑡2 (𝑆𝑆𝑆𝑆2𝑡𝑡 ) + 𝑡𝑡3 (𝑁𝑁𝑁𝑁𝑥𝑥𝑡𝑡 )
= 𝑡𝑡1 (𝐶𝐶𝐶𝐶𝐵𝐵2𝑡𝑡 ) + 𝑡𝑡2 (𝑆𝑆𝑆𝑆𝐵𝐵2̃ )𝐴𝐴+=𝑡𝑡3𝑅𝑅(𝐴𝐴𝑁𝑁𝑁𝑁 𝐵𝐵

𝑥𝑥𝑡𝑡 )
𝑅𝑅
𝑡𝑡
𝑡𝑡 𝑡𝑡 − 𝑇𝑇𝐴𝐴
= 𝑅𝑅𝐴𝐴𝑡𝑡 − 𝑇𝑇𝐴𝐴
𝐵𝐵
̃𝑡𝑡 = 𝑅𝑅𝐵𝐵𝑡𝑡 − 𝑇𝑇𝐵𝐵
𝑅𝑅
4.4.4 D
rivers of Stock Returns Including
= 𝑅𝑅𝐵𝐵𝑡𝑡 − 𝑇𝑇𝐵𝐵 ̃Blueness
the𝑅𝑅 ̃𝐴𝐴𝑡𝑡 +
̃ 𝑡𝑡 𝑅𝑅 Index ̃𝐵𝐵𝑡𝑡
(1 − 𝛼𝛼̃ 𝑡𝑡 )𝑅𝑅
𝑡𝑡 = 𝛼𝛼
𝐴𝐴 𝐵𝐵
̃ 𝑡𝑡 𝑅𝑅
= 𝛼𝛼 ̃𝑡𝑡
̃𝑡𝑡 + (1 − 𝛼𝛼̃ 𝑡𝑡 )𝑅𝑅
To determine how 1 the blueness 2 of a firm might affect its performance,
(𝑅𝑅̃𝐴𝐴 −𝑅𝑅̃𝑡𝑡𝐵𝐵 )−(𝜎𝜎 ̃𝑡𝑡𝐵𝐵 ) −𝜎𝜎 ̃𝑡𝑡𝐴𝐴𝐴𝐴
we adopt the following
𝛼𝛼̃𝑡𝑡 =
2𝛽𝛽 𝑡𝑡 empirical model
. (Yoshino, Taghizadeh-Hesary,
2 𝐴𝐴 )2 −(𝜎𝜎 𝐵𝐵 )2 −2𝜎𝜎 𝐴𝐴𝐴𝐴
1
̃ 𝐴𝐴 ̃ 𝐵𝐵
(𝑅𝑅 −𝑅𝑅𝑡𝑡 )−(𝜎𝜎
2𝛽𝛽 𝑡𝑡
and𝐵𝐵 Otsuka
̃𝑡𝑡 ) −𝜎𝜎 𝐴𝐴𝐴𝐴
̃𝑡𝑡 2021): ̃
(𝜎𝜎 𝑡𝑡 ̃𝑡𝑡 ̃𝑡𝑡
= 𝐴𝐴 2 𝐵𝐵 2 𝐴𝐴𝐴𝐴
.
(𝜎𝜎 ̃𝑡𝑡 ) −2𝜎𝜎 ̃𝑡𝑡
𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝛽𝛽2 𝐼𝐼𝐼𝐼𝑖𝑖𝑖𝑖 + 𝛽𝛽3 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑖𝑖𝑖𝑖 + 𝛽𝛽4 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝜀𝜀𝑖𝑖𝑖𝑖
𝑆𝑆𝑆𝑆𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝛽𝛽2 𝐼𝐼𝐼𝐼𝑖𝑖𝑖𝑖 + 𝛽𝛽3 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑖𝑖𝑖𝑖 + 𝛽𝛽4 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝜀𝜀𝑖𝑖𝑖𝑖 , (10)
where SPRit refers to−𝑎𝑎 the stock returns of ocean firms, ROBit denotes the
1 (𝐶𝐶𝐶𝐶2 ) − 𝑎𝑎2 (𝑆𝑆𝑆𝑆𝑥𝑥 ) − 𝑎𝑎3 (𝑁𝑁2 𝑂𝑂)
rate of return on𝑡𝑡 bonds,
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 = IBit stands for the number of issuance bonds,
−𝑎𝑎1 (𝐶𝐶𝐶𝐶 2 ) − 𝑎𝑎
Blueness (𝑆𝑆𝑆𝑆𝑥𝑥 )the
shows
it 2 3 (𝑁𝑁2 𝑂𝑂) index of
− 𝑎𝑎blueness 𝑌𝑌𝑡𝑡the firm, and Riskit is the credit
𝐵𝐵𝐵𝐵𝑡𝑡 = rating of the 𝑌𝑌 bonds ranging from AA to BBB.
𝑡𝑡 1
(𝑅𝑅𝐴𝐴 − 𝑅𝑅𝐵𝐵𝑡𝑡 ) − (𝜎𝜎𝐵𝐵𝑡𝑡 )2 − 𝜎𝜎𝐴𝐴𝐴𝐴
2𝛽𝛽 𝑡𝑡 𝑡𝑡
1 𝐴𝐴 4.5 𝐵𝐵 Data 𝛼𝛼
𝐵𝐵 and
2 = Sample
𝐴𝐴𝐴𝐴
(𝑅𝑅 − 𝑅𝑅𝑡𝑡 ) − (𝜎𝜎𝑡𝑡 ) − 𝜎𝜎𝑡𝑡 (𝜎𝜎𝐴𝐴 )2 − (𝜎𝜎𝐵𝐵 )2 − 2𝜎𝜎𝐴𝐴𝐴𝐴
𝑡𝑡
2𝛽𝛽 𝑡𝑡 𝑡𝑡 𝑡𝑡 𝑡𝑡
=
(𝜎𝜎𝐴𝐴𝑡𝑡 )2To test
( 𝐵𝐵our
) 2
− 𝜎𝜎𝑡𝑡 − 2𝜎𝜎𝑡𝑡 1 hypothesis 𝐴𝐴𝐴𝐴 by developing an investment portfolio,
𝛾𝛾 we selected
𝐴𝐴
seafood and shipping (𝑅𝑅𝐴𝐴𝑡𝑡firms
− 𝑅𝑅𝐵𝐵𝑡𝑡as (𝜎𝜎𝐵𝐵𝑡𝑡 )2 for
) −proxies − 𝜎𝜎blue 𝐴𝐴𝐴𝐴
𝑡𝑡 + (
firms. 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
We − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 )
𝑡𝑡 obtained
2𝛽𝛽 2𝛽𝛽
1 ̂)𝑡𝑡2=− to 𝛾𝛾
(𝑅𝑅𝐴𝐴 −the 𝑅𝑅𝐵𝐵𝑡𝑡 )data
− (relating
𝜎𝜎𝐵𝐵𝑡𝑡𝛼𝛼 the monthly
𝜎𝜎𝐴𝐴𝐴𝐴
𝑡𝑡 + 2𝛽𝛽 (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
prices
𝐴𝐴 of bonds
−
𝐵𝐵 from Yahoo! Finance
(𝜎𝜎𝑡𝑡 𝐵𝐵𝑡𝑡)Information
(𝜎𝜎𝑡𝑡 𝐴𝐴𝑡𝑡−)2𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 )2 − 2𝜎𝜎𝐴𝐴𝐴𝐴
2𝛽𝛽 𝑡𝑡 between December 2018 and December 2019. 𝑡𝑡 about ocean
= emissions 𝐴𝐴 is2 difficult 𝐵𝐵 2to obtain 𝐴𝐴𝐴𝐴 as different researchers have indicated
(𝜎𝜎𝑡𝑡 )𝛼𝛼̂ − (𝛼𝛼𝜎𝜎𝑡𝑡 ) − 2𝜎𝜎𝑡𝑡
>percentages.
only tentative However, we utilized the forecasted data of
> 𝛼𝛼 the global maritime emission inventory in 2019. This study determines
the proportion of investment with and without the blueness index for
developing the optimal portfolio. We propose that a firm’s blueness leads
to increased participation of bonds as the firm takes steps to benefit the
oceans. To examine the effect of the blueness index on the stock return,
we select 31 Norwegian firms operating in the seafood and shipping
sectors from 2017 to 2019.
4.6 Results
4.6.1 The Investor’s Utility Function
and the Blueness Index
When participating in ocean firms, investors are concerned about firms’

preferences for making the environment blue. The blueness factor
could help by taking advantage of the tax benefits associated with blue
investment, and they may receive a halo effect as people consider them
to be responsible stewards. Hence, we assume that bluer firms attract
𝑇𝑇𝐵𝐵 = 𝑡𝑡1 (𝐶𝐶𝐶𝐶𝐵𝐵2𝑡𝑡 ) + 𝑡𝑡2 (𝑆𝑆𝑆𝑆𝐵𝐵2𝑡𝑡 ) + 𝑡𝑡3 (𝑁𝑁𝑁𝑁𝐵𝐵𝑥𝑥𝑡𝑡 )
𝐴𝐴
̃𝑡𝑡 = 𝑅𝑅𝐴𝐴𝑡𝑡 − 𝑇𝑇𝐴𝐴
𝑅𝑅
𝐵𝐵
𝑅𝑅
more
𝑅𝑅 ̃𝐴𝐴
̃𝑡𝑡 = 𝛼𝛼̃investment.
𝑡𝑡 𝑅𝑅𝑡𝑡 + (1 − 𝛼𝛼 ̃To ̃𝐵𝐵test this proposition and develop an investment
𝑡𝑡 )𝑅𝑅𝑡𝑡
portfolio, we select two Norwegian seafood and shipping firms. We
obtain 1 the monthly
(𝑅𝑅̃𝐴𝐴 −𝑅𝑅̃𝑡𝑡𝐵𝐵 )−(𝜎𝜎
2
̃𝑡𝑡𝐵𝐵 ) −𝜎𝜎 ̃𝑡𝑡𝐴𝐴𝐴𝐴
average bond returns from December 2018 to
2𝛽𝛽 𝑡𝑡
December
𝛼𝛼̃𝑡𝑡 = 2 2019 2 and find
. that investors earn 1.86% from the seafood firm
(𝜎𝜎 ̃𝑡𝑡𝐵𝐵 ) −2𝜎𝜎 ̃𝑡𝑡𝐴𝐴𝐴𝐴
and 2.13% from the shipping firm on average. The variance of σseafood and
σ𝑆𝑆𝑆𝑆𝑆𝑆
shipping = is 𝛼𝛼1.023% and 1.210%, respectively. The covariance between the
𝑖𝑖𝑖𝑖 𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝛽𝛽2 𝐼𝐼𝐼𝐼𝑖𝑖𝑖𝑖 + 𝛽𝛽3 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑖𝑖𝑖𝑖 + 𝛽𝛽4 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝜀𝜀𝑖𝑖𝑖𝑖
seafood and the shipping firm is −0.0225.
We measure the blueness factor using the notation
−𝑎𝑎1 (𝐶𝐶𝐶𝐶2 ) − 𝑎𝑎2 (𝑆𝑆𝑆𝑆𝑥𝑥 ) − 𝑎𝑎3 (𝑁𝑁2 𝑂𝑂)
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 = , a1, a2, and a3 are the weights of
𝑌𝑌𝑡𝑡
emissions.
1 Y refers to the2 net𝐴𝐴𝐴𝐴 sales of the firm. The negative sign refers
(𝑅𝑅𝐴𝐴 −t 𝑅𝑅𝐵𝐵𝑡𝑡 ) − (𝜎𝜎𝐵𝐵𝑡𝑡from
to emissions ) − sales.
𝜎𝜎𝑡𝑡
2𝛽𝛽 𝑡𝑡 resulting A higher value refers to a lower level
𝛼𝛼𝑡𝑡 blueness
of = 𝐴𝐴 of the firm.
𝐵𝐵 For𝐴𝐴𝐴𝐴a clear understanding, we use the blueness
(𝜎𝜎𝑡𝑡 ) − (𝜎𝜎𝑡𝑡 ) − 2𝜎𝜎𝑡𝑡
2 2
index as 1/x, which refers to a higher level of blueness creating lower
1
emissions. 𝛾𝛾 the 𝐴𝐴firms produce
(𝑅𝑅𝐴𝐴𝑡𝑡 The
− 𝑅𝑅𝐵𝐵𝑡𝑡 ocean
) − (𝜎𝜎𝐵𝐵𝑡𝑡 emissions
)2 − 𝜎𝜎𝐴𝐴𝐴𝐴 that 𝐵𝐵
𝑡𝑡 + 2𝛽𝛽 (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 )
vary due to
the 2𝛽𝛽
̂ 𝑡𝑡 =size and nature of
𝛼𝛼 their ocean business. The firms do not report
emission-related data; (𝜎𝜎𝐴𝐴𝑡𝑡 )2therefore,
− (𝜎𝜎𝐵𝐵𝑡𝑡 )2 − 2𝜎𝜎 𝐴𝐴𝐴𝐴
we𝑡𝑡 employ the forecasted data of
ocean
̂ > 𝛼𝛼 emissions, which show that they produced 12 million tons of CO2
𝛼𝛼
emissions, 17 million tons of SO2, and 26 million tons of NOx in 2019.
Figure 4.1: Portfolio Allocation Considering the Blueness Index

Rate of return
Shipping firm
Blueness Index f
Rshipping : 2.63% αt = 0.62
e
αt = 0.47
Rseafood : 1.86%
Seafood firm
Blueness Index σ
1 1 0
: 0.176 : 0.163 σseafood : 1.023% σshipping : 1.210%
x x
Source: Authors.
𝐴𝐴
̃𝑡𝑡 = 𝑅𝑅𝐴𝐴𝑡𝑡 − 𝑇𝑇𝐴𝐴
𝑅𝑅
̃𝐵𝐵𝑡𝑡
𝑅𝑅 = 𝑅𝑅𝐵𝐵𝑡𝑡 − 𝑇𝑇𝐵𝐵 𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝛽𝛽2 𝐼𝐼𝐼𝐼𝑖𝑖𝑖𝑖 + 𝛽𝛽3 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑖𝑖𝑖𝑖 + 𝛽𝛽4 𝑅𝑅𝑅𝑅𝑅𝑅
𝐴𝐴 𝐵𝐵
𝑅𝑅 ̃𝑡𝑡 + (1 − 𝛼𝛼̃ 𝑡𝑡 )𝑅𝑅
̃𝑡𝑡 𝑅𝑅
𝐵𝐵
𝐴𝐴 𝐵𝐵
1 2
𝑅𝑅 ̃𝑡𝑡 + (1 − 𝛼𝛼̃−𝑎𝑎 ̃1 (𝑡𝑡 𝐶𝐶𝐶𝐶2 ) − 𝑎𝑎2 (𝑆𝑆𝑆𝑆𝑥𝑥 ) − 𝑎𝑎3 (𝑁𝑁2 𝑂𝑂)
𝑡𝑡 )𝑅𝑅
(𝑅𝑅̃𝐴𝐴 −𝑅𝑅̃𝑡𝑡𝐵𝐵 )−(𝜎𝜎
2𝛽𝛽 𝑡𝑡
̃𝑡𝑡𝐵𝐵 ) −𝜎𝜎 ̃𝑡𝑡𝐴𝐴𝐴𝐴 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 =
𝛼𝛼̃𝑡𝑡 = 2 2 . 𝑌𝑌𝑡𝑡
In the absence of the blueness 1factor,
𝐴𝐴
(𝜎𝜎 𝐵𝐵
̃𝑡𝑡 ) −2𝜎𝜎 𝐴𝐴𝐴𝐴
̃𝑡𝑡
̃ 𝐴𝐴 ̃ 𝐵𝐵
we𝐵𝐵measure
2 𝐴𝐴𝐴𝐴
the utility function
̃𝑡𝑡 ) −𝜎𝜎
(𝑅𝑅𝑡𝑡 −𝑅𝑅𝑡𝑡 )−(𝜎𝜎 ̃𝑡𝑡
2 1 𝐴𝐴𝐴𝐴 𝐴𝐴 .
2𝛽𝛽
𝛼𝛼̃𝑡𝑡 =
(𝜎𝜎
2
̃𝑡𝑡𝐵𝐵 )+−2𝜎𝜎
𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝛽𝛽2 𝐼𝐼𝐼𝐼𝑖𝑖𝑖𝑖 + 𝛽𝛽3 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑖𝑖𝑖𝑖 2𝛽𝛽
𝑅𝑅𝑡𝑡 𝑖𝑖𝑖𝑖−+𝑅𝑅𝐵𝐵𝑡𝑡𝜀𝜀𝑖𝑖𝑖𝑖) − (𝜎𝜎𝐵𝐵𝑡𝑡 )2 − 𝜎𝜎𝐴𝐴𝐴𝐴
𝛽𝛽̃4𝑡𝑡(𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑡𝑡
and the proportion of investment as 𝛼𝛼𝑡𝑡 = 𝐴𝐴 2 𝐵𝐵 2 𝐴𝐴𝐴𝐴
.
(𝜎𝜎𝑡𝑡 +
𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖𝑖𝑖 = 𝛼𝛼𝑖𝑖𝑖𝑖 + 𝛽𝛽1 𝑅𝑅𝑅𝑅𝑅𝑅 ) 𝛽𝛽−𝐼𝐼𝐼𝐼
(𝜎𝜎𝑡𝑡 +) 𝛽𝛽−𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵
2𝜎𝜎𝑡𝑡
𝑖𝑖𝑖𝑖 2 𝑖𝑖𝑖𝑖 3 𝑖𝑖𝑖𝑖 + 𝛽𝛽4 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖𝑖𝑖 + 𝜀𝜀𝑖𝑖𝑖𝑖
Figure 4.1 displays the relationship between the 1 risk, the return, and the 𝛾𝛾 𝐴𝐴
−𝑎𝑎1 (𝐶𝐶𝐶𝐶2 ) − 𝑎𝑎2 (𝑆𝑆𝑆𝑆𝑥𝑥 ) − 𝑎𝑎3 (𝑁𝑁2 𝑂𝑂) (𝑅𝑅𝐴𝐴𝑡𝑡the − 𝑅𝑅 𝐵𝐵
𝑡𝑡 ) − (𝜎𝜎𝑡𝑡 of
𝐵𝐵 )2
− 𝜎𝜎𝐴𝐴𝐴𝐴 𝑡𝑡 + 2𝛽𝛽 (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 − 𝐵𝐵𝐵𝐵𝐵𝐵
blueness
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 = index. On one side of the x-axis, we plot
2𝛽𝛽 riskiness bonds;
𝑡𝑡
on the other side, we draw 𝑌𝑌𝑡𝑡 the blueness index. ̂
𝛼𝛼 =
−𝑎𝑎1 (𝐶𝐶𝐶𝐶2 )The − 𝑎𝑎2y-axis (𝑆𝑆𝑆𝑆𝑥𝑥 ) represents (𝜎𝜎)𝐵𝐵𝑡𝑡the
𝑡𝑡
−(𝜎𝜎𝑎𝑎𝐴𝐴𝑡𝑡 3)(2𝑁𝑁−2 𝑂𝑂 )2 − 2𝜎𝜎𝐴𝐴𝐴𝐴
𝑡𝑡
return1 on bonds. We find that the𝑡𝑡 =
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 value of αt equals 0.47, which shows
𝐴𝐴 𝐵𝐵
(𝑅𝑅 − 𝑅𝑅purchase 𝐵𝐵 2 𝐴𝐴𝐴𝐴 𝑌𝑌
that investors
2𝛽𝛽 𝑡𝑡 𝑡𝑡 ) − (𝜎𝜎𝑡𝑡 )a 47% − 𝜎𝜎𝑡𝑡 share in𝛼𝛼 ̂the > 𝛼𝛼seafood firm, 𝑡𝑡
as the red line
𝛼𝛼 𝑡𝑡 =
on the utility 𝐴𝐴 2 function 𝐵𝐵 2 without 𝐴𝐴𝐴𝐴 the 1 blueness index indicates. Next, we
(𝜎𝜎𝑡𝑡 ) − (𝜎𝜎𝑡𝑡 ) − 2𝜎𝜎𝑡𝑡 𝐴𝐴 𝐵𝐵
(𝑅𝑅 − 𝑅𝑅𝑡𝑡 ) − (𝜎𝜎𝑡𝑡 ) − 𝜎𝜎𝐴𝐴𝐴𝐴 𝐵𝐵 2
estimate the utility function by incorporating 2𝛽𝛽 𝑡𝑡 the blueness𝑡𝑡 of the firms,
1 𝛼𝛼𝑡𝑡 = 𝛾𝛾 𝐴𝐴 2
(𝜎𝜎𝑡𝑡 ) − 𝐴𝐴 (𝜎𝜎𝐵𝐵 2 𝐵𝐵 2𝜎𝜎𝐴𝐴𝐴𝐴
𝑡𝑡 ) −
(𝑅𝑅𝐴𝐴𝑡𝑡 − 𝑅𝑅𝐵𝐵𝑡𝑡 ) − (𝜎𝜎𝐵𝐵𝑡𝑡 )2 − 𝜎𝜎𝐴𝐴𝐴𝐴𝑡𝑡 + 2𝛽𝛽 (𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑡𝑡 ) 𝑡𝑡
2𝛽𝛽
̂ 𝑡𝑡 =
𝛼𝛼 , and find 𝛾𝛾 that 𝐴𝐴
(𝜎𝜎𝐴𝐴𝑡𝑡 )2 − (𝜎𝜎𝐵𝐵𝑡𝑡 )2 − 12𝜎𝜎(𝐴𝐴𝐴𝐴 𝐴𝐴 𝐵𝐵 𝐵𝐵 2
𝑡𝑡𝑅𝑅𝑡𝑡 − 𝑅𝑅𝑡𝑡 ) − (𝜎𝜎𝑡𝑡 ) − 𝜎𝜎𝑡𝑡 +
𝐴𝐴𝐴𝐴
(𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 − 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑡𝑡 )
2𝛽𝛽 2𝛽𝛽
participation in investment increases ̂ 𝑡𝑡 =
𝛼𝛼 the share(𝜎𝜎in𝐴𝐴 )the seafood firm
𝐴𝐴𝐴𝐴 to
̂ > 𝛼𝛼
𝛼𝛼 𝑡𝑡
2 −( 𝜎𝜎𝐵𝐵𝑡𝑡 )2 − 2𝜎𝜎 𝑡𝑡
62%. This implies that blueness is a vital predictor when deciding to
invest in a portfolio because 𝛼𝛼̂ > 𝛼𝛼 . This finding suggests that investors
allocate their funds by considering the rate of return, the riskiness of
bonds, and the firm’s blueness. As a result, the utility function shifts
upward from point “e” to point “f.” When we compare the utility
functions of the seafood and the shipping firm and report that investors
are willing to take on more risk, they prefer to invest in bluer firms.
It is important to note that, when the value of β increases, the
participation in the respective bond decreases due to the rise in risk
factors. In comparison, the value of γ shows the investors’ preference for
bluer bonds. A higher value of γ increases the participation of investors
in the respective bond.
In short, we can argue that “blueness” is an important indicator
to attract investment on the one hand and to benefit the oceans on the
other. Over the past few years, there has been a tremendous surge in
the issuance of green bonds to benefit the environment. Following a
similar pattern, ocean firms may issue bonds wherein investors prefer to
participate in the firms that are taking the necessary measures to benefit
the ocean.
4.6.2 T
he Investor’s Utility Function
and Emission Taxation
In the absence of the blueness index, the participation of investment
in the seafood firm is 47% (see Figure 4.2). We assume that an ocean
firm produces different emissions that distort the ocean environment.
However, firms that generate ocean emissions may incur international
emission taxation. Here, we assume that countries impose a 2% tax on
emissions, which reduces the returns of the seafood and shipping firms.
The imposition of the tax reduces the net earnings of the seafood and
shipping firms. Likewise, the variance of their returns and covariance
changes and the seafood firm’s investment decreases to 43%. This
evidence suggests that firms must comply with the set of rules that the
regulators frame; otherwise, they may face emission tax, which will
affect their returns and their participation in investment.
Figure 4.2: Emission Taxation and the Utility Function
Shipping firm
Rate of return
e = 0.47
f = 0.43
Seafood firm
σRisk
Source: Authors and Yoshino, Taghizadeh-Hesary, and Otsuka (2021).
4.6.3 Examining the Drivers of Stock Returns

Including the Blueness Index
To conduct the empirical analysis, we consider 31 Norwegian firms

operating in the seafood and shipping industries during the period 2017–
2019. We gather the relevant data from the firms’ annual reports and the
Oslo Stock Exchange. We hypothesize that the stock return influences
the bonds’ return, the issuance number of bonds, the blueness index,
and the bonds’ risk rating. Due to the lack of availability of data on blue
bonds, we use the data on bond issuance and return on bonds. Table 4.2
presents the descriptive statistics of the variables that we use in
this study.
Table 4.2: Descriptive Statistics
Variable Mean Std Dev. Min. Max.

SPR Share price returns (%) 5.03 0.15 –29.84 74.90
ROB Return on bonds (%) 0.52 0.84 0 4.70
IB Issuance of bonds (million 2,028.41 4,575.38 10.81 29,128.00
Norwegian krone [NKr])
Blueness Emissions as a percentage 12.28 17.99 –6.23 75.18
of sales (1/x)
Risk Credit ratings of the bonds – – – –
(AA, A, and BBB)
Source: Authors.
Table 4.3 presents the empirical results. This study employs the
feasible generalized least square (FGLS) estimator to remove the
problem of serial correlation and heteroskedasticity. We can report that
the coefficient of the return of bonds is positive and significantly affects
the stock returns. This evidence suggests that a firm’s required return is
higher, which makes its beta or systemic risk higher, and we expect that,
as a firm takes on more risk, it becomes inherently riskier. This study
identifies a negative relationship between the number of issuances of
bonds and the stock returns.
We express the blueness index as the ocean emissions produced as
a percentage of the firm’s sales. A higher value of the blueness index of
a firm refers to lower emissions produced. In this study, our variable
of interest is the blueness index, which positively influences the stock
returns. This evidence suggests that firms pursue blue strategies to
maximize their share prices. In other words, environment-friendly
firms satisfy the criteria to make the ocean blue and their probability
of earning stock returns is higher. Lastly, the risk variable shows the
credit rating of bonds, which does not have a statistical relationship with
the stock returns. We can interpret this as indicating that the risk level
associated with a firm’s bond issuance may not have a significant impact
because we base the proxy for risk on investment-grade bonds.
Table 4.3: Results of the Panel Feasible

Generalized Least Square Estimator
Variable Model 1 Model 2 Model 3

ROB 0.286*** 0.290*** 0.294***
(3.59) (3.21) (3.27)
IB –0.441** –0.377** –0.441**
(–2.14) (–2.10) (–2.14)
Blueness 0.184* 0.171* 0.176*
(1.86) (1.81) (1.82)
Risk (AA) –0.200
(–0.18)
Risk (BBB) 0.126
(1.34)
Constant –1.703 –0.525 –0.286
(–0.74) (–0.14) (–0.10)
Wald Chi-square 28.98*** 26.31*** 27.41***
IB = issuance of bonds in million Norwegian kroner, ROB = return on bonds.
Notes:
1. This table presents the drivers that cause stock returns using the feasible generalized least square
estimator.
2. Blueness = a measure of the blueness index, which we compute as the percentage of emissions to sales.
3. Risk = a credit rating of the bonds.
4. ***, **, and * show significance at 1%, 5%, and 10% levels, respectively.
Source: Authors.
4.7 Conclusion
Over the last few years, there has been a tremendous increase in ocean
emissions, which pollute the ocean and threaten ocean species’ lives. To
protect the ocean environment, “blue finance” has recently emerged,
wherein a firm can issue blue instruments, for example, bonds, IPOs,
and credit, to raise funds for investing in blue technology to achieve
sustainability goals.
This study is an attempt to measure the level of blueness of firms.
To estimate the blueness index, we use ocean emissions as a percentage
of sales. The results show that a higher value of the blueness index
leads to lower emissions. In this study, we develop a theoretical model
to estimate a portfolio’s utility function by introducing the blueness
factor. We assume that investors participate in blue bonds and that their
preference for investing in “bluer” firms is stronger. It is possible to
argue that less blue firms become riskier due to noncompliance with the
necessary measures and adversely affect the ocean environment.
Further, we report that if firms account for the blueness measures,

their investment in blue bonds is higher. To achieve the objective of
blueness, firms must do business in a way that benefits the ocean. For
noncompliance with the blueness factors, governments should impose
ocean emission taxation, which will affect the bond returns; thus,
the participation in blue bonds decreases. Finally, we determine the
drivers that cause stock returns and find that firms’ blueness positively
influences their stock returns, indicating that firms that are relatively
“bluer” may be socially responsible, leading them to outperform
other firms.
This study is useful for policy makers, firms, investors, and regulators
to account for firms’ blueness. In the absence of blue parameters, firms
may face emission taxation, which eventually reduces their returns. We
propose that financing regulators should develop different financing
frameworks for providing funds so that firms can benefit from and
invest in blue technology, thereby achieving the blueness parameters
and benefiting the oceans. Future research could test the proposed
theoretical model on a large data set of ocean firms and compare their
returns, riskiness, and blueness index.
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PART II
Blue Economy
5
Government Policy, Industrial
Clusters, and the Blue Economy
in the People’s Republic of China:
A Case Study on the Shandong
Peninsula Blue Economic Zone
Zhihai Xie
5.1 Introduction
The People’s Republic of China (PRC) has attached substantial
importance to the blue economy in recent years. In the 12th Five-Year
Plan for National Economic and Social Development (2011–2015), the PRC
set the goal to expand the blue economy’s share of the gross domestic
product (GDP) to 10% by 2015 (State Council 2011a). According to the
China Blue Economy Development Report 2019, a joint release from the
PRC’s National Development and Reform Commission and the Ministry
of Natural Resources, the volume of the blue economy, or the gross ocean
product (GOP), reached CNY8,341 billion in 2018, accounting for 9.3%
of the country’s GDP. In the past decade, the PRC’s blue economy has
continued to grow at a high rate of more than 6.5%. In the 13th Five-Year
Plan (2016–2020), the PRC promoted the blue economy, or the marine
economy, as a national strategy (State Council 2016). In delivering the
State Council’s Government Work Report in 2019, Premier Li Keqiang
confirmed the PRC’s commitment to “develop the blue economy, protect
the marine environment, and build a maritime power.” The country has
also updated its ambitious goal to expand the blue economy’s share of
the GDP to 15% by 2035.
Under such circumstances, in 2011, the PRC’s State Council
approved the plan to develop a blue economic zone on the Shandong
Peninsula. The Shandong Peninsula BEZ (SP-BEZ) is the PRC’s first and
93
only regional strategy centered on the blue economy. The SP-BEZ covers
eight cities, specifically Jinan, Qingdao, Yantai, Zibo, Weifang, Weihai,
Dongying, and Rizhao, with a sea area of 159,500 square kilometers
and a land area of 64,000 square kilometers. Among the eight cities,
Qingdao is not only the engine for the SP-BEZ’s development but also a
pioneer of the entire country’s blue economy. It has 30% of the country’s
marine education and research institutions, 50% of its marine research
personnel, and 70% of its marine experts. According to the city’s Bureau
of Statistics, Qingdao’s GOP reached CNY250 billion in 2016, accounting
for more than one-fourth of its GDP.
The goal of the SP-BEZ is to develop a modern marine industrial
cluster with relatively strong international competitiveness, a
world-leading education center of marine science, a pilot zone for
national marine economic reform and opening up, and a national key
demonstration zone of marine ecological civilization (State Council
2011b). The strategy of the SP-BEZ is to redistribute the regional
industries in the Shandong Peninsula and make full use of the region’s
advantages to focus on the blue economy. Under such policy guidance,
the GDP of Shandong Province and Qingdao City has increased greatly.
The contribution of the blue economy to the GDP growth is also
significant. For example, the blue economy alone helped the city’s GDP
to grow by 3.9% in 2017 (Ministry of Natural Resources 2018).
What are the reasons for the rapid development of the PRC’s blue
economy in the past decade? To what extent has the SP-BEZ contributed
to the development of the blue economy in the PRC? What implications
can the SP-BEZ provide for other countries if they are to promote their
blue economy? To answer such questions, this chapter examines the role
of both government policy and industrial clusters in the development of
the blue economy through an empirical case study on the SP-BEZ in the
PRC.
The research will combine both quantitative and qualitative
studies. The study will collect and make use of the official data from the
PRC’s State Council, National Development and Reform Commission,
and China Oceanic Development Foundation as well as municipal
governments, such as those of Shandong Province and Qingdao City.
5.2 Literature Review

5.2.1 The Blue Economy
“Blue economy” has become a buzzword in recent years. According to
the World Bank (2017), the blue economy involves the sustainable use
of ocean resources for economic growth, improved livelihoods and jobs,
Government Policy, Industrial Clusters, and the Blue Economy in the People’s Republic of China:
A Case Study on the Shandong Peninsula Blue Economic Zone 95
and ocean ecosystem health. Since its activities are centered on the
ocean, some literature has used the terms “ocean economy” or “marine
economy,” which are synonyms for “blue economy.” Particularly in
the PRC, for example, government documents and media reports have
used “marine economy” more frequently. This chapter will use these
terms interchangeably as it aims to include diverse perspectives and
cite different sources.
There are already some comprehensive study reports on the blue
economy. Some have tried to clarify the definition of the blue economy
as “the set of environmentally and socially sustainable commercial
activities, products, services and investments dependent on and
impacting coastal and marine resources” (Whisnant and Reyes 2015).
The OECD’s (2019) study report assessed the crucial role of innovative
approaches in a sustainable ocean economy and argued that it is
science and technology that enable economic growth and ecosystem
preservation in the blue economy. The study report released by the
Economist Intelligence Unit (2015) emphasized the “industrialization”
effect in the blue economy and argued that “alongside established
ocean industries, emerging and new activities—offshore renewable
energy, aquaculture, deep seabed mining and marine biotechnology
are often cited—will bring new opportunities, growth and greater
diversity to the ocean economy.” In addition, recent academic research
articles have stressed the important role of the government or policy
in developing the blue economy. Some have argued that the blue
economy is necessarily a complex governmental project that opens up
new governable spaces and rationalizes particular ways of governing
(Choi 2017). Others have analyzed the role of national macroeconomic
strategies in the blue economy through empirical and comparative case
studies of the European Union, Indonesia, and the PRC (Lu et al. 2019).
5.2.2 The Blue Economy in the People’s Republic of China
The rapid development of the blue economy in the PRC has also
attracted academic research attention. The study report that the
Center for American Progress released argued that the PRC model
stresses an integrated, cross-sectoral approach to the development of
coastal areas, offering lessons for other countries, such as the United
States (US), after comparing the blue economy of the PRC with that
of the US (Conathan and Moore 2015). The report also called for
international cooperation in the blue economy between the PRC and
the US. The study report that the David and Lucile Packard Foundation
(2015) produced stressed the importance of four factors, specifically
the government, academia, civil society, and philanthropy, in the PRC’s
blue economy development strategy. Both studies recognized that the

PRC’s approach to the blue economy has transformed from being
development oriented to also being committed to marine ecological
sustainability and marine resource preservation. Some academic
research contributed to studies on the PRC’s blue economy from the
perspective of methodology by establishing the industrial classification
framework and sorting out the available statistical system in the ocean
economy (J. Wang 2016). Some studies tried to define and quantify the
value of major ocean industries in the PRC and examined the growth
in the PRC’s major ocean industries during a given time period (Zhao,
Hynes, and He 2014). Others examined the contribution of marine
capital and marine labor to the PRC’s regional marine economic
development (Jiang, Liu, and Su 2014).
5.3 Development of the Blue Economy

in the People’s Republic of China
5.3.1 Government Policy on the Blue Economy’s
Development in the People’s Republic of China
The PRC has attached importance to the marine economy since the
1990s. In the first decade of the 21st century, the average growth rate
of the PRC’s marine economy, or the GOP, was 16.35%, much higher
than the overall GDP growth rate during the same time period. From
2000 to 2011, the contribution of the PRC’s marine economy to the
national economy rose from 6.46% to 13.83% (Jiang, Liu, and Su 2014).
Particularly in coastal areas, marine industries have become the most
important new source of economic growth. The PRC has not typically
been at the top of the list of the countries that rely most heavily on their
ocean resources (Conathan and Moore 2015). Since the land resources in
the PRC, as well as in other countries around the world, are increasingly
on the verge of economic and ecological exhaustion, the value of the
oceans as a resource for economic development has become increasingly
prominent (Zhao, Hynes, and He 2014).
In 2003, the State Council issued the first National Marine Economy
Developing Plan Guideline. It raised the development goals to increase
the marine economy’s share of the GDP to 4% by 2005 and over 5% by
2010 and gradually make the marine economy an important backbone
for national development. Since this was the initial development stage of
the PRC’s marine economy, the goals seemed to be rather conservative.
As a matter of fact, the marine economy’s share of the GDP exceeded 9%
in 2010. The document pointed out that there are 11 marine economic
zones in the PRC. In general, there are three large marine economy areas,
the Bohai Sea area, the Yangtze River Delta, and the Pearl River Delta.
These three areas include all 11 marine economic zones and account for
more than 80% of the PRC’s marine economy GDP.
In 2008, the State Council issued the National Guideline for Marine
Development Planning. This was the first overall plan for marine areas
since the establishment of the PRC. It proclaimed that the marine
industry must occupy a very important strategic position in the PRC’s
socialist modernization (State Council 2008). In 2011, marine economic
development first appeared in the PRC’s 12th Five-Year Plan (2011–2015)
as a top-level strategy. Since then, the PRC’s government has released
plans and documents to stress the sustainability of the marine economy
(Zhang and Ravesteijn 2019). In addition, the 12th Five-Year Plan
officially approved the establishment of the SP-BEZ.
At the 18th National Congress of the Chinese Communist Party
in November 2012, then President Hu Jintao proclaimed that the
country would develop itself into a maritime power, a statement that
had both political and economic meaning. Politically, the PRC wanted
to enhance its influence and protect its national interest in the sea.
Economically, it identified the marine economy as an important sector
of the PRC’s economy. In 2013, the State Council approved the Marine
Career Development Plan for the 13th Five-Year Plan (2016–2020),
which is a comprehensive plan to promote the sustainable and efficient
development of the marine economy (Jiang, Liu, and Su 2014).
In July 2013, President Xi Jinping stressed that building a maritime
power is one of the PRC’s most important development goals. After
President Xi took office, the Maritime Silk Road, one of the two branches
of the Belt and Road Initiative, was put forward in 2013. By starting the
Maritime Silk Road, the PRC aimed not only to increase its geopolitical
maritime influence but also to open up to the ocean and promote marine
economic development through cooperation with other countries. In
May 2017, the National Development and Reform Commission issued
the 13th Five-Year Plan on National Marine Economy Development.
Marine economic development continues to appear on the list of
national strategies in the central government policy documents. At the
19th National Congress of the Chinese Communist Party in October
2017, President Xi reiterated the strategic goal to build a strong maritime
country.
All these government policy documents and statements that
the government has issued since 2003 have shown the PRC’s strong
determination to develop an advanced marine economy. However, the
PRC’s approach to the marine economy proved to focus too much on
the development strategy in the first decade of the 21st century. The
government mostly regarded the marine economy as a new growth

engine for the PRC’s overall economic development. From the second
decade of the 21st century, particularly with the manifestation of the
12th Five-Year Plan, the PRC adjusted its approach to blue economic
development and started to pay more attention to sustainability and
environmental protection.
5.3.2 E
volution of the Blue Economy’s Development
in the People’s Republic of China
As mentioned, the PRC has made great achievements in the

development of the blue economy during the last 2 decades. Table 5.1
shows the PRC’s marine economy GDP and its share in the country’s
overall GDP in the past decade. The scale of the marine economy has
increased significantly. For example, the volume almost doubled from
CNY4,557 billion in 2011 to CNY8,942 billion in 2019. Meanwhile,
the marine economy’s share of the GDP has been constantly over 9%
in the past decade, although there has been no significant increase in
the share.
Table 5.1: Gross Domestic Product and Share

of the People’s Republic of China’s Marine Economy
Year 2011 2012 2013 2014 2015 2016 2017 2018 2019
Marine GDP 4,557 5,009 5,431 5,994 6,467 7,051 7,761 8,342 8,942
(CNY billion)
GDP share 9.7 9.6 9.5 9.4 9.6 9.5 9.4 9.3 9.0
(%)
Source: Data from State Oceanic Administration, Ministry of Natural Resources, People’s Republic of
China.
Table 5.2 shows the growth rate of the marine economy in the past
decade, which peaked at 10.4% in 2011. It has decreased since then as
the PRC’s overall GDP growth rate also dropped from nearly 10% to
only slightly over 6% in 2019. The marine economy has contributed to
the PRC’s economic growth. At the same time, it has benefited from the
overall economic policy and the economic growth of other industries.
This has inevitably affected the marine economy. Determining how to
maintain a relatively high growth rate for the marine economy against
the background of the PRC’s so-called new normal economy is a major
challenge.
Table 5.2: Growth Rate of the People’s Republic of China’s

Marine Economy
Year 2011 2012 2013 2014 2015 2016 2017 2018 2019
Marine growth 10.4 7.9 7.6 7.7 7.0 6.8 6.9 6.7 6.2
rate (%)
Overall growth 9.55 7.86 7.77 7.42 7.04 6.85 6.95 6.75 6.11
rate (%)
China; National Bureau of Statistics, People’s Republic of China.
As for the specific industries of the PRC’s marine economy, Table 5.3
shows the GDP and growth rates of the major marine industries in 2019.
It is apparent that marine science accounts for a large portion as the PRC
has been active in investing in scientific and technological research and
development in marine industries. The growth rates of different marine
industries vary significantly. This means that even though the marine
economy itself is a newly emerging industrial area, traditional and new
Table 5.3: Gross Domestic Product and Growth Rate of Major

Marine Industries in the People’s Republic of China, 2019
GDP Growth Rate
Marine Industry (CNY billion) (%)
Marine science 2,159 8.3
Marine tourism 1,809 9.3
Marine transportation 643
Marine fishery 472 4.4
Marine architecture 173 4.5
Marine petroleum and gas 154 4.7
Marine shipbuilding 118 11.3
Marine chemicals 116 7.3
Marine biomedicine 44 8.0
Marine electricity 20 7.2
Marine mining 19 3.1
Marine salt 3 0.2
Marine water 2 7.2

China.
industries coexist in this area. The data shows that marine shipbuilding,
marine tourism, marine science, and marine biomedicine are the
four marine industries that grew the fastest in 2019. On the contrary,
traditional marine industries, such as marine mining and marine salt,
had relatively low growth rates.
Figure 5.1 shows the makeup of different marine industries and
their share in the PRC in 2019. The largest three marine industries in
the PRC are marine tourism, marine transportation, and marine fishery.
Interestingly, marine tourism accounts for about half of the total marine
GDP, meaning that the service industry already constitutes a significant
share of the PRC’s marine economy. For example, the marine economy’s
first industry, second industry, and third industry accounted for 4.2%,
35.8%, and 60.0%, respectively, in 2019 (Ministry of Natural Resources
2020). On the one hand, this shows the third industry’s high degree
of participation in the PRC’s marine economy. On the other hand, it
proves that the balance among the different marine industries needs
improvement.
In addition to embarking on blue economic development
domestically, the PRC has made efforts to increase its influence in the
global discourse on the blue economy. For example, it organized and held
the Asia-Pacific Economic Cooperation (APEC) Blue Economy Forum.
Figure 5.1: Makeup of Major Marine Industries

in the People’s Republic of China in 2019
Marine tourism 50.6%
Marine transportation 18.0%
Marine fishery 13.2%
Marine architecture 4.8%
Marine petroleum and gas 4.3%
Marine shipbuilding 3.3%
Marine chemicals 3.2%
Marine biomedicine 1.2%
Marine electricity 0.6%
Marine mining 0.5%
Marine salt 0.1%
Marine water 0.1%
0% 10% 20% 30% 40% 50% 60%
Source: Data from State Oceanic Administration, Ministry of Natural Resources, People’s Republic
of China.
The APEC Blue Economy Forum had taken place five times so far, in 2011,
2012, 2014, 2016, and 2018, all in the PRC. The theme of the fifth forum
in Ningbo City of Zhejiang Province was “Local Blue Economy Practice:
Policy and Approach.” The PRC aimed to promote blue economic
cooperation and local best practice sharing in Asia and the Pacific
region. Another example is the China Marine Economy Expo (CMEE).
The CMEE, sponsored by the PRC’s Ministry of Natural Resources and
Guangdong Provincial Government, has happened annually since 2014.
The latest CMEE, with the theme “Open Cooperation, Win-Win and
Sharing,” occurred in Shenzhen City of Guangdong Province in October
2020. The expo involved exhibitions in a wide range of areas, such as
ships and port shipping, ocean resource development, high-end marine
equipment, ocean electronic information, marine biomedicine, and
marine ecology environment protection and safety. The CMEE is not
only a window through which foreign countries can learn more about the
PRC’s current situation and the developing trends of the blue economy
but also an opportunity for foreign businesses to start cooperation with
the PRC in the blue economy.
Meanwhile, there has been gradual bridging of the gap between the
PRC’s concept of the “blue economy” and that of Western countries. In
general, there are at least two points of difference when comparing the
PRC’s blue economy with that of Western countries. First, the PRC’s
blue economy tends to be more development oriented as the initial
motive was to make use of ocean resources to provide new sources of
economic growth. Second, the PRC started to recognize the issue of
environmental protection for the ocean relatively later than Western
countries. However, the situation has improved significantly in the past
decades. For example, the concept of the blue economy in the PRC’s
2008 National Marine Industrial Development Plan signified the
integrated development of coastal and marine resources as part of a
strategic national economic development plan instead of referring to
a new model of marine resource use that emphasizes environmental
sustainability (Conathan and Moore 2015). However, the PRC’s
latest concept of the blue economy is the sum of all kinds of activities
associated with the development, utilization, and protection of the
marine environment. For example, Wang Hong, the vice chair of
the PRC’s delegation to the Rio+20 Summit in 2012, said, “The blue
economy is a new thinking on development. It entails promoting marine
economic development while protecting the environment and achieving
sustainable resource use.” Currently, the PRC’s idea of the blue economy,
though evolving late to include a new focus on “sustainable development
and conservation,” prioritizes integrating coastal and ocean resources
into a broader plan for national economic development and encouraging
the marine industry to play a greater role in the economy (Economist

Intelligence Unit 2015).
Why did the shift from a focus on development to an emphasis on
sustainability and environmental protection take place in the PRC’s
blue economy policy? There are three main reasons. First, the PRC’s
economic development model has gradually changed since entering
the 21st century. Second, the awareness of environmental protection
has improved considerably on both the governmental and the civil
level during the same time period. Third, the PRC has recognized the
great value of ocean resources for long-term economic development.
To ensure the sustainability of its blue economy, the PRC has enacted
and enforced a range of laws and regulations to protect the marine
environment. To provide some examples, on 1 August 2015, the State
Council issued a notice on national marine functional area planning that
called for shoreline protection of not less than 35% and an increase in
marine protected areas’ coverage to 5% of the Exclusive Economic Zone
(David and Lucile Packard Foundation 2019). Furthermore, in March
2016, the proposed outlines of the 13th Five-Year Plan that the National
People’s Congress issued called for greater control of fishing efforts, the
protection of coastal ecosystems, enhanced wetland restoration, and the
implementation of marine ecosystem-based management (David and
Lucile Packard Foundation 2019).
The PRC’s important approach to blue economic development
is to designate marine economic zones in areas that are rich in
ocean resources and nature. In these marine economic zones, the
government aims not only to make use of ocean resources for industrial
development but also to put the ocean under governmental governance
and avoid environmental destruction. Since 2019, the PRC has been
pushing forward scientific innovations in the marine industry and has
established six national marine economic innovation and development
demonstration areas and seven national industrial demonstration bases
for rejuvenating the marine industry with science and technology (Lu
et al. 2019). Among these are three strategic marine economic zones,
specifically the SP-BEZ, the Guangdong Provincial Blue Economy
Experimental Zone, which the government approved in July 2011, and
the Zhejiang Provincial Blue Economy Experimental Zone, which it
approved in 2012. As the names suggest, the SP-BEZ has gained complete
approval as a national strategic marine economic zone, while the other
two are still experimental. The government has applied the experiences
of the SP-BEZ to the other marine economy areas to broaden and deepen
the development of the blue economy nationwide. The next section
will focus on studying the case of the SP-BEZ and examine the reasons
for the PRC’s rapid development of the blue economy. Accordingly,
the section will focus on analyzing the role of government policy and
industrial clusters in the development process of the SP-BEZ.
5.4 C
ase Study: The Shandong Peninsula
Blue Economic Zone
5.4.1 Government Policy
Central Government Policy

As Choi (2017) argued, the blue economy is necessarily a complex
governmental project that opens up new governable spaces and
rationalizes particular ways of governing. This is particularly the case
for the PRC. Government policy has played the most important role in
initiating and promoting the development of the blue economy in the
PRC. The previous section has exemplified the PRC’s government policy
documents and statements on blue economic development. There is no
doubt that government policy is the most important driving force behind
the development of the PRC’s blue economy.
First, the establishment of the blue economic zone is also the result
of the interaction between the central and the municipal governments.
In April and October 2009, then President Hu Jintao visited Shandong
Province and pointed out that the province should speed up its
development of the marine economy, make use of marine resources,
nurture advantageous marine industries, and establish the SP-BEZ. The
establishment of the SP-BEZ clearly took place under the guidance of
the central government.
In 2011, the PRC’s State Council issued the Shandong Peninsula Blue
Economy Zone Development Plan, which symbolized the establishment
of the SP-BEZ. The plan is part of the national economic development
plan, the 12th Five-Year Plan, which determined the medium-range
national economic development goals from 2011 to 2015. This
means that the establishment of the SP-BEZ took place within the
framework of the PRC’s national development strategy. This plan also
demonstrated the central government’s determination to promote the
development of the blue economy. It set the goals of building a modern
marine industrial system in the SP-BEZ, greatly enhancing the marine
technological innovation ability, and improving the marine biodiversity
and environmental condition by 2015 (State Council 2011b). The plan
pointed out that by 2020, the SP-BEZ should be a zone with an advanced
marine economy, an optimized industrial structure, and harmony
between humans and nature (State Council 2011b). The goals show that
the central government’s policy focuses not only on economic growth
but also on the sustainability of development and, most importantly, the

protection and conservation of the marine environment.
Second, the government provided full financial support for the
establishment of the SP-BEZ and its industrial development. In June
2012, the PRC’s Ministry of Finance and State Oceanic Administration
jointly issued the Notification on Promoting the Marine Economy of the
Innovative Development Area. In this document, the Ministry of Finance
clearly expressed its special financial support for the development
of marine industries, particularly in areas such as marine biological
pharmacy and seafood aquaculture. The purpose is to nurture a number
of new companies and develop the fundamental technologies in the
core marine industries. Under such circumstances, the SP-BEZ has
gradually established a multifaceted investment mechanism in which the
government encourages companies and other economic entities to join
the investment with good examples of public–private partnerships (PPPs)
(Zhang, Shi, and Han 2018). There is a global trend whereby new market-
oriented programs and projects increasingly aim to tap the financial value
of the ocean’s blue capital, ostensibly fostering income generation and
sustainable solutions for conservation finance (Satizabal et al. 2020). In
the PRC, blue finance, the finance invested in blue economy industries,
is also gaining more and more attention. Globally, the success rate for
PPPs in the blue economy is mixed due to the lack of a coordinated
understanding between the investment needs of local governments and
communities and the aspirations of companies (Whisnant and Reyes
2015). Therefore, it is important for the PRC government to rely more on
the market to encourage blue finance investment.
The PRC has already established a Green Finance Professional
Committee under the Chinese Finance Association and the People’s
Bank of China. In November 2015, the State Council approved the
establishment of the China Oceanic Development Foundation (CODF).
The CODF is under the management and organization of the State
Oceanic Administration. Its function is to collect public and private
funding for the PRC’s marine development. The CODF has carried out
its activities in areas such as marine spatial planning, blue economic
development, marine publicity and education, marine conservation and
restoration, and marine science and technology innovation. In May 2020,
the China Banking and Insurance Regulatory Commission instructed
financial institutions to develop a “blue bond” for the purpose of marine
economic development (Gill and Pollard 2020). The Bank of Qingdao,
located in the SP-BEZ, is reportedly the pioneering bank to engage in
“blue bond” business.
Third, government policies have directed the PRC’s changed
approach to blue economic development and thus helped update
the PRC’s concept of the blue economy. Awareness and more diligent
incorporation of environmental, social, and governance considerations
into investments in the ocean economy are evolving (Economist
Intelligence Unit 2015). As mentioned earlier, the PRC government
has realized that it should not apply the development model for its
land economy to the blue economy. The blue economy is not only part
of the national development strategy but also a way of developing.
Therefore, it should give priority to the consideration of the marine
ecology. The government’s policies pay attention to coordination
between the protection of the ocean’s ecological resources and the
development of the marine economy (Jiang, Liu, and Su 2014). Almost
all the government documents have stressed sustainability. There is
no doubt that, in reality, the PRC’s rapid marine development has also
caused some environmental problems. According to the State Oceanic
Administration’s Marine Environment Bulletin, large parts of the PRC’s
coastal areas and territorial seas are heavily polluted (Conathan and
Moore 2015). As the marine economy is a relatively newly emerging
economic domain, the PRC government has been able to make use of the
lessons that other industries have learned in the past as well as lessons
from advanced countries with regard to environmental protection.
Thanks to the changes in policy guidance, the new model of marine
development in the PRC places a higher value on the management
and conservation of marine resources and ecosystem functions and
recognizes the importance of these resources to the newly emerging
marine industries and to coastal tourism in particular (Zhao, Hynes, and
He 2014).
Fourth, government policy has also tried to enhance international
cooperation and bring in foreign investment for the development of
the blue economy. Thanks to the government policy, the SP-BEZ has
become not only a domestic strategic project for the blue economy
but also an international engine and hub for global cooperation on the
blue economy. One direct example is the East Asia Marine Cooperation
Platform (EAMCP), whose headquarters is in Qingdao City. During the
ASEAN+3 summit1 in 2013 to 2015, PRC Premier Li Keqiang called for
the establishment of the EAMCP and pledged that the PRC would invest
CNY30 million in helping build the platform. After negotiation with the
other ASEAN+3 members, the PRC’s State Council and State Oceanic
Administration decided to build the headquarters of the EAMCP in
Qingdao, Shandong. The EAMCP started the Qingdao Forum, which it
has held annually since 2018. The theme of the Qingdao Forum 2018 was
1
ASEAN+3 comprises the members of the Association of Southeast Asian Nations plus
the PRC, Japan, and the Republic of Korea.
“manage the ocean and reach out to the deep blue.” The Qingdao Forum
has invited experts and professionals from other Asian countries to
participate and has become a global platform for sharing knowledge and
technologies on marine economy. This has helped improve the brand
awareness of the SP-BEZ internationally.
The EAMCP has undoubtedly provided great opportunities for the
development of the blue economy in the SP-BEZ. It not only exposes
the region to the advanced industries and global market of the blue
economy but also brings overseas investment into the region. The PRC’s
central government sponsored the establishment of the EAMCP and
chose Qingdao as the platform’s headquarters.
Municipal Government Policy

The previous section addressed the blue economy policy of the PRC’s
central government. There is no doubt that without the central
government’s strong policy support, the SP-BEZ could not have achieved
its aims. However, the policy of the municipal government is equally
important. This section will focus on analyzing the policy of Shandong
Province regarding the development of the blue economy.
As early as 1991, Shandong Province raised and started the Shandong
on the Sea (Haishang Shandong) project. The concept of “Shandong
on the Sea” originated from the first national convention on marine
affairs, which took place in Beijing in late 1990. The representatives
from Shandong expressed their ideas on how to “develop and protect
the sea, build the Shandong on the sea.” This laid the foundation for the
Shandong on the Sea project. Simply put, it is a development strategy to
make full use of Shandong Province’s advantages in marine resources
and focus on developing the marine economy.
In June 2006, Shandong Province issued the Shandong Provincial
Marine Economy Development Plan under the 11th Five-Year Plan
(2005–2010). In response to the National Marine Economy Developing
Plan Guideline that the State Council issued in 2003, as well as the
national 11th Five-Year Plan for economic development, Shandong
Province made its own medium-range development plan exclusively
for the marine economy. The plan highlighted the province’s strength
in marine resources and called for the building of a marine economic
zone, cultivating competitive marine industries and giving the province
a strong marine economy. In June 2009, Shandong Province issued
Suggestions on Building the SP-BEZ. At the same time, it published
Suggestions on Enhancing the Building of the Shandong Peninsula High-
Tech Industrial Cluster. These two documents formed the important
bottom-up driving force for the establishment of the SP-BEZ. The
frequent policy interaction between the central government and the
Shandong provincial government made clear the necessity of building

the SP-BEZ. As a result, the State Council eventually gave its approval.
It is worth noting that not only Shandong Province but also the
governments of municipal cities, such as Qingdao, actively updated their
policy to enhance the development of the marine economy. In 2016, the
central government chose Qingdao City, the central city of the SP-BEZ,
as one of the pilot cities for the innovative development of the marine
economy in the 13th development plan. In response to this, Qingdao
City issued a series of policy directives to promote marine economic
development. These included the Marine Plus Development Plan,
the Action Plan for Building a Globally Advanced Marine Development
Center, and the Action Plan for Developing the Marine Economy and
Building a Globally Well-Known Marine City. In June 2019, Qingdao
City released the so-called “Ocean Offensive” Development Plan, which
aimed to invest CNY500 billion in 200 core marine projects during the
period 2019–2022.
The government policy has brought considerable benefits to the
marine economy in Shandong Province. In 2009, the GDP of Shandong
Province’s marine economy was CNY300 billion, accounting for 10%
of the province’s total GDP (Xu and Meng 2012). In 2019, the GDP of
Shandong Province’s marine economy increased to CNY1,460 billion
and accounted for 21% of the province’s total GDP. In just 1 decade, the
marine GDP increased by almost five times and its share of the GDP
doubled.
5.4.2 Industrial Clusters

Industrial Clusters in the Shandong Peninsula
Blue Economic Zone
The blue economy involves a wide range of industries. Depending
on the method of categorization, the blue economy consists of nine
key industries: fishery and aquaculture; ports, shipping, and marine
transport; tourism, resorts, and coastal development; oil and gas;
coastal manufacturing; seabed mining; renewable energy; marine
biotechnology; marine technology; and environmental services. Their
dependence and impact on coastal and marine areas make these nine
primary industries the key to growing a blue economy (Whisnant
and Reyes 2015). With such a diversity of industries, it is necessary to
take advantage of industrial clusters to exert an agglomerative effect
on the blue economy. In the PRC, it is possible to divide the ocean
economy into ocean industries and ocean-related industries. Ocean
industries are those that represent the core of the ocean economy and
include industries involved in the production or supply of services for
developing, utilizing, and/or protecting the ocean, while ocean-related

industries refer to the enterprises that form a technical and economic
link with major marine industries (X. Wang 2016).
According to the SP-BEZ Development Plan that the State Council
issued in 2011, four aspects reflect the position of the SP-BEZ in the
national strategy: advanced marine industrial clusters with international
competitiveness; a core area for marine science, technology, and
education; a pioneer zone for the reform and opening up of the national
marine economy; and a model region of marine biodiversity civilization
(State Council 2011b). Among these four aspects, the marine industrial
cluster has both the functional means and the goal to develop the marine
economy in the SP-BEZ. Again, the plan stressed the importance of
sustainability and the environment as it also included the ambitious goal
of building the marine biodiversity civilization. Since 2015, the SP-BEZ
has issued documents such as the Guideline on Enhancing Innovative
Industrial Clusters and the Guideline on Enhancing People’s Innovation
and Entrepreneurship. Under the guidance of these documents, a
number of coastal cities have built an innovation and entrepreneurial
service center to encourage entrepreneurs in marine industries (Zhang,
Shi, and Han 2018). People sometimes refer to these sectors collectively
as the “new blue economy” or “blue tech,” and they are fundamental
to a strategy of developing “blue clusters” (Conathan and Moore 2015).
Shandong Province is promoting the development of emerging marine
industries in the fields of biology, new energy, and new materials; and
marine-related companies in coastal cities like Qingdao, Yantai, and
Weihai are taking advantage of the plan to expand their business or
upgrade their services (People’s Daily 2012).
Due to the rapid development of marine science and technology
in recent years, all kinds of new marine industries are emerging and
thereby expanding the scope of the marine economy (Zhao, Hynes, and
He 2014). The SP-BEZ Development Plan involves the construction of
four industrial areas and three industrial parks. The four industrial areas
are Qingdao Western Coastal New Area, Weifang Coastal New Area,
Weihai South Sea New Area, and Yantai Eastern New Area. The three
industrial parks are the Qingdao PRC–Germany Industrial Park, Rizhao
International Seashore City, and Weifang Coastal Industrial Park. To
build the SP-BEZ, the region has started to forge six industrial bases,
specifically a marine manufacturing industrial base, a shipbuilding and
repairing industrial base, a port logistics industrial base, a seashore
entertainment industrial base, a new energy industrial base, and a
petroleum chemicals industrial base.
Instead of developing all the marine industries evenly at the same
time, the government prefers to focus more on the advantageous
industries and try to achieve targets as soon as possible. For example,

the SP-BEZ is traditionally strong in the biomedical industry. Therefore,
it has concentrated more on the biomedical industry and thus
made great achievements in this area. To accelerate the development
of the bio-industry, at the very beginning of 2013, the State Council
issued the 12th Five-Year Plan for Bio-industrial Development, which
identified the marine biomedical industry as one of the key development
areas (Zhao, Hynes, and He 2014). Under such policy guidance, new
biomedical projects have commenced in the SP-BEZ. One example is
the Blue Medical Tank Plan of the Marine Biomedical Research Institute
of Qingdao. It is worth noting that Qingdao City’s marine biomedical
GDP accounts for over 13% of the country’s total biomedical industry
(Piao 2019).
Industrial Clusters in Qingdao City

As the central city of the SP-BEZ, Qingdao’s development model focuses
on the blue economy. In 2013, Qun Li, Party Chief of Qingdao City, said,
“Blue economy will lead the city to adjust its development model and
upgrade its industrial structure” (Xie 2013). Qingdao City’s marine
economy GDP was CNY332.7 billion in 2018, which is 21% of Shandong
Province’s marine economy GDP, 4% of the PRC’s marine economy GDP,
and 28% of Qingdao City’s GDP in the same year (Piao 2019).
Compared with the land economy, the marine economic system
itself has the characteristics of capital-heavy and technology-intensive
production, and marine economic production activities require more
technological development (Jiang, Liu, and Su 2014). Qingdao City’s
strength lies in marine science and technology. Qingdao has marine
scientific research institutions, such as the Ocean University of China;
the Institute of Oceanology, Chinese Academy of Sciences; and the
Yellow Sea Fisheries Research Institute, as well as new marine research
facilities, for instance, the Pilot National Laboratory for Marine Science
and Technology and the National Marine Equipment Quality Inspection
Center (Gill and Pollard 2020). These entities are significant because
science is crucial to achieving global sustainability and adequate
stewardship of the ocean; it enables us to deepen our ability to understand
and monitor the ocean’s resources and health as well as predict changes
in its status (OECD 2019).
Taking Qingdao as an example, there are at least seven industrial
clusters: the port, petroleum chemicals, shipbuilding, electrical
products, biomedicine, tourism, and automobiles (Cheng, Zhang, and
Yin 2015). In 2012, Qingdao City decided to build and integrate the blue
industrial base called “One Valley and Two Areas,” which refers to the
Blue Silicon Valley that it established in 2012, the West Coastal New
Area that it started in 2014, and the Red Island High-Tech Area that
it developed in 2002. It integrated the three into one blue industrial
cluster concentrating on technological innovation and international
cooperation in the marine industry. As a world-class research and
development center for marine science and technology, the expectation
is that the Blue Silicon Valley will be a driving force in the development
of the city’s blue economy (China Briefing 2014). In 2018, the GDP of
“One Valley and Two Areas” accounted for about 40% of Qingdao City’s
GDP (Piao 2019). It is clear that the blue industrial base has become the
most important engine for Qingdao City’s economic development.
On 6 August 2018, China Central Television reported on Qingdao’s
marine development and praised its development model, which was to
build a “high-tech blue silicon valley” based on its strength in marine
industries. One example that the report gave was the Qingdao National
Laboratory of Marine Science and Technology. The central government
approved the laboratory, which began operating in 2015. In June 2018,
President Xi visited the laboratory and stressed that the marine economy
and marine technology constituted an important area the country was
entering.
How can studies evaluate the effect of industrial clusters on the blue
economy? The importance of measuring the economic performance of
ocean-based industries is becoming increasingly apparent to public
policymakers and private decision makers alike (OECD 2019). A new
wave of “industrialization” of the ocean and coasts is underway, the scale
of which is only now becoming apparent (Economist Intelligence Unit
2015). To grasp the opportunity of “blue industrialization,” countries
need to rethink the industrial distribution and industrial strategy in
their marine economy. The SP-BEZ has been successful largely because
it has the clear goal of building industrial clusters and has always tried
to optimize the industrial distribution.
The SP-BEZ has also enhanced the development of the regional
economic integration within Shandong Province and the surrounding
cities. In the PRC, in recent years, there has been a trend of domestic
regional integration, meaning, economic integration at the domestic
level. For example, there are economic blocs, such as the Yangtze River
Delta, Pearl River Delta, and Beijing–Tianjin–Hebei region. Recently, the
country has also developed the bay area along Guangdong; Hong Kong,
China; and Macau, China. Such a trend is apparent in the Shandong
Peninsula due to the industrial cooperation among different cities.
This economic cooperation and integration will further strengthen the
region’s brand of marine industries.
5.5 Conclusion and Policy Recommendations

The blue economy or marine economy has become increasingly
important for countries not only to generate a new source of growth but
also to ensure the coexistence of humans and the environment. The PRC
has attached great importance to the blue economy since the beginning
of the 21st century. During the past 2 decades, the PRC’s development
of the blue economy has made great achievements. The blue economy’s
share in the GDP has increased substantially and remained large. The
blue economy has become a national strategy, though traditionally the
PRC has not relied heavily on marine resources. The PRC’s approach to
the blue economy has also transformed during the past decade. In the
policy directives and at the practical level, ecological sustainability and
marine environmental protection have already become an important
part of the blue economy in the PRC.
This chapter has argued that government policy and industrial
clusters are the two most important factors contributing to the
development of the PRC’s blue economy, as the case study of the
SP-BEZ demonstrated. First, government policy was the basis for
the establishment and development of the SP-BEZ. The PRC
government has provided policy guidance and assistance for the
development of the blue economy. Both the central and the municipal
governments have sponsored the SP-BEZ project by providing
substantial financial and technological support. The development
of blue finance has occurred due to the public–private partnerships
in the blue economy that the government has encouraged. For
example, the sponsorship of the State Council and the Ministry of
Natural Resources allowed the establishment of the China Oceanic
Development Foundation in 2015. Its members consist of six giant
state-owned companies.
Second, industrial clusters are both the means and the end for
the SP-BEZ. To promote the development of the blue economy in the
SP-BEZ, the government has made full use of Shandong Peninsula’s
industrial advantages to redistribute and restructure the industries
in the region. The SP-BEZ has formed industrial clusters with the
structure of “one center, two poles, three belts, and three groups.”
The industrial clusters have integrated a wide range of different
industries, such as marine biological pharmaceuticals, marine energy,
marine engineering, and marine logistics. In the process, the SP-BEZ
has attached particular importance to the blue economy’s sustainable
development, with projects that aim to preserve the marine resources
in the region. Thanks to the industrial clusters, regional cooperation

and integration have also developed rapidly on the Shandong
Peninsula.
The expected policy implications from this study originate from
both positive and negative lessons from the evolution of the PRC’s
blue economy and the SP-BEZ case. The study has demonstrated
the importance of government policy and industrial distribution in
developing the blue economy. For example, the government should
provide guidance and assistance in areas such as finance, facilities,
personnel, and resources to promote the blue economy. Industrial
redistribution and restructuring should help enhance the development
of the blue economy. Meanwhile, the development of the blue economy
should strike a balance between economic benefits and sustainable
development.
Specifically speaking, the study leads to the following policy
recommendations. First, the government, both the central government
and the municipal governments, should produce robust policies that
take into account the importance of the blue economy. Policies should
also meet the local area’s development and ecological needs instead of
considering only the factors at the national level. Second, industrial
clusters are an effective way to strengthen the effects of different
marine industries. The government should help to develop industrial
clusters with the support of scientific and technological research and
development in marine industries. Third, the government should
encourage investments of blue finance, particularly private investment,
in the blue economy’s industries. As mentioned previously, the
government has initiated “blue bonds” in recent years. Countries should
actively make policies that encourage banks to take bold action in this
area. Fourth, the development model must be different from that of the
land economy as the ocean is more vulnerable to pollution than the land.
The blue economy should prioritize marine ecological sustainability
and environmental protection rather than the development strategy.
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6
Developing the
Philippine Blue Economy:
Opportunities and Challenges
in the Ocean Tourism Sector
Maria Angela G. Zafra
6.1 Introduction
Our oceans contain vast amounts of wealth, providing an estimated
$1.5 trillion in global value added each year (Spalding, Brumbaugh,
and Landis 2016). Research has acknowledged coastal and maritime
activities as drivers supporting a nation’s economy (McKinley et al. 2019).
With the spotlight on climate change, the current discourse is tackling
the appropriate use and management of private sector activities in the
ocean (Voyer and van Leeuwen 2019). The blue economy, “sustainable
use of ocean resources for economic growth, improved livelihoods and
jobs, and ocean ecosystem health,” covers a plethora of activities (World
Bank 2017).
Ocean tourism constitutes a significant component of the economy
for countries with marine resources. Sustainable ocean tourism can be
part of the blue economy if the provision of livelihoods and economic
growth occur simultaneously with the protection of marine resources.
This requires countries to move away from business models that
are purely extractive in nature and toward integrating conservation,
protection, and rehabilitation into the equation. Proper management
of tourism in marine environments can propel developing countries
forward and help to achieve several of the Sustainable Development
Goals.
This chapter aims to explore how ocean tourism and economic
development intertwine in archipelagic nations by using the Philippines
as a country case example. It will achieve this by examining national
115
statistical data on tourism and economic development over the last

several years. Furthermore, this chapter discusses the policy landscape
that supports the development of ocean tourism in the country and
seeks to understand how it is incorporating sustainability practices into
ocean tourism by examining a tourism establishment in the Philippines.
With the importance of the blue economy in global sustainable
development, understanding the different opportunities and challenges
in ocean-related development is critical in making recommendations
regarding existing tourism policies. The findings of the study have
implications for policy makers, tourism planners, and other tourism
stakeholders in developing island economies.
6.2 T
ourism and Economic Development
in the Philippines1
It is crucial to understand the importance of tourism to the Philippine
economy since this sector is a key driver of the Philippine blue economy.
In 2018, the country welcomed 7.1 million international visitors, while
locals made 111 million domestic trips (Arnaldo 2019). Through the
Build, Build, Build program of President Rodrigo Duterte, the country
has built, renovated, or expanded tourism infrastructure, such as airports
and seaports, to cope with the increasing tourist numbers. Data from the
World Bank’s World Development Indicators show that international
tourism has been increasing since the turn of the millennium in two
separate cycles. The global financial crisis of 2008 led to a large slump in
tourism, but the Philippines has long since recovered. In Figure 6.1, the
bar graphs show that international tourism receipts, the gross domestic
product (GDP) per capita, and the gross national income (GNI) per
capita have all been on the rise since 2010, with tourism receipts showing
the fastest increase. The line graphs in the same figure show that the
annual GDP and GNI growth both hover between 6% and 7%, indicating
economic growth for the country, as the dotted regression trend lines in
the graph indicate.
1
The information in this section comes primarily from the Philippine Tourism
Satellite Accounts, which the National Statistical Coordination Board (NSCB)
compiled in coordination with the Department of Tourism and the NSCB
Inter-Agency Committee on Tourism Statistics.
Figure 6.1: International Tourism and Economic Development, 2000–2017
9,000 9
8,000 8
7,000 7
6,000 6
5,000 5
%
Current $
4,000 4
3,000 3
2,000 2
1,000 1
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
International tourism, receipts (current $ million) GDP per capita (current $)

GNI per capita Atlas method (current $) GDP growth (annual %)
GNI growth (annual %) Linear (International tourism, receipts [current $ million])
Linear (GDP per capita [current $]) Linear (GNI per capita Atlas method [current $])
GDP = gross domestic product, GNI = gross national income.

Opportunities and Challenges in the Ocean Tourism Sector 117
Developing the Philippine Blue Economy:
Source: Author’s compilation using the World Bank World Development Indicators (2019).
Figure 6.2: Tourism’s Domestic Gross Value Added

and Gross Domestic Product at Current Prices, 2014–2018
18,000,000 30
16,000,000
25
14,000,000
12,000,000 20
10,000,000
million
15
%
8,000,000
6,000,000 10
4,000,000
5
2,000,000
0 0
2014 2015 2016 2017 2018
TDGVA ( million) GDP ( million) Share of TDGVA to GDP (%)
TDGVA growth rate (%) GDP growth rate (%)
GDP = gross domestic product, TDGVA = tourism’s domestic gross value added.
Source: Author’s compilation using Ocean Health Index (2018).
Tourism is one of the largest sectors of the Philippine economy.

The bar graph in Figure 6.2 illustrates that tourism’s domestic gross
value added (TDGVA) receipts reached ₱2.2 trillion in 2018, passing the
₱2.0 trillion mark for the first time. The share of TDGVA in the country’s
GDP also rose from 9.0% in 2014 to 12.7% in 2018 (red line), with the
annual TDGVA growth rate (green line) outpacing the GDP growth rate
(yellow line). Accordingly, the tourism sector has accomplished the goal
of a 10% contribution to the GDP years ahead of its 2022 target in the
National Tourism Development Plan 2016–2022.
With its 8% share of the Philippines’ total exports, inbound tourism
expenditure (red line in Figure 6.3), or the expenditure of international
visitors in the Philippines, ranks third among the biggest export items,
with only miscellaneous services and semiconductors ranking higher.
While the growth rate of inbound tourism expenditure (green line)
peaked at 43.9% in 2017, the rate then declined by 1.6% in 2018. There
are several possible reasons for this, including the closure of Boracay,
the top foreign tourism destination, in 2018 and the controversies
surrounding the Duterte administration, which led to caution in travel
advisories.
Figure 6.3: Inbound Tourism Expenditure

and Exports at Current Prices, 2014–2018
6,000,000 50
5,000,000 40
4,000,000 30
million
3,000,000 20
%
2,000,000 10
1,000,000 0
0 –10
2014 2015 2016 2017 2018
Inbound tourism expenditure ( million) Exports ( million)

Share of inbound tourism expenditure to exports (%) Inbound tourism expenditure growth rate (%)
Exports growth rate (%)
Source: Author’s compilation using Philippine Tourism Satellite Account data (2019).
Domestic tourism is also continuing to increase as Filipinos choose

to travel to different regions of the country for holidays. The country
reached the target numbers for domestic tourists in the National
Tourism Development Plan 2016–2022 early, causing the Department
of Tourism to consider revising the target (Talavera 2019a). The share
of domestic tourism expenditure in household final consumption
expenditure (red line) grew from 15.3% in 2014 to 24.9% in 2018, as
Figure 6.4 shows. The increasing GDP per capita and the transitioning
of the Philippine economy from the lower-middle-income to the upper-
middle-income bracket over the next several years are encouraging more
and more Filipinos to travel, starting with domestic travel and gradually
including outbound international travel. The growth of domestic
tourism expenditure (green line) is double the growth of household
final consumption expenditure (yellow line).
Employment in the tourism industry grew from 4.8 million
employed persons in 2014 to 5.3 million employed persons in 2018, as
Figure 6.5 shows, with the industry employment growth rate (green
line) a notch higher than the aggregate growth rate (yellow line). The
share of employment in tourism in the total employment (red line) also
increased modestly from 12.7% in 2014 to 13.0% in 2018.
Figure 6.4: Domestic Tourism Expenditure and Household Final

Consumption Expenditure at Current Prices, 2014–2018
14,000,000 30
12,000,000
25
10,000,000
20
8,000,000
million
15
%
6,000,000
10
4,000,000
5
2,000,000
0 0
2014 2015 2016 2017 2018
Domestic tourism expenditure ( million) Household final consumption expenditure ( million)
Share of DTE to HFCE (%) DTE growth rate (%)
HFCE growth rate (%)
DTE = domestic tourism expenditure, HFCE = household final consumption expenditure.
Figure 6.5: Employment in Tourism Industry

versus Total Employment, 2014–2018
45,000 14
40,000 12
35,000
10
30,000
Persons (thousand)
8
25,000
6
%
20,000
4
15,000
2
10,000
5,000 0
0 –2
2014 2015 2016 2017 2018
Tourism employment (thousand persons) Total employment (thousand persons)
Share of tourism employment to total employment (%) Tourism employment growth rate (%)
Total employment growth rate (%)
Just like in many developing countries, community participation

in the tourism planning process is a way of implementing sustainable
tourism in the Philippines (Okazaki 2008). In community-based
tourism, local communities manage and organize most tourism
activities. This is an effective way to manage tourism in the Philippines
since it decentralizes the governance to the local government units, with
the barangay as the smallest unit. Community-based tourism allows
coordination among the different tourism stakeholders and active
community involvement, making it a viable development strategy. This
type of tourism is a mechanism for poverty alleviation as it provides
greater economic benefits to the residents of the local community
through the establishment of micro, small, or medium-sized enterprises
and the generation of local employment (Teck-Weng, Hui-Bun, and
Alim 2019). On the demand side, tourists can interact more with the
local community and learn about the local culture and customs. This is
important as the culture in the Philippines is as diverse as the number of
islands. Taking this even further, many communities in the Philippines
are developing strategies that incorporate sustainability components in
the form of community-based ecotourism.
6.3 Ocean Wealth of the Philippines

6.3.1 The Philippine Blue Economy
The national State of Oceans and Coasts Report provides information

on the status of seas and coasts of the Philippines, including the national
ocean economy as well as the quantity and quality of resources in the
coastal areas. The ocean economy of the Philippines covers 1,830 square
kilometers of territorial sea, and its coastline of more than 7,000 islands
spans a total 36,289 km, making it one of the longest coastlines in the
world. Up to 62% of the country’s 105 million citizens reside and work
in coastal areas, with 2.15 million Filipinos working in ocean economy
industries. Estimations have indicated that the ocean economy
contributes $11.9 billion in gross value added (2015, constant prices),
accounting for 7% of the country’s GDP. As Figure 6.6 shows, coastal
and marine tourism is the largest sector of the blue economy in the
Philippines, contributing a quarter of the total value or an estimated
$3 billion in value added, with around 900,000 employees. Fisheries and
aquaculture (20%) and manufacturing (19%) follow. The value of the
ecosystem services that the marine and coastal environment provides is
an estimated $17 billion (PEMSEA 2018).
Figure 6.6: Blue Economy of the Philippines by Sector

(%)
Coastal and marine tourism 25%
Fisheries and aquaculture 20%
Manufacturing 19%
Ports and shipping 12%
Electricity, gas, water supply 11%
Mining and quarrying 7%
Public administration and defense 4%
Maritime insurance 1%
Construction 1%
0% 5% 10% 15% 20% 25% 30%
Note: We based the calculations of the Philippine blue economy on the total gross value added (TGVA)
of ocean-based activities by industrial origin using data from the Philippine Statistics Authority (PSA). The
PSA is currently establishing the Philippine Ocean Economy Satellite Accounts.
Source: PEMSEA (2018).
6.3.2 Valuating Coastal and Marine Ecosystems
Glover et al. (2018) asserted that properly managing ocean resources

requires knowledge of the exact resources present in the ecosystem,
including the inventory of individual species, and the identification of
the relationships among these. Coral reefs, mangroves, and seagrasses
are the three major ecosystems in the Philippines’ coastal and marine
areas. The country is in the Coral Triangle, a marine area that is home
to the greatest number of coral species in the world as well as other
reef-dependent fauna, such as sea turtles and fish. Researchers have
claimed that the Verde Island Passage, situated between the main island
of Luzon and the island of Mindoro, is the “center of the center” of the
Coral Triangle and the richest source of biodiversity (Servonnat et al.
2019). Furthermore, of the world’s more than 70 salt-tolerant mangrove
species, around 46 species exist in the Philippines (Viray-Mendoza
2017). The country is also home to 18 of the world’s 60 seagrass species,
second only to Australia’s inventory of 30 species (Fortes 2013).
Numerous studies have attempted to assess the wealth of resources

in Philippine waters. Table 6.1 summarizes the net annual benefits of the
different marine ecosystems in the Philippines. Coral reefs, mangroves,
and seagrasses provide a combined benefit of $6.2 billion each year.
Table 6.1: Estimated Ocean Resources of the Philippines
Net Annual Benefits

Ocean Area per Ha Net Annual Benefits
Resource (km2) ($) ($ million)
Coral reefs 25,060 2,347 5,881.6
Mangroves 3,238 973 315.1
Seagrasses 978 41 4.0
Total 29,276 6,200.7
ha = hectare, km = kilometer.
Source: Author’s calculations based on Azanza et al. (2017) and PEMSEA (2018).
6.3.3 Ocean Health
A healthy ocean sustainably delivers a range of economic, social, and

environmental benefits to current and future generations. The Ocean
Health Index is a framework to assess ocean socio-ecological marine
systems comprehensively. The Philippines scored 61 out of 100 and
ranked 171st among 226 countries (Table 6.2). This score is lower than
the global average score of 71, which is alarming given the significant
natural resources existing in Philippine marine and coastal ecosystems.
This suggests that the Philippines has been exploiting the ocean and
marine resources in unsustainable ways.
Tourism and recreation received the lowest score of 16, significantly
below the goal of 52. This is interesting because, according to
estimations, marine tourism makes up 25% of the country’s blue
economy. Furthermore, the score for coastal livelihoods and economies
is 45, only a little over half the target of 82. These scores indicate that the
country is not maintaining ocean-dependent livelihoods and revenues
or maximizing livelihood quality. This makes sense given the disaster-
prone nature of the Philippines. People living in coastal areas are the
most vulnerable to extreme weather events, such as typhoons, placing
their livelihoods in peril. Food provision is also low, at 39, indicating
that the capture or raising of seafood does not take place in a sustainable
manner. Fishing in the Philippines has experienced several issues,

including overfishing, illegal fishing methods, and poaching. Finally, the
Philippines is 13 points below the target of 70 for clean waters. Due to its
sachet economy, the country is the third-largest contributor to marine
plastic (Porcalla 2018).
Table 6.2: Summary of Ocean Health

Index Scores for the Philippines in 2018
Score
Component (out of 100)
Ocean Health Index 61
Food provision 39
Artisanal fishing opportunities 63
Natural products 92
Carbon storage 69
Coastal protection 93
Coastal livelihood and economies 45
Tourism and recreation 16
Sense of place 50
Clean waters 57
Biodiversity 84
Source: Ocean Health Index (2018).
A nationwide assessment of coral reefs in the Philippines classified

approximately 90% of the sampled areas as poor or fair in terms of live
coral cover, indicating a decline in coral reef health over the last few
decades, primarily due to mass coral bleaching (Licuanan et al. 2017).
Warm ocean temperatures, especially during El Niño events, and other
biological stressors, such as crown of thorns infestation, also contribute
to coral loss (Chan 2020). Overexploitation of aquatic resources,
including overfishing, the use of illegal and destructive fishing methods,
and sedimentation, are some of the anthropogenic causes of poor coral
health (Verdadero et al. 2017). Siltation from upland erosion is one of
the most critical threats to both coral reefs and the seagrass ecosystem
in the Philippines (Seagrass Watch n.d.). Seagrass losses also occur
due to pressure from increasing coastal populations and near-shore
developments (Fortes et al. 2018). Seagrass meadows remain the least-

studied coastal habitats despite their importance, resulting in a lack of
appreciation of them and their low priority in conservation programs
(Cabico 2021).
Philippine mangrove areas have also declined by 50% since the
1970s, primarily due to both climate change and forest management
practices. More frequent and intense tropical typhoons and the
subsequent storm surges have destroyed significant mangrove cover.
Anthropogenic sources, such as the expansion of aquaculture, with
fishponds encroaching on mangrove forests, and the cutting of
mangroves for fuel and home construction, have also contributed to
mangrove loss (Buitre et al. 2019). Furthermore, the conversion of upland
forests into agricultural land has increased the amount of pollution from
agricultural compounds spreading through river systems. Deforestation
has also contributed to erosion from upstream sources, and petroleum
pollution from land-based activity can suffocate mangrove root systems
(Viray-Mendoza 2017). While the Philippines has made significant
investments in mangrove afforestation programs, these have been
largely unsuccessful due to outplanting of the wrong species in areas
with unsuitable hydrological characteristics (Sharma et al. 2017).
Tourism received one of the lowest scores because the Philippines
often experiences overtourism or tourist pressure on local populations
in many of its top destinations (Gössling, McCabe, and Chen 2020).
Local chief executives are often at a loss in managing increasing
tourist numbers and the multidimensional impact of tourism on their
municipality (Varga 2019). The economic benefits of tourism to the local
community resulted in their oblivion to environmental protection. Job
generation and municipal development are the most positive impacts
of tourism, which result in a trade-off against the carrying capacity of
the ecosystem (Jalani 2012). Tourism-related environmental problems,
such as overcrowding, the destruction of natural habitats, poor waste
management, and pollution, have been reoccurring despite numerous
national laws, local ordinances, and corresponding penalties for
violations.
6.4 Ocean Tourism in the Philippines

As the previous section mentioned, estimations have indicated that
ocean tourism contributes as much as 25% to the Philippines’ blue
economy. Unfortunately, limited tourism-related statistics are available
in the Philippines. The time series data that the Department of Tourism
and the Philippine Statistical Authority publish only consider tourism’s
contribution to the economy as an aggregate. They break down some of
the data by type of travel (but this only applies to leisure and business
travel) and by mode of travel, such as air, land, and water. No published
official statistics relate to ocean, marine, or coastal tourism.2 Among
ocean tourism pursuits, beach activities still provide the largest revenue
stream, while diving is a growing segment. Mangrove ecotourism is the
primary community-based form of ecotourism. Cruise tourism presents
the largest potential for growth in the next 5 to 10 years. Surfing and
sport fishing are present but constitute a niche market. Each type of
tourism product has corresponding benefits, negative impacts, and
challenges, which Table 6.3 summarizes.
Table 6.3: Assessment of Ocean Tourism Products
Type of
Ocean Tourism Benefits Negative Impacts Challenges
Sun and beach Easy to develop Mismanagement and Preventing the
tourism across all market overcrowding can overdevelopment of
segments (budget to lead to unsustainable beaches and coastal
luxury) tourism ecosystems
Generates the most Solid waste and water Presenting the
local employment pollution negatively business case for
affect the water investing in natural
Many different quality and marine assets to mobilize the
mechanisms environments private sector
to integrate
sustainability into Increased bacteria in
tourism operations the water can lead to
illnesses
Dive tourism Can combine diving Frequently dived sites Making the economic
trips with marine may suffer damage benefits of diving
educational and or loss of coral cover more inclusive since it
cleanup activities due to close contact is a niche market
with divers stirring up
sediment
Illegal removal
of biodiversity or
artifacts
Damage resulting
from boat anchors
2
The researcher has written to the Department of Tourism to request any
disaggregated tourism statistics relating to ocean and marine tourism (e.g., cruises
and diving). However, the Department of Tourism has yet to reply as of the writing
and submission of this chapter.
Table 6.3 continued
Type of
Ocean Tourism Benefits Negative Impacts Challenges
Ecotourism Implementable as Potential damage Developing a tour
community-based to ecosystems and that is enticing to
ecotourism in smaller loss of biodiversity paying customers
communities without good
management of Balancing nature
Linking ecosystems tourism conservation with
to tourism promotes economic activity
the development of
natural capital
Cruise tourism Highest growth Congestion due Requires significant
potential since cruise to a large influx of investments in port-
tourism is still nascent simultaneous arrivals of-call infrastructure
in the Philippines
Can push out local
tourists from top
attractions in favor of
higher-paying cruise
passengers
Large carbon
footprint of cruise
liners
6.4.1 Sun and Beach Tourism

Beach tourism is the major tourism product of the Philippines due to
the country’s geographical profile, with more than 7,000 islands and
a tropical climate. Many destinations in the Philippines have reaped
accolades for the best beach or the most beautiful island destination,
such as Boracay, Palawan, Bohol, and Cebu. This is evident in the
extremely large difference in the arrivals and spending of international
tourists between business and leisure travel (Tables 6.4 and 6.5).
Table 6.4: Inbound Arrivals in Number of Trips, 2014–2019

(thousands of trips)
Type of Travel 2014 2015 2016 2017 2018 2019

Business 482.6 473.0 477.3 466.9 519.0 526.8
Leisure 4,142.9 4,675.9 5,299.2 6,013.4 6,460.3 6,578.5
Source: Euromonitor (2019a).
Table 6.5: Inbound Receipts by Type of Trip, 2014–2019

(₱ million)
Type of Travel 2014 2015 2016 2017 2018 2019

Business 1,062.3 830.5 1,085.1 2,003.3 3,085.3 3,814.3
Leisure 212,671.1 229,623.8 222,145.3 323,554.1 411,599.3 453,920.7
Source: Euromonitor (2019a).
While the Philippines has many beaches and considers the beauty
of nature as its primary asset for marketability, the management of
these tourism destinations has exhibited several cases of unsustainable
development. For instance, Boracay Island, the country’s top beach
destination, generated more than $1 billion in 2017 from a record
2 million visitors. The rapidly growing tourism market led to an influx
of uncontrolled development and commercial activity (Haynes 2018).
Issues of cleanliness, environmental degradation, and the negative socio-
cultural impact on Boracay Island, the country’s top beach destination,
have regularly featured in the news.
This situation led to President Duterte ordering a 6-month closure
of Boracay for rehabilitation in 2018. The closure affected more than
30,000 people employed on the island, including 17,000 informal
workers, and the island lost an estimated $200 million in tourism
income during the closure (Haynes 2018). However, the number
of inbound tourists continued to rise despite the closure. Tourists
transferred to emerging destinations, such as Palawan or Bohol, which
were able to accommodate more visitors due to improvements in the
tourism infrastructure. When Boracay reopened, the number of visitors
was capped at 6,405 arrivals per day, allowing only 19,000 tourists on the
island at any given time (Yap and Calonzo 2018).
6.4.2 Diving and Marine Sports
Given the country’s location within the Coral Triangle, diving is a popular
tourist activity in the Philippines. A few of the top diving destinations
are the Tubbataha Reefs National Marine Park in the Sulu Sea, the Apo
Reef in Occidental Mindoro, Anilao in Batangas, and Moalboal in Cebu.
Recently, the Philippines won the 2019 World Travel Award for the
World’s Leading Dive Destination, while Amanpulo Resort in Palawan
was the World’s Leading Dive Resort (Department of Tourism 2019).
Dive tourism is one of the key product portfolios of the Department
of Tourism. Estimates have indicated that the country earned almost
₱500 million in tourism receipts from scuba divers in 2017 (Arnaldo
2018). About 350 thousand or 5% of international arrivals participate

in diving activities (Talavera 2019b). The department has hosted dive-
centric events, trade shows, and expos to promote the country as a diving
destination. In terms of institutional arrangements, the Philippine
Commission on Sports SCUBA Diving (PCSSD), part of the Department
of Tourism, regulates sports and technical diving in the country. The
PCSSD is also responsible for the accreditation of dive establishments
and dive individuals.
The lack of infrastructure deters foreign divers from visiting the
Philippines. The best diving spots are often in remote areas, and it can
take time to travel to these places. Some diving spots, like Tubbataha
Reef, also have seasonal opening, which might not align with the holiday
schedules of foreign tourists. Finally, the cost of scuba diving, especially
liveaboard diving, can be prohibitive to locals; a week-long liveaboard
trip can cost ₱125,000 against the average annual income of ₱313,000 for
Filipino households. This has led to the growing popularity of free
diving as a more cost-effective option.
6.4.3 Cruise Tourism
Cruise tourism is a relatively new tourism product for the Philippines,

lagging behind neighboring countries such as Malaysia and Thailand
(Lopez 2019), but is steadily on the rise as shown in Table 6.6. Major
cruise lines have only begun to arrive in the Philippines over the last 3 to
5 years. In 2017, the country welcomed 114,437 cruise passengers from
the five major ports of call (out of 140 ports) in Manila, Boracay, Palawan,
Ilocos Norte, and Subic Bay. The growth rate of cruises is exponential;
only 446 international cruise passengers arrived in the Philippines
in January 2017, compared with 9,156 in the same month in 2018, an
increase of 1,953%. Due to the increasing number of ports of call in the
country, the Philippines is aiming to develop its cruise tourism product
with the implementation of a national cruise development strategy. The
Department of Tourism aims to receive 656,635 cruise passengers from
300 ports by the end of 2022. The development of a cruise-dedicated
port in Metro Manila supports this (Talavera 2019c).
Table 6.6: Cruise Transport Sales, Value, 2014–2019

(₱ million)
2014 2015 2016 2017 2018 2019

Cruise sales 418.2 436.8 458.3 487.5 549.8 588.8
Source: Euromonitor (2019b).
6.4.4 Ecotourism
Mangrove areas are the most common sites for community-based

ecotourism in the Philippines. Many municipalities have mangrove
rehabilitation programs to prevent the loss of mangrove habitats.
Mangroves are an important part of the coastal ecosystem because of
their ecological importance as a breeding ground for fish and other
aquatic species, a habitat for birds, storage for carbon, and a means of
preventing soil erosion. Developing mangrove ecotourism in coastal
communities is relatively low cost compared with other tourism
products in the Philippines and is easier to implement, making it
an apt livelihood- and revenue-generating activity for residents and
municipalities. Communities around the Philippines put up boardwalks
along the mangrove forest and offer guided educational tours, boating
and kayaking trips, and bird-watching sessions. In addition to the direct
economic activities from mangrove ecotourism, the community benefits
from increased mangrove cover, such as improvements in fishing.
6.5 Policy Landscape and Gaps

The policy landscape for ocean tourism comprises a mix of tourism
policies, environmental policies, and the integration of the two (see
Appendix A6). As an archipelagic nation, the Philippines relies heavily
on marine-related tourism activities. Thus, the policy framework for
the blue economy is relatively well developed and robust. In fact, given
the numerous regulations, it might be challenging for different actors to
navigate the complex policy landscape.
Poor implementation and enforcement of laws are typical in the
Philippines. Despite having a national ecotourism strategy and supposed
coordination of different national agencies, many tourist destinations
in the Philippines are experiencing uncontrolled development. The
closure of Boracay, El Nido, and soon, other tourist destinations for
necessary rehabilitation is evidence of the mismanagement of the growth
of tourism. Given the economic impact of tourism, municipalities are now
considering it as a way to alleviate poverty for the community. However,
many municipalities are developing their tourism portfolios without
proper planning and without putting the necessary infrastructure
in place.
Successful management of protected areas in the Philippines is
critical to both biodiversity preservation and inclusive development
for the local communities. However, there are challenges in managing
protected areas. Aside from the few that the National Integrated
Protected Areas System (NIPAS) and the Expanded National Integrated

Protected Areas System (E-NIPAS) cover, local government ordinances
form the majority of marine protected areas (MPAs). Regulating
fishing is the primary reason for designating MPAs. Tourism is usually
an afterthought. There is often a need to build the capacity of locals
to manage and govern their MPAs effectively. The MPAs often lack
adequate funding because they rely primarily on income from permits
and an allotment from the municipality’s coffers. Many of these
biodiversity-rich areas are in low-income municipalities, implying that
the proportion of funding will be smaller. The better-managed MPAs
can augment their budget through grants, donations, and partnerships.
However, this requires the local government and those managing the
protected area to have the competencies and the resources to write
grant applications.
There are instances in which policies have varying levels of
applicability that lead to conflict among governing bodies. For instance,
the Protected Area Management Office of a particular protected area will
have jurisdiction over the seascape and landscape of that protected area.
Thus, the local government can issue fishing permits only on waters that
are not part of the protected area, which can conflict with the Philippine
Fisheries Code, the scope of which covers all Philippine waters. The
Department of Agriculture can also establish fish refuges and sanctuaries
in fishing grounds. Too many governing laws and bureaucratic red
tape can discourage potential tourism enterprise owners.
6.6 Case Study Analysis

This chapter analyzes the case of El Nido Resorts as an example of a
sustainable ocean tourism enterprise. The private sector is a key actor
in the development of the Philippine blue economy. The majority of
tourism establishments in the country are privately owned, and El Nido
Resorts shows how a private tourism enterprise can contribute to the
blue economy by providing local communities with economic benefits
while ensuring ecosystem integrity through investments in natural
capital. Engaging the private sector in shifting to more sustainable
behavior is one of the key challenges for a lower-carbon economy.
6.6.1 Framework for the Case Study Analysis
The analysis of the succeeding case study utilizes a combined framework

that espouses the principles of the blue economy (WWF 2015),
sustainable tourism development (UNWTO 2018), and the inclusive
business model framework (United Nations Global Compact 2015). The

three frameworks align with each other as their foundation is the tenet
that economic development should be inclusive and should not come
at a cost to the environment and society. The inclusive business model
framework takes the economic side further by showing the integration
of the bottom of the pyramid into the supply chain (see Figure 6.7).
Figure 6.7: Conceptual Framework for Analyzing

Tourism in the Blue Economy
Governance
Value
Business Model
Social benefits
Product
Level of
Economic benefits
stakeholder Operations
engagement
Environmental
Customers
benefits
State of the Ocean and its

Available Resources
Tourism in the blue economy should be inclusive, engaging

stakeholders in the development and operation of tourism products and
services, and it should be dependent on the state of the local marine
environment and the available resources. Ideally, the design of
the tourism product should also consider the provision of solutions for
the existing social, economic, and environmental problems that the area
is experiencing.
The analysis of the level of engagement in the following case study
on El Nido Resorts uses the OECD typology of levels of stakeholder
engagement (OECD 2015). The case study also examines the business
model of the company, with an emphasis on establishing whether the
business model includes the local communities and the operational
activities have low impacts. The case study also points out the different
social, environmental, and economic benefits that tourism generates and
how it transforms the state of the ocean and its resources. Additionally,
the discussion considers the model of governance in the area.
6.6.2 Case Study: El Nido Resorts
Situated in Bacuit Bay, the municipality of El Nido is a first-class

municipality located in the province of Palawan, Philippines. The
municipality covers a land area of 465.1 square kilometers on the
northernmost tip of mainland Palawan. Several bodies of water,
the Linapacan Strait in the north, the Sulu Sea in the east, and another
body of water on the opposite side, surround it. El Nido consists of
45 islands and islets, each having its own unique geological formations.
The municipality has a population of 41,606 people living in
18 barangays as of the 2015 census. Given its location, most of the
residents engage in fishing, agriculture, or tourism. The poverty
incidence in the province of Palawan was 24.6% in 2015, but this reduced
significantly to 16.2% in 2018 as the province joined the cluster of least-
poor provinces in the country.
Palawan is an archipelago of 1,780 islands in the western part of the
Philippines. It has the highest concentration of islands but is the most
sparsely populated region in the country. Palawan is rich in natural
resources, giving it the moniker of the Philippines’ last ecological
frontier. The El Nido–Taytay Managed Resource Protected Area is
located on the northwestern tip of the mainland of Palawan. The local
government initially proclaimed it as a marine reserve and later expanded
this to include the nearby town of Taytay and the terrestrial ecosystem
when it was converted into a protected area. Covering 36,000 hectares
of land and 54,000 hectares of marine waters, the inventory of
natural resources includes limestone cliffs, beaches, mangroves, clear
waters, and forests. The protected area is a habitat for high counts of
biodiversity. On 17 October 2017, six municipalities in northern Palawan,
including El Nido, signed a memorandum of agreement to implement
the 1.008 million-hectare Northeastern Palawan Marine Protected Area
Network Management Plan.
Tourism in El Nido started in the early 1980s with the establishment
of a dive station on one of the islands. The tourism growth was initially
slow due to a lack of infrastructure. The development of an airport and
improvements in the road network from the provincial capital of Puerto
Princesa led to shorter travel times, resulting in the exponential growth
of tourism (see Figure 6.8). The closure of Boracay for 6 months in
2018 diverted tourists to new destinations, with Palawan providing the
biggest draw.
Figure 6.8: Tourist Arrivals in El Nido
140,000
120,000
100,000
Tourist arrivals
80,000
60,000
40,000
20,000
0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: Llanto (2018).
The tourism boom over the last 10 years may have transformed
the local economy, but the uncontrolled development has led to the
declaration of El Nido as overcrowded. The municipality is experiencing
a spate of environmental issues, including pollution, and has had positive
tests for coliform in the past. It underwent a 6-month rehabilitation
program starting in November 2018 to address its problems. Unlike
Boracay, El Nido remained open to tourists during this period but
implemented a no-swimming policy in severely affected areas.
Furthermore, the government inventoried commercial and residential
establishments violating easement rules and gave them notice to vacate.
The town also passed an ordinance banning single-use plastic bottles
and bags.
The Ten Knots Development Corporation, now an Ayala Land Inc.
subsidiary (60% ownership), is a pioneer in El Nido. The corporation
opened its first luxury resort in 1983 and operates using the El Nido
Resorts brand in four locations: Apulit Island, Miniloc Island, Lagen
Island, and Pangulasian Island. The company is also the developer of
the Lio Tourism Estate, the master plan of which is to be an ecologically
and financially sustainable tourism destination.
The company operates its resorts within the protected area. All
El Nido Resorts uphold the company’s “Be G.R.E.E.N.” philosophy—
Guard, Respect, and Educate El Nido. All resort staff must follow
this training program, which consists of modules and exams
on environmental management, biodiversity conservation, and
environmental legislation. Staff also take a sustainability tour and

experience immersion in the material recovery facility and farm. The
company requires business operations to have the least possible impact
on the environment while promoting respect for the local culture. The
best practices of the resort include different ways to engage customers,
motivate employees, and work with local communities while protecting
the environment (see Table 6.7, which gives examples of the company’s
stakeholder engagement process based the OECD’s typology of levels
of engagement). Organization-wise, these initiatives are under the
management of El Nido Resorts’ sustainability team, which the director
of environment and sustainability leads. Each resort has at least one
in-house member of the sustainability team as a sustainability officer,
an environmental officer, or an environmental enforcement officer.
The background of the team members ranges from environmental
engineering to wildlife biology to working as a ranger in the protected
area, qualifying the team to design and implement sustainability
programs.
Table 6.7: Stakeholder Engagement for El Nido Resorts
Level Case Examples

Communication Making the guests more knowledgeable about the
different ecosystems, local culture, and sustainability
issues in El Nido by integrating education with the guest
experience
Consultation Consulting with stakeholders on designing not only
the guest experiences but also their conservation and
sustainability programs
Participation Working with the community on developing scientific
studies and monitoring wildlife
Representation Upskilling the local community and prioritizing locals for
hiring and promotion
Partnerships Partnering with the local community to supply goods and
services to the resort
Co-decision making Working with the local government to craft ordinances
and coproduction
Linking with Local Communities

With a business model that focuses on linking with local communities,
El Nido Resorts has spurred economic growth as the largest employer
in the municipality. In the beginning, many of the staff were from other
parts of the country due to the lack of hospitality skills among the locals.
The resort began to build a capable workforce in the local community
by offering training programs on the skills that the hospitality industry
required. Local women received training to become licensed massage
therapists. This allows the residents of El Nido to have a secure
livelihood without migrating to other parts of the country. From a
business standpoint, it guarantees a consistent supply of skilled workers
for the El Nido Resorts and other establishments in the area.
As part of its business model, the resort also makes it a priority to
use local products to provide a livelihood for the community and reduce
the carbon footprint. Local farmers learn about sustainable agricultural
techniques from the resort’s model farm, which they can then implement
on their own farms. Locally and organically produced vegetables
comprise 60% of the total kitchen purchases of vegetables, while locally
reared livestock accounts for 90% of the total kitchen purchases of
animal products. Sourcing locally allows the company to have more
control over its supply chain while lowering the transportation costs.
From a marketing standpoint, this can be a unique selling proposition
due to the growing trend for consumers to prefer the “farm-to-table”
approach to food.
Instead of investing in its own boats, El Nido Resorts works with
local outrigger boat owners to fulfill the transportation requirements
of the resort, including island-hopping tours and snorkeling trips. The
resorts purchase native bags and slippers from local female weavers as
complimentary room amenities for guests. Locals have a continuous
livelihood because there will always be a demand from the resort. This
also allows the preservation of the local culture and traditions through
weaving. In addition, by paying competitive rates, the resorts will always
have a supply of the products and services that they need.
Low-Impact Operations
El Nido Resorts implements practices that reduce waste and save
resources like energy and water. The initial investment in the required
technology might be higher in terms of upfront costs, but it pays off in
the long term in the form of savings due to operational efficiency. El Nido
Resorts operates a sewage treatment plant in combination with native
reed bed filters to prevent discharges of raw sewage and grey water into
the sea. It utilizes treated water in flushing toilets, watering plants, and
supplying fire hydrants. Solid wastes undergo strict segregation before
reaching the resort’s full-cycle material recovery facility. This picks up
recyclable waste for recycling while composting organic waste for use in
the garden or on farms. Saying no to single-use plastics is common these
days, but El Nido has had a refillable drinking water system for the last
10 years. The kitchen also works with its suppliers to refill containers for
some of their supplies, such as cooking oil.
The resorts also operate their own desalination plant to guarantee
the supply of fresh water without competing with local communities
for the limited supply on the island. A rainwater catchment system for
flushing toilets augments it. Several resort cottages have solar panels.
Instead of the once-a-year Earth Hour, the resorts turn off their lights
for an hour every full moon during the summer months and use the
savings to purchase seedlings for a carbon-offsetting program in the
El Nido watershed.
Guest Satisfaction through Low-Impact Tourism

El Nido is highly selective when it comes to its portfolio of guest
activities; these should strongly engage guests but limit the disturbance
to the natural environment. Only nonmotorized sports equipment,
such as kayaks, snorkels, and paddleboards, are available for guest use.
Investing in these amenities is less costly than investing in motorized
equipment, and the potential for damaging the ecosystems is lower.
Guided tours, such as fishing expeditions, educate guests on ecosystems
and conservation. Guests learn how to catch fish sustainably using a
line. The resort partners with a local fishing village to run these tours
and demonstrate fishing techniques. With the ability to augment their
income, local fishers are less prone to resort to illegal means of fishing in
the protected area. Trends in consumer behavior indicate an increase in
preferences for authentic experiences (Boss 2008). The combination of
environmental education, engaging with locals, and learning traditional
practices provides guests with a unique experience that captures their
satisfaction and loyalty and gains a competitive advantage for the
organization.
Governance, Conservation, and Education Efforts

El Nido Resorts works closely with the community and local government
in the prevention of illegal fishing, coral and reef fish assessments,
and environmental education campaigns. The organization launched
El Nido Biodiversity Online, a database of El Nido’s flora and fauna, in
2000 so that guests can learn more about the biodiversity in the area. The
resorts also support scientific studies by providing visiting researchers
with logistical support.
The resort works with the government, mainly the Protected Area
Office, to develop conservation programs, such as tagging and releasing
sea turtles, protecting hatching grounds, and relocating giant clams to
prevent poaching. A partnership with civil society organizations and
the local community installed an artificial reef in part of Bacuit Bay that
illegal fishing and coral bleaching had damaged. It also installed mooring
buoys around the bay to prevent coral damage in high-traffic reefs.
El Nido Resorts sponsors Sea Scouts training for both resort staff
and the local community to develop qualified personnel who can
respond to marine incidents. Resort staff are also part of the joint Marine
Monitoring Task Force, helping the Protected Area Management Board
and the municipal government to patrol the area. Furthermore, the resort
is highly engaged in the policy cycle as it participates in codesigning
ordinances to improve the management of the protected area. El Nido
Resorts was one of the stakeholders that lobbied for the creation of the
marine reserve in 1991.
The Business Case for Sustainability

El Nido Resorts has been operating in Palawan for almost 40 years
and is an example of how to balance profit generation with social
and environmental benefits. The various resorts within Ten Knot
Development Corporation’s portfolio have been reaping rewards for
the last 20 years. The company has built a very strong brand based on
sustainability. Travel companies and prospective guests take note of
these awards when they make their purchase decisions. For a tourism
venture that generates revenues from guests experiencing nature,
keeping the environment pristine can only enhance the product and
experience. This has worked since all El Nido’s resorts currently enjoy
a 4.5 or higher (out of 5) rating on Trip Advisor, the top online word-of-
mouth rating website for travelers. El Nido Resorts’ good practices and
key success factors in delivering tourism services within the context of a
protected area can be a model for other ocean tourism enterprises.
6.7 Conclusion and Ways to Proceed

As a component of the blue economy, ocean tourism is an important
contributor to the growth and development of the Philippines. As an
archipelagic nation, tourism activities in coastline areas, as well as in
offshore zones, contribute to revenues for cities and municipalities,
job generation and skills development for local residents, and business
opportunities. These can lead to improvements in the quality of life of
communities.
The Philippine government has been active in policy development
given the significance of ocean tourism. Policies couple tourism
development with environmental protection and poverty alleviation
and require multi-agency collaboration. However, despite the numerous
tourism and marine ecosystem protection policies in place, many
tourism destinations, often beaches, are experiencing uncontrolled
development.
The analysis of the ocean tourism ecosystem of the Philippines and

the corresponding case study of El Nido Resorts led to the identification
of several policy recommendations:
(i) An analysis of ecosystems in a destination with significant
natural resource assets is necessary to estimate the carrying
capacity for tourism. This would allow tourism planners to
manage tourist numbers and not exceed the carrying capacity
when planning for tourism development. The collection of
tourism statistics will be critical in monitoring the limits of
tourism in the area. This requires harmonized standards and
procedures on how to make inventories of natural capital.
(ii) Multiple stakeholders need to engage in the entire tourism
development chain, from conceptualization and master
planning to monitoring and evaluation. The co-creation of
tourism development pathways is critical to innovation and to
making the sector more inclusive. Stakeholders could include
government agencies, local governments, the business sector,
tourists, and the local community. The socioeconomic
development of the area should also include minority groups
to give them a voice. Stakeholder management will be critical
in harnessing synergies that result in a mutually valued
roadmap for tourism development.
(iii) There is also a need to assess infrastructure needs prior
to creating a tourism development plan for a destination.
Financing mechanisms and private–public partnerships
could be the norm in tourism enterprise zones.
(iv) Embedding payment for ecosystem services (PES) in
tourism products is a financing mechanism that ensures that
those who work on preserving the environment also share in
the economic benefits. Currently, national parks and other
community-based tourist spots charge an environmental fee
and/or entrance fees. PES can act as a value-added form of
taxation through different modalities, commonly through
a utilities charge. This mechanism can pass on the cost
to the consumer in terms of a per bed per night fee. This
defrays objections from the private sector on spending for
sustainability. The charging of PES would need an estimate
of the valuation of the natural resources and corresponding
ecosystem services of the area.
(v) Limiting tourist numbers each day for each site or
attraction based on assessments of the carrying capacity
and infrastructure can help address the issue of capacity.
The local government can restrict the capacity for public
attractions by requiring prior reservations with the local
tourism office, which tour operators or accommodation

establishments can make on behalf of the guests. Booking
time slots can also spread out visitors during the day,
preventing overcrowding and making the experience much
more pleasurable.
(vi) The private sector is responding to the changing
regulations. Most tourism businesses will change their
practices if government policies compel them to do so.
Local governments and national agencies can explore
policies mandating tourism establishments to incorporate
sustainability into their business plans prior to the issuance
or renewal of their business permit. Government incentives
in the form of lower tax rates and other instruments can
incentivize the private sector to incorporate environmental,
social, and governance factors into their practices and key
performance indicators. On the violation side, the imposition
of stiffer penalties on violators can discourage businesses
from choosing to pay the penalties rather than change their
practices.
(vii) Local communities have a key role in citizen-led
enforcement, which can address poor enforcement of laws
and policies. Civil society organizations and community
members can form volunteer groups to monitor violations
of the existing tourism and environmental ordinances and
legislation. Capacity building will be necessary to equip
these groups with the ability to recognize and report illegal
behavior to the relevant authorities through an established
referral pathway.
(viii) Further research can develop the business case for
sustainability in ocean tourism enterprises to understand
the different modalities for success in terms of the financial
sustainability of the business, environmental protection, and
climate change mitigation or adaptation. The private sector
will consider strategies if research can prove that investing
in sustainability has a return and makes business sense.
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Appendix 6.1: Laws and Policies Regarding

Blue Economy Development
A6.1 Overarching Policy
1987 Philippine Constitution

Ocean tourism’s foundation is Article XII of the 1987 Philippine
Constitution—National Economy and Patrimony—which mandates that
“The State shall protect the nation’s marine wealth in its archipelagic
waters, territorial sea, and exclusive economic zone, and reserve its
use and enjoyment exclusively to Filipino citizens” (Republic of the
Philippines 1987).
A6.2 Tourism Policies
Executive Order 111, Series 1999

EO 111, s. 1999 establishes the guidelines for ecotourism development
in the Philippines, which foster sustainable tourism while enjoining
the participation of the Filipino people in enhancing the growth and
competitiveness of the Philippine economy. Provisions for the creation
of the National Ecotourism Development Council and the formulation
of a national ecotourism strategy are also part of the order (Republic of
the Philippines 1999).
Republic Act 9593 or the Tourism Act of 2009

RA 9593 (Republic of the Philippines 2009) declares tourism to be
an indispensable element of the national economy and an industry of
national interest and importance, which the country must harness as an
engine of socioeconomic growth and cultural affirmation; to generate
investment, foreign exchange, and employment; and to continue to mold
an enhanced sense of national pride for all Filipinos. One of the specific
objectives of this act is to promote a tourism industry that is ecologically
sustainable, participative, and ethically and socially equitable for local
communities. The act also paved the way for the creation of tourism
enterprise zones through the reorganization of what is now called the
Tourism Infrastructure and Enterprise Zone and the reorganization
of the tourism promotion function of different organizations into the
Tourism Promotions Board. A tourism enterprise zone is a master
planned piece of land for development into an integrated tourism
complex to host tourism enterprise facilities and services within the
property.
National Ecotourism Strategy and Action Plan 2013–2022

The National Ecotourism Strategy (NES) is a joint development of
the Department of Tourism and the Department of Environment and
Natural Resources—Biodiversity Management Bureau and establishes
the ecosystem agenda for the Philippines (Republic of the Philippines
2013). NES focuses on fostering strong cohesion among ecotourism
stakeholders to pursue inclusive growth in the development of
ecotourism sites and destinations forming a network within the
identified clusters of tourism development. NES identifies eight
strategies for sound ecotourism development and includes coordination
between host communities and different key players, from the national
government to the private sector. It requires these key players to build
institutional relationships (see Figure A6.1).
Figure A6.1: Institutional Relationships

in the National Ecotourism Strategy
Government agencies, LGUs, Communities,
Private Sector, Academe, NGOs
DOT DENR
EO 111 BODIES
NEDC
Tourism Planning, Biodiversity Donor
Donor Research and Information agencies
Management Bureau
agencies Management NESC
ETWG
RECs Regional Office

Regional Office RETWGs
RESOURCE
PRODUCT ADVOCACY AND MANAGEMENT
DEVELOPMENT COODINATION - AND VISITOR
AND MARKETING M&E SERVICES
Implementation For PAs, PAMBs

assistance from provide policy and
relevant management inputs
agencies/institutions
Priority Ecotourism Sites
Non PA ecotourism PA ecotourism

sites activities often sites activities led
led by LGUs and Ecotourism expands through product development and by DENR with
Government conservation
promotion of ecotourism sites, training and networking
Agencies partners
DENR = Department of Environment and Natural Resources, DOT = Department of Transportation,

EO = executive order, ETWG = Ecotourism Technical Working Group, LGU = local government unit,
M&E = monitoring and evaluation, NEDC = National Ecotourism Development Council, NESC = National
Ecotourism Steering Committee, NGO = nongovernment organization, PA = protected area,
PAMB = protected areas management board, REC = Regional Ecotourism Council, RETWG = Regional
Ecotourism Technical Working Group.
Source: Republic of the Philippines (2013).

Philippine Development Plan 2016–2022

Tourism-related services constitute one of the nine priority sectors with
the greatest potential to realize the path toward inclusive development,
which the Philippine Development Plan 2016–2022 (Republic of the
Philippines 2016a) outlines. The Department of Tourism is one of the
member agencies of the planning committee on economic development
and the planning committee on ecological integrity. Chapter 20 of the
Philippine Development Plan focuses on more aggressive strategies
to rehabilitate and restore degraded natural resources and protect
fragile ecosystems while improving the welfare of resource-dependent
communities. One of these strategies is to expand the development of
sustainable resource-based industries such as ecotourism, supporting
tourism micro, small, and medium-sized enterprises and encouraging
community-based approaches to tourism.
National Tourism Development Plan 2016–2022

The government updates the National Tourism Development Plan
(Republic of the Philippines 2016b) every 6 years at the start of each
new administration. The current version aims to develop a globally
competitive, environmentally sustainable, and socially responsible
tourism industry that promotes inclusive growth through employment
generation and equitable distribution of income, thereby contributing to
building a foundation for a high-trust society.
The plan identifies nine tourism products, including nature-based
tourism, sun and beach tourism, cruise and nautical tourism, and diving
and marine tourism. The National Tourism Development Plan has
determined, based on the ease and importance of implementation, that
ocean-related tourism products should receive the highest priority due
to their attractiveness to the identified markets and to take advantage of
the Philippines’ rich natural resources (see Figure A6.2). Furthermore,
nature-based tourism products provide the highest potential for
community-based tourism.
Aside from tourism-focused policies, several environmental laws
enable the development of sustainable ocean tourism enterprises.
Most of these policies are under the purview of the Department of
Environment and Natural Resources.
Figure A6.2: Prioritization of Tourism Products

in the Philippines
Cultural
High
Nature-based
Ease of Implementation
Driving and Marine Sports

Mid-
Average Cruise and Nautical
Sun and beach
Tourism MICE
Education Tourism
Health and Wellness,

Shopping, Leisure
Medical, Retirement
and Entertainment
Low
Low Mid-Average High

Importance of Implementation
MICE = meetings, incentives, conventions, and exhibitions.
Source: Republic of the Philippines (2016b).
A6.3 Environmental Policies
Republic Act 7586 or the National Integrated Protected Areas System

(NIPAS) Act of 1992 and the Republic Act 11038 or the Expanded
NIPAS Act of 2018 (E-NIPAS)
The NIPAS Act governs and supervises protected areas in the
Philippines. The original NIPAS Act paved the way for the establishment
of 13 national parks. In relation to ocean tourism, the NIPAS Act is
critical because the establishment of marine protected areas (MPAs)
took place through a combination of the NIPAS Act and local ordinances.
The E-NIPAS Act broadens the scope by declaring an additional
94 protected areas as national parks. These national parks cover a variety
of landscapes, from highlands to seascapes. The new law also requires
the Department of Justice to appoint special prosecutors for violators of
governing laws in protected areas.
Key aspects of the NIPAS Act are the identification of the Department
of Tourism as a partner, the identification of areas with NIPAS coverage
that have ecotourism potential and cultural heritage value, and the
preparation of plans for their development or conversion into Tourism
Enterprise Zones. For this reason, it is important to distinguish an MPA
from other modalities. Unlike marine reserves, sanctuaries, and parks,

which prohibit or strictly control human access to the area, MPAs strive
to strike a balance between economic activities and environmental
protection through proper zoning with specific rules and guidelines
(Miclat and Ingles 2004).
Executive Order 533, Series 2006

EO 533 fleshes out the integrated coastal management strategy for the
Philippines to ensure the sustainable development of the country’s
coastal and marine environment and resources and to establish
supporting mechanisms for its implementation. The intention is to
implement integrated coastal management in all coastal and marine
areas, addressing the interlinkages among associated watersheds,
estuaries and wetlands, and coastal seas of all relevant national and
local agencies. The mobilization of community stakeholders is a critical
element of this approach.
Other Environmental Laws

Several other environmental laws provide the foundation for the proper
management of ocean resources. Different national government agencies
and bureaus enforce and monitor most of this legislation. The Philippine
Fisheries Code (Republic Act 8550) and its amendment (Republic Act
10654) provide for the development, management, and conservation
of fisheries and aquatic resources. The Philippine Clean Water Act of
2004 (Republic Act 9275) aims to protect the country’s water bodies
from pollution from land-based sources. This includes riverine, lake,
and marine ecosystems. The Ecological Solid Waste Management
Act (Republic Act 9003) is also important because it provides for a
systematic, comprehensive, and ecological waste management program
to ensure the protection of public health and the environment. Ideally,
the act should prevent solid waste from entering aquatic environments.
The Wildlife Resources Conservation and Protection Act (Republic Act
9147) establishes the guidelines for the conservation and protection of
wildlife resources and their habitats.
7
Capitalizing on Co-Benefits and
Synergies to Promote the Blue
Economy in Asia and the Pacific
Masanori Kobayashi, Atsushi Watanabe, Keita Furukawa,
Keshia N. Tingson, Yimnang Golbuu, and Cielito F. Habito
7.1 Introduction
The blue economy has grown in importance in policy discourse as a way
to promote sustainable development. Research has often used the term
“blue economy” interchangeably with the term “ocean-based economy.”
Both cover a wide range of sectors related to the ocean and coasts, but the
blue economy underlines the conservation and sustainability of marine
and coastal ecosystems in the long term (Howard 2018; Economist Group
2020). There have been several attempts to valuate and measure blue
economy sectors (McIlgorm 2016). Conservation and sustainable use of
the ocean and marine resources are a pivotal principle of a sustainable
blue economy, and the optimization of ocean use and the mitigation of
conflicts remain vital (Jouffray et al. 2020). The policy discourse on
sustainability and ecosystem services, particularly regarding the marine
and coastal environment, underpins the sustainability dimension of
the blue economy (Mulazzani and Malorgio 2017). In addition to the
sustainability of the ocean environment and marine resources, the
sustainable blue economy must improve human well-being and social
equity (Pauly 2018; Nash et al. 2020). There is growing recognition that
the sustainable blue economy can act as a vehicle to promote ocean
resource-based development that is socially equitable, environmentally
sustainable, and economically viable (Cisneros-Montemayor et al. 2019).
A sustainable blue economy is an important policy objective
in Asia and the Pacific as there are many coastal, archipelagic, and
island countries and economies, and they have sustained the robust
global economic growth over the past decade. The development of the
150
Capitalizing on Co-Benefits and Synergies to Promote the Blue Economy in Asia and the Pacific 151
blue economy is an important driver of economic growth in Asia and

the Pacific (Bhattacharya and Dash 2020). To support a sustainable
blue economy, the Asian Development Bank launched a healthy
ocean action plan, worth $5 billion, with four focus areas: (i) creating
inclusive livelihoods and business opportunities in sustainable
tourism and fisheries; (ii) protecting and restoring coastal and
marine ecosystems and key rivers; (iii) reducing land-based sources of
marine pollution, including plastics, wastewater, and agricultural runoff;
and (iv) improving sustainability in port and coastal infrastructure
development (Asian Development Bank 2019). The economies of Asia
and the Pacific, however, have contracted as a result of the coronavirus
disease (COVID-19). Despite the struggles in 2020, the prospect for
recovery of economies in Asia and the Pacific turned out to be promising
compared with that of other regions as the projected growth rate for
2021 is 7.4% for East Asia and the Pacific and 3.3% for South Asia (World
Bank 2021). The spread of COVID-19 and its containment measures
continue to be an important factor for the economic recovery in Asia and
the Pacific. The expectation is that, as countries relax the containment
measures, mobility and economic activities will resume, although
subregional variations are possible (Asian Development Bank 2020).
Countries in the Asia and Pacific region need to contain COVID-19 and
reinforce their efforts to capitalize on the potential of the sustainable
blue economy through conservation and sustainable use of the ocean
and marine resources.
A sustainable blue economy relies on conservation and sustainable
use of the ocean and marine resources, and these are concrete policy
goals in the United Nations Sustainable Development Goals (SDGs),
specifically Goal 14, entitled “Conserve and sustainably use the oceans,
seas and marine resources for sustainable development” (SDG 14: Life
below Water) (United Nations 2015). There are 17 SDGs that focus on
sectoral issues. SDG 14 has 10 targets that specify concrete thematic
policy goals. To achieve myriad policy targets across the SDGs, it is
essential to build on the interlinkages and interactions among the
SDGs and promote the implementation of policy measures through
an integrated, coherent, and indivisible framework (Hegre, Petrova,
and von Uexkull 2020). It is necessary to generate synergies while
restraining or optimizing trade-offs by assessing the risks and benefits
(Fader et al. 2018). The ocean involves multifaceted dimensions of the
biosphere and human development, such as food, ecosystems, poverty,
hunger, and gender equity. The development of strategies for generating
synergies and optimizing trade-offs within SDG 14 is particularly
important in the light of the inherent difficulties in comprehending the
state of the marine and coastal environment and resources, the urgency
of improving ocean health, the rapid growth of the blue economy, and
the need for multi-stakeholder partnerships (Nash et al. 2020). The

patterns of synergies and trade-offs demonstrate that they are not
generic but rather heterogeneous, and it is important to understand
them in the local and regional contexts (De Neve and Sachs 2020). To
facilitate the development and implementation of policies and strategies
for a sustainable blue economy in Asia and the Pacific, it is therefore
important to undertake and draw lessons from empirical studies on the
interactions between the SDGs and provide perspectives in this respect.
This chapter assesses the enabling factors and their potential synergies
and trade-offs in achieving a sustainable blue economy based on case
studies in some of the countries in Asia and the Pacific and presents
useful perspectives for devising and implementing strategies for a
sustainable blue economy in Asia and the Pacific.
7.2 D
evelopment of International Policy
Discourses on a Sustainable Blue Economy
The term “blue economy” arose in the process of the United Nations (UN)
Conference on Sustainable Development in 2012. There was a strong
call to boost the efforts to scale up ecosystem-based integrated coastal
management and increase investment in the blue economy (Cicin-
Sain et al. 2011). The outcome document of the 2012 conference, “The
Future We Want,” did not include a direct reference to a blue or ocean
economy. However, it did refer to the importance of the conservation
and sustainable use of the oceans and seas and of their resources for
sustainable development and the importance of building the capacity of
developing countries to benefit from the conservation and sustainable
use of the oceans and seas and their resources (United Nations 2012).
SDG 14 does not refer directly to the blue economy. However, it
stipulates the key components of the blue economy with goals such as
sustainably managing and protecting marine and coastal ecosystems
(Target 14.2); effectively regulating harvesting and ending overfishing,
illegal, unreported, and unregulated fishing, and destructive fishing
practices (14.4); prohibiting certain forms of fisheries subsidies that
contribute to overcapacity and overfishing (14.6); increasing the economic
benefits for small island developing states and least-developed countries
from the sustainable use of marine resources (14.7); and providing
access to marine resources and markets for small-scale artisanal
fishers (14.b). The direct reference to the blue economy appeared in
the outcome document of the 2017 UN Ocean Conference entitled
“Our Ocean, Our Future: Call for Action” (United Nations 2017). In the
document, leaders recognized that the ocean contributes to sustainable
development and sustainable ocean-based economies and called on all
stakeholders to conserve and use the oceans, seas, and marine resources
sustainably through actions including the promotion and strengthening
of sustainable ocean-based economies, such as fisheries, tourism,
aquaculture, maritime transportation, renewable energies, marine
biotechnology, and seawater desalination, in paras. 3 and 13(q).
At the Global Sustainable Blue Economy Conference held in
Nairobi, Kenya, in November 2018, the leaders adopted the Nairobi
Statement of Intent on Advancing a Sustainable Blue Economy, which
called for actions to promote blue economy strategies (Government of
Kenya 2018). The High-Level Panel for a Sustainable Ocean Economy,
which was an initiative of the Government of Norway and consisted
of 14 heads of states and governments, launched a document on policy
recommendations entitled “Transformations for a Sustainable Ocean
Economy” in December 2020 (Stuchtey et al. 2020). The document
presented 74 actions in five categories, namely, ocean wealth,
ocean health, ocean equity, ocean knowledge, and ocean finance. In
the document, the 14 leaders affirmed their commitment to the
sustainable management of 100% of the ocean area by 2025 as a way
to promote a sustainable blue economy. The document called for
actions including, for instance, restoring and harvesting fish stocks at
sustainable levels (sustainable ocean food); developing ocean-based
renewable energy as a fast-growing industry and a leading source of
energy (sustainable ocean energy); making coastal and ocean-based
tourism sustainable and resilient (sustainable ocean-based tourism);
and conserving marine and coastal ecosystems, enabling them to be
healthy, resilient, and productive (protect and restore marine and
coastal ecosystems).
To explore effective blue economy strategies, it is important to
understand the interface of various sectors and factors, such as fisheries,
renewable energies, tourism, and marine and coastal ecosystem
conservation, as they interplay to create synergies in the implementation
of sector-specific policies and actions while at the same time involving
trade-offs. Other factors, such as climate change and the pandemic, can
influence the activities aiming to achieve a sustainable blue economy.
It is necessary to assess the socioeconomic and biophysical aspects of
marine and coastal resource use in local and regional contexts as well to
promote synergies and optimize trade-offs in the pursuit of a sustainable
blue economy in Asia and the Pacific.
7.3 Method
To examine the interface of marine ecosystems and various sectors in
the efforts to promote a blue economy, we chose cases according to the
degree of co-benefits and synergies in the promotion of a blue economy.
We chose five cases in Japan, one case in the Philippines, and one case
in the Republic of Palau for the case study, and this chapter presents the
results of the case study analyses. The cases were mainly at the local
level, while the case of Palau was national. However, its economy and
population size are equivalent to the municipalities of the other two
countries. The analyses intended to reveal the enabling conditions and
factors and the challenges involved in the pursuit of a sustainable blue
economy.
To conduct the case studies, we applied a socio-ecological system
framework. The framework aimed to analyze the interactions between
ecological systems and the social–political–economic settings that
govern the management of natural resources and ecosystems (McGinnis
and Ostrom 2014; Martínez-Fernández, Banos-González, and Esteve-
Selma 2021). The study also intended to examine the effects of changes
in socio-ecological systems on social aspects such as food security,
livelihoods, jobs, and income in coastal communities (Jara et al. 2020).
The framework aimed to elucidate the factors that drive the changes
in socio-ecological systems, which are complex in marine and coastal
zones—and external pressures, such as climate change, can affect these
systems (Tuda, Kark, and Newton 2021). It also intended to articulate the
institutional framework for decision-making, resource management, and
Figure 7.1: Socio-Ecological System Framework

Socio-ecological system framework
Biophysical aspects Socioeconomic aspects

e.g., fish stocks, coral e.g., fish catch, tourist
reefs, mangroves number, energy
production
Local
Ecological and communities Socioeconomic
biophysical and economy and policy
features features
Earth system aspects Policy and institutional aspects

e.g., climate change, e.g., ocean policy action
sea water plan, international
temperature rise, agreements
sea level rise
Spatial and temporal scales
Source: Authors’ development from Berrouet, Machado, and Villegas-Palacio (2018) and Martínez-
Fernández, Banos-González, and Esteve-Selma (2021).
stakeholder interactions that may enable or limit the adaptive governance

of socio-ecological systems. When analyzing marine and coastal socio-
ecological systems, it is important to consider the interconnectedness of
land, coast, and marine systems (Lauerburg et al. 2020).
A full data set, which is necessary for thorough analysis under the
socio-ecological system, is not available. Nonetheless, by applying the
framework, the study intended to examine the synergies and trade-
offs across socio-ecological systems in nonlinear and multidirectional
processes that require analysis on the spatial and temporal scales
(Berrouet, Machado, and Villegas-Palacio 2018; Núñez-Regueiro et al.
2020; Rosellon-Druker et al. 2021). Figure 7.1 illustrates the conceptual
flow of the analysis method that this chapter adopted. It applied this
concept to the subsequent case studies, and the analyses mainly
concerned (i) policy and institutional aspects, (ii) socioeconomic
aspects, (iii) biophysical aspects, and (iv) earth system aspects.
7.4 O
pportunities and Challenges
for a Sustainable Blue Economy
in Asia and the Pacific
7.4.1 Japan
National Policies for Managing the Ocean

Japan is an archipelago country located in the Northwest Pacific. It
consists of four main islands and over 6,800 large and small islands, of
which 400 have inhabitants (Ministry of the Environment, Japan 2014).
Japan has the world’s sixth-largest exclusive economic zone (EEZ). The
areas that constitute Japan’s territorial waters and EEZ comprise about
44,470,000 square kilometers (km2). Japan has diverse ecosystems with
long indented coastlines of about 35,000 km, a length equivalent to
seven-eighths of the earth’s circumference. The protected coastal and
marine areas, previously 8.3%, increased to 13.3% as of 1 January 2021
with the designation of four additional marine areas as protected areas
in the ordinance that Japan’s Minister for the Environment released on
3 December 2020 (Ministry of the Environment, Japan 2020).
The Government of Japan enacted the Basic Act on Ocean Policy in
2007. The Act states that its intention is to stipulate the basic principles of
Japan’s ocean policy and the responsibility of the national government,
local governments, businesses, and citizens to promote the peaceful
and proactive development and use of the ocean and the conservation
of the marine environment in pursuance of the UN Convention on the
Law of the Sea (UNCLOS) and in international partnerships (Cabinet

Office, Japan 2007). The Act also stipulates the establishment of the
Headquarters for Ocean Policy, of which the prime minister serves as
the director-general (Articles 29, 31–2). Furthermore, the Act requires
the government to formulate a basic plan for ocean policy and the prime
minister to seek a cabinet decision on the draft of the Basic Plan, which
the government will review and amend about every 5 years (Article
16). The Act provides that the headquarters shall draft and implement
the Basic Plan on Ocean Policy (Article 30). It sets a policy framework
to address ocean issues comprehensively and promote the planning
of measures and activities necessary for integrated ocean governance
(Terashima 2012). Accordingly, the government adopted the Basic Plan
on Ocean Policy in 2008 and thereafter revised it in 2013 and 2018.
Table 7.1 presents the thematic focus of the Act and the Basic Plan.
Table 7.1: Major Policy Thematic Measures in Japan’s Ocean Policy
Basic Basic Basic Basic

Act on Plan on Plan on Plan on
Ocean Ocean Ocean Ocean
Policy Policy Policy II Policy III
Policy Thematic Measures 2007 2008 2013 2018
Ocean development and use 〇〇〇〇
Marine environment conservation 〇〇〇〇
Promotion of development 〇〇〇〇
in the exclusive economic zone
Securing maritime transport 〇〇〇〇
Securing safety and security 〇〇〇〇
on the ocean
Promotion of ocean research 〇〇〇〇
Promotion of research and development 〇〇〇〇
of ocean science and technology
Promotion of ocean industries 〇〇〇〇
and strengthening of international
competitiveness
Fishery resource management 〇
and fishery sector revitalization
Comprehensive ocean governance 〇〇
Integrated coastal zone management 〇〇〇〇
Remote island conservation and security 〇〇〇〇
Table 7.1 continued
Basic Basic Basic Basic
Act on Plan on Plan on Plan on
Ocean Ocean Ocean Ocean
Policy Policy Policy II Policy III
Policy Thematic Measures 2007 2008 2013 2018
Disaster reduction and reconstruction 〇
Arctic policy 〇〇
Promotion of international partnerships 〇〇〇〇
and cooperation
Development of the international order 〇
Awareness raising among citizens of the 〇〇〇〇
ocean and human resource development
Documentation and information 〇〇
dissemination
Information consolidation 〇
Maritime domain awareness 〇
Source: Authors’ development using information from the Cabinet Office, Government of Japan.
The Basic Plan continuously addresses core issues, such as ocean

development and use, marine environment conservation, ocean research,
ocean science and technology, integrated coastal zone management,
awareness raising, and human resource development. There was some
development in specific issues, such as the Arctic policy in the Basic
Plan II of 2013 and the maritime domain awareness in the Basic Plan
III of 2018. The government also inserted an explicit and elaborated
reference into the Basic Plan III in connection with fishery resource
management and the revitalization of the fishery sector. It also referred
to the international order in the use of oceans. The updates of the Basic
Plan involve the development of national and international situations
and policy priorities. The term “ocean or blue economy” does not
necessarily appear in the Act or the Plan except for the use of the phrase
in the context of the prospect for economic activities in the Arctic.
Nonetheless, there are a number of references to marine tourism, the
ocean industry, and fisheries. Both the Act and the Plan thus cover the
elements of the blue economy despite the absence of direct references.
The rest of this section discusses the six case study sites in Japan.
Figure 7.2 shows some examples of the ocean-related activities people
are conducting at these sites.
Figure 7.2: Case Study Sites in Japan
Top left photo: Kelp harvesting in Erimo, Hokkaido (photo by Erimo Fishery Association). Clockwise
from top center photo: Oyster farming in Minamisanriku, Miyagi; seaweed restoration in Hinase,
Okayama; deep seawater application to prawn aquaculture in Kumejima, Okinawa; mangrove
conservation and ecotourism in Okinawa (photos by Masanori Kobayashi).
Taketomi, Okinawa
Taketomi Town is located in Southwest Japan, forming part of Okinawa
Prefecture. It is about 200 km south of Naha, the capital city of Okinawa
Prefecture. The town consists of seven inhabited islands and nine
uninhabited islands with a semi-tropical climate. The population of
Taketomi Town remains stable, with a slight increase from about 4,100
in 2010 to 4,300 in 2020. The annual economic production was an
estimated ¥16 billion ($155 million) in 2015, of which 72% was from the
service sector, 20% was from the manufacturing sector, and 8% was from
the primary sector. With respect to the employment ratio, the service
sector engages 75.4% of workers, the primary sector accounts for 17.9%,
and the manufacturing sector has 6.6%. In the local economy, tourism is
the leading industry.1
Following the adoption of the National Basic Act on Ocean Policy
and the Basic Plan on Ocean Policy, Taketomi Town adopted its own local
1
Information from the Taketomi Town Government (in Japanese), https://www.town
.taketomi.lg.jp/administration/toukei/ (accessed 3 January 2021).
plan for ocean policy in 2011. This plan recognizes the importance of the
nature and culture that Taketomi Town harnesses. It also underlines the
role that Taketomi Town plays in science, monitoring, and observation
regarding the marine environment, biodiversity, astronomy, renewable
energy, and marine and seabed resources (Taketomi Town 2011). The
plan, in its annex, lists 23 action points, which include, for instance,
marine onshore debris management, rule making for ecotourism, and
resource mobilization for environmental conservation. The town revised
the plan in 2018 with an emphasis on multi-stakeholder partnerships
and a plan–do–check–action cycle approach. The plan also proposes
to establish a local consultative council and introduce a third-party
evaluation process (Taketomi Town 2018a).
There are other policy initiatives that complement Japan’s Basic
Plan. Taketomi Town made a “Taketomi Town Tourism Promotion
Declaration” in 2010 and adopted its Basic Plan on Tourism Promotion
in 2012, which it revised in 2018 (Taketomi Town 2018b). Taketomi
Town has undertaken campaigns to promote tourism and facilitated
partnerships among travel agents, hotels, and ecotour operators. The
tourists who visit Taketomi Town are largely interested in beaches,
marine leisure, nature, and wildlife. Thus, nature conservation is a key
strategy to boost the number of tourists visiting Taketomi Town.
Iriomote Island of Taketomi Town is renowned for its nature and
wildlife and is part of Japan’s Iriomote-Ishigaki National Park. A total
of 80% of Iriomote Island is a nationally owned forest, and the majority
of the island received designation as a national park in 1972.2 It is at the
northern threshold of mangrove forests and is the habitat of over seven
mangrove species (Uchiyama and Miyagi 2020). Mangrove deforestation
was prevalent in the 1940s. However, thereafter, human-driven
deforestation ceased, and mangrove recovery has taken place over the
past decades. The mangrove coverage of Iriomote Island grew 1.4 times
from 430 hectares (ha) in 1961 to 610 ha in 2007 (Okinawa Prefecture
2015). Iriomote Island is home to the largest mangrove forests in Japan.
The promotion of mangrove conservation, which Taketomi Town’s
Basic Plan on Tourism Promotion identified as a priority, has occurred
as the national parks program of Japan’s Ministry of the Environment
has institutionalized and reinforced conservation activities. While
the coverage of mangroves has been expanding over the past decades,
occasional incidents of massive destruction have happened when
fierce typhoons hit Iriomote Island in 2006, 2007, and 2015. Due to the
increase in the velocity of typhoons, they destroyed 4.3 ha of mangrove
2
Ministry of the Environment, Japan. Iriomote-Ishigaki National Park (in Japanese).
https://www.env.go.jp/park/iriomote/point/index.html (accessed 3 January 2021).
areas, felling about 2,000 mangrove trees and ripping off the topsoil.3
Iriomote Island is also home to the country’s largest areas of coral
reefs, with over 400 species. Some coral reef areas gained designation
as underwater parks in 1977. They stretch for 20 km from west to east
and 15 km from north to south in the sea areas under the jurisdiction of
Taketomi Town. However, in December 2016, there was a report that
coral bleaching had occurred in 91.4% of the areas, which reduced to
49.9% in December 2017 (Ministry of the Environment, Japan 2018).
The seawater temperature was 1–2°C higher throughout 2016 than in
2017. The status of coral reefs, including bleaching, needs continuous
monitoring, and the causes of bleaching require further examination.
The tourist arrivals to Taketomi Town grew from 286,000 in 1989 to
1,026,000 in 2019, an increase of 3.59 times in those 30 years (Figure 7.3).
There was a fall in the number of tourists visiting Taketomi Town in
the 2009–2012 period due to the Lehman Shock in 2008, the swine
flu pandemic in 2009, and the Great East Japan Tsunami Disaster in
2011. Thereafter, a resurgence in the number of tourists took place in
2013. A big factor was the opening of a new airport on Ishigaki Island
in 2013, adjacent to the islands of Taketomi Town. A low-cost carrier
started services from Osaka and Tokyo. The new Ishigaki Airport has
become a gateway for tourists to visit Taketomi Town. The number of
tourists visiting Taketomi Town started declining from 1,154,000 in
2015 to 1,026,000 in 2019, an 11.1% reduction rate during the period.
A worrisome factor is the 25.2% reduction in the number of tourists
visiting Iriomote Island, which declined from 388,000 in 2015 to 290,000
in 2019. Infrastructure development and airline services could boost
tourism, but unexpected shocks, such as economic crises, pandemics,
and disasters, could adversely affect it.
Data on the number of sea kayakers are not available. Nonetheless,
the data on the number of ecotourism tour operators and guides on
Iriomote Island show an interesting trend. The number of ecotourism
operators grew from 19 in 2000 to 67 in 2014 (Ministry of the Environment,
Kyushu Regional Office 2016). The number of tour guides also expanded
from 43 in 2000 to 136 in 2014. The number of ecotour operators and
guides more than tripled in the 2000–2014 period. On the other hand,
the data on the location of accommodation for tourists visiting Taketomi
Town revealed that 70% of them stay in accommodation in Ishigaki City;
20% stay on the islands of Taketomi Town; and 10% stay in both Ishigaki
City and Taketomi Town. Likewise, 35.5% of tourists’ expenditure on
meals is in Taketomi Town and 66.5% is in Ishigaki City. Of tourists’
3
There is no report on the regrowth of the destroyed mangrove areas (Uchiyama and
Miyagi 2020).
Figure 7.3: Number of Tourists Visiting Taketomi Town

and Iriomote Island, 1989–2019
1,400
1,200
1,000
Thousand
800
600
400
200
0
04
07
01
10
16
19
13
89
98
92
95
20
20
20
20
20
20
20
19
19
19
19
Iriomote Island Taketomi Town in total
Source: Authors’ development using the information in Japanese from Taketomi Town at
https://www.town.taketomi.lg.jp/administration/toukei/kankonyuiki/1531308472/.
expenditure on souvenir shopping, 28.6% is in Taketomi Town and

74.6% is in Ishigaki City. The increase in the number of tourists has not
remained linear. The distribution of expenditure on accommodation,
meals, and souvenirs does not favor the local economies in Taketomi
Town.
It is worth noting that some distinctive developments have
occurred in the implementation of the Basic Plan on Ocean Policy. With
respect to the rule making to promote ecotourism in harmony with
the conservation of nature, Taketomi Town released a tour guide
ordinance on 20 September 2019 (Taketomi Town 2019a). The ordinance
introduced a license system requiring those who want to operate tours
in Taketomi Town to obtain a license from the mayor of Taketomi Town
(Art. 8). The ordinance also provides the authority of the mayor to reject
applications (Art. 8-5), the requirements for license renewal (Art. 12), the
authority of the mayor to issue guidance and recommendations to tour
operators (Art. 22), the authority of the mayor to request reports from
tour operators and to inspect their offices (Art. 24), and the authority of
the mayor to suspend the license of tour operators (Art. 25).
In connection with resource mobilization, Taketomi Town
introduced a system to invite tourists to make financial contributions
to support nature conservation in Taketomi Town in September 2019
(Taketomi Town 2019b). The payment is ¥300 ($2.89) per person and
is voluntary, not obligatory. It introduced this system in accordance
with the national Local Nature Asset Act of 2014, which allows local
authorities to receive payments on the grounds of protecting nature in
line with the nature conservation plan that a consultative council will
develop. Local authorities can use the revenue to obtain land as a nature
trust.4 The impacts of the ordinance and island entry payment system
require further monitoring and examination.
Minamisanriku, Miyagi
Minamisanriku Town is located in Miyagi Prefecture in Northeast
Japan. It faces the Pacific Ocean with a deeply indented ria coastline.
The population is about 12,800, and the economic production is worth
¥93.47 billion ($900 million). The manufacturing sector accounts for
71.0%, the service sector represents 23.8%, and the primary sector
constitutes 5.2%. The economic production of the fishery and aquaculture
sector is ¥4.17 billion ($40.3 million), which accounts for 4.5% of the total
economic production. The fishery and aquaculture activities are mainly
aquaculture of oysters, kelp, and coho salmon and gillnet fishing. As of 2019,
Minamisanriku had registered 505 fishery enterprises (Minamisanriku
Town 2020). The 2011 Great East Japan Tsunami Disaster devastated
Minamisanriku, inundating 1,145 ha, about 7% of the total land area,
where about 4,600 households with a population of 15,000 resided at
the time of the disaster. The death toll rose to 444, with 349 missing. The
total number of evacuees was 9,753, which accounted for 55.2% of the
population at that time (Minamisanriku Town 2012).
Oyster farmers in Shizugawa Bay, Minamisanriku, also suffered
enormous damage due to the 2011 tsunami. In Shizugawa Bay, the
economic production of fisheries and aquaculture was worth ¥2.3 billion
or $22.2 million. Estimations indicated that the 2011 disaster’s damage
to fisheries and aquaculture facilities was ¥1.15 billion or $11.1 million
(Miyagi Prefectural Fisheries Cooperative Association 2012).
The Shizugawa Bay division of the Fisheries Cooperative consists
of two subdivisions, namely, Tokura District and Shizugawa District. In
Tokura District, prior to the 2011 disaster, 88 fishers engaged in oyster
farming and operated 3,000 units of oyster farming gear. This activity
involves placing a wire rope below the sea surface, from which wire
ropes about 5 meters long hang vertically with some scallop shells.
The density of oyster farming was a concern prior to the disaster. With
the destruction of all the oyster farming gear, some elderly farmers
decided to abandon oyster farming. The remaining fishers started to
4
The government implemented the Act on 25 June 2014, and it came into effect on
1 April 2015 (Ministry of the Environment, Japan). http://www.env.go.jp/nature
/national-trust/n-trust_law/index.html (in Japanese; accessed 3 January 2021).
collaborate with WWF Japan and university professors to assess the

marine environment conditions immediately after the disaster. After
long discussions among the oyster farmers, they reached an agreement
to restore the oyster farming gear not to the pre-disaster level but to
one-third of the pre-disaster level (Goto 2022).
The farmers accessed concessional funding to restore the oyster
farming gear and resumed oyster farming. It turned out that the oyster
growth improved with the reduced density of oyster farming and the
improved nutrition circulation. It used to take 2–3 years for oysters to
mature prior to the disaster, and now they mature in a year. As a result,
despite the reduction in the oyster farming production capacity from
3,000 units in 2010 to 1,000 in 2017, the production volume per oyster
farming enterprise almost doubled from 1.8 tons in 2010 to 3.5 tons in
2017. The production value per oyster farming enterprise also increased
from ¥3.4 million in 2010 to ¥5.0 million in 2017 (Figure 7.4).
There were also some social benefits. The reduction in the amount
of oyster farming gear resulted in fewer working hours, which decreased
from 10 hours per day in 2010 to 6 hours per day in 2017. The increased
revenue and reduced working hours increased the attractiveness of
oyster farming as a job opportunity. The aging and declining fishing
population was a concern prior to the disaster. The fishery population
was declining by 26% for the period of 1998–2003. Many oyster farmers
gave up their businesses after the disaster and the number of oyster
farmers declined from 88 in 2010 to 52 in 2018. However, there was
a new entry of youths into oyster farming, and the number of oyster
farmers below the age of 30 increased from 8 in 2010 to 18 in 2018.
Figure 7.4: Oyster Production per Enterprise in Minamisanriku,

Miyagi, Japan, 2010 and 2017
Weight (Tons) Value (¥ thousand)
4
6
3
4
2
2
1
0 0
2010 2017 2010 2017
Source: WWF Japan (2021).

Oyster farmers responded positively to WWF Japan’s suggestion

of applying for Aquaculture Stewardship Council (ASC) certification
in 2014. They had to prepare documents and meet the requirements of
over 125 elements, such as legal compliance, environmental protection,
and chemical management.
The Tokura District branch of the Fisheries Cooperative was the
first in Japan to receive an ASC certificate in March 2018. After obtaining
their ASC certificates, oyster farmers opened a marketing channel to a
large food retailer. ASC-certified oysters do not necessarily receive a
premium price. However, the price erosion that used to happen toward
the end of the harvesting season no longer occurs. The stability of retail
prices helps to sustain the revenue for oyster farmers.
The oyster farmers also supported the process of Shizugawa
Bay for listing under the Ramsar Convention. Coastal and marine
biodiversity assessment took place from 2017 to 2018 with the support
of the Ministry of the Environment, Tohoku Regional Office. The survey
confirmed the presence of 208 species of seaweeds and seagrasses.
Shizugawa Bay achieved a listing under the Ramsar Convention in
October 2018 (Ramsar Site Information Service 2018). Japan’s Ministry
of the Environment opened a visitor center in Minamisanriku to
exhibit local coastal and marine biodiversity to support the activities
for experience-based nature learning. The oyster farmers feel proud of
the international recognition of their oyster farming site and its use by
schools and nonprofit organizations for nature learning.
Hinase, Bizen, Okayama

Hinase is located in Bizen City, Okayama Prefecture. Hinase faces the
Seto Inland Sea. It has hilly and mountainous areas in the north and
13 islands and islets in the south and is home to 6,900 people. Coastal
fishers capture bream, squid, and crab and farm seaweed and oysters.
The reduction of seagrass cover in the local sea area is likely to be among
the reasons for the declining fishery productivity. The Hinase Fisheries
Cooperative has spearheaded the activities to restore the seagrass cover
over the past decade. The seagrass cover shrank from 590 ha in the 1950s
to 12 ha in 1985 (Figure 7.5). With the restoration work, it increased to
250 ha in 2015 (Tanaka 2017). Likewise, the seagrass cover across the
coastal areas of Okayama Prefecture, which was an estimated 4,300 ha
in 1925, plummeted to 549 in 1989 and rose to 1,221 ha in 2007 (Goto et
al. 2015).
Multi-stakeholder partnership is one of the unique features of the
activities to restore the seagrass beds in Hinase. The Hinase Fisheries
Cooperative collaborates with local junior high schools, and the
students work with fishers to place the bags of seagrass seeds in the sea
and collect floating leaves of the seagrass. At the same time, a nonprofit
organization helped students to document their conversations with

local fishers and prepare reports. Along with their involvement in this
activity, the students started improving their grades in school. They also
had useful opportunities to understand the local environment, economy,
and stakeholders.
The collaboration that emerged through such activities led
to the establishment of the Bizen City Satoyama-Satoumi Brand
Promotion Council in 2017.5 The council provides a platform for
promoting collaboration among fishery cooperatives, agriculture and
forestry cooperatives, chambers of commerce, tourism associations,
education commissions, research institutes, local governments, and
nongovernment organizations.
Figure 7.5: Changes in Seagrass Cover at its Peak

in Areas of Hinase, 1950s‒2015
700
600
500
Hectares
400
300
200
100
0
1950 1970 1985 2005 2006 2007 2011 2015
Note: X-axis scales are adjusted to show the overall long-term changes.
Source: Developed from Tanaka (2017).
The restoration of seagrass beds has also reportedly restored the

biomass volume of species such as bream, squid, and crab that inhabit
the seagrass beds (Kakuma et al. 2018). Conversely, a biomass increase
is not apparent from the statistics of fishery production as they show
5
Satoyama is a Japanese term meaning a socio-ecologically productive landscape.
Satoumi is a socio-ecologically productive seascape. They represent the notion of a
sustainable relationship between humans and the environment.
Figure 7.6: Long-Term Fishery Production in Okayama

Prefecture, 1956–2015
30
25
20
Thousand tons
15
10
0
56
62
68
74
80
86
92
98
04
10
15
20
20
19
19
19
19
19
19
19
19
20
Source: Authors’ development using information from the Ministry of Internal Affairs and
Communications, Japan (2020) at www.e-stat.go.jp.
the catch volume and not the biomass present in the sea. The overall
fishery production in Okayama Prefecture fell by 81% from 24,000 tons
in 1974 to 4,500 tons in 2015. During the 1985–2015 period, a multiple-
fold increase occurred in the seagrass coverage. However, the fishery
production continued to fall by 57% from 10,638 tons in 1985 to 4,548 tons
in 2015. In the 2000–2015 period, fishery production declined by 33%
from 6,745 tons to 4,548 tons (Figure 7.6).
On the other hand, the oyster production in Okayama Prefecture
is not necessarily following a downward linear trend (Figure 7.7). The
oyster production decreased overall by 26% from 21,000 tons in 2003 to
15,500 tons in 2018. However, looking at the shorter 2008–2018 period,
the production increased from 13,800 tons in 2008 to 15,500 tons in 2018.
There were periods when the oyster production increased from the
previous year. While the total fishery production in Okayama Prefecture
continues to fall, the fluctuating oyster production could be a positive
sign of aquaculture productivity. In the Hinase area, Okayama, there
is a belief that seagrass enhances the water quality, supporting oyster
farming. Farmers use abandoned oyster shells to enhance the seabed
soil fertility, encouraging seagrass growth (Tanaka 2014; Tanaka and
Furukawa 2019). Further examinations of the mechanism of a potential
Figure 7.7: Oyster Production in Okayama Prefecture,

2003–2018
25
20
Thousand tons
15
10
0
03
05
07
09
11
13
15
17
20
20
20
20
20
20
20
20
Source: Authors’ development using information from the Ministry of Internal Affairs and
Communications, Japan (2020) at www.e-stat.go.jp.
virtuous cycle among seagrass, oyster farming, seawater quality,

abandoned oyster shells, and marine and seabed biomass productivity
are necessary.
Kumejima, Okinawa
Kumejima (Kume Island) is located 100 km west of the Okinawa main
island. Kumejima’s land area is 63.65 km2. Its population is 7,670, and
56.8% of the workforce is in the service sector, 27.7% is in the primary
sector, and 15.5% is in the manufacturing sector (Kumejima Town
2015). The total economic production is worth ¥1.28 billion ($12.34
million), of which 75.6% comes from the service sector, 15.7% from the
manufacturing sector, and 8.7% from the primary sector.
Kumejima is known worldwide for its ocean thermal energy
conversion (OTEC) facility, which in 2014 succeeded for the first time
in the world in achieving continuous operation to generate power, with
a generation capacity of 100 kilowatts (kW). OTEC involves turning a
turbine through fluid, such as ammonia or hydrofluorocarbon, which
warm surface seawater evaporates and cold deep seawater reliquefies.
OTEC dates back to 1926, when experimentation took place in France.
Thereafter, a number of countries experimented with it, including
Cuba and Nauru (NEDO 2010). The Natural Energy Laboratory of
Hawaii Authority (NELHA) completed the construction and started the
operation of an OTEC facility in 2015, with power generation capacity

of 105 kW, the largest in the world. The OTEC facility in Kumejima has
the capacity to draw 13,000 tons of deep seawater per day from a depth
of 612 meters and is the second largest next to NELHA’s facility. The
OTEC facility provides 100 kW of power, equivalent to the power that
250 households use.
The operation of OTEC has revealed its collateral socioeconomic
benefits from the secondary or multiple use of deep seawater after
power generation. Deep seawater has unique coolness, purity, and
nourishment properties that are suitable for and beneficial to, for
instance, shrimp/prawn and sea grape aquaculture, cosmetic and
personal care production, and thalassotherapy, a therapy with the use of
seawater. The value of production that uses deep seawater from OTEC
in Kumejima was an estimated ¥2.48 billion ($22 million) in 2015, and
it employed 140 people (Cabinet Office, Japan 2017). We can highlight a
number of enabling factors.
Thorough preparation, including research and surveys, was
necessary. The Okinawa Prefecture Ocean Science and Technology
Basic Initiative incubated the concept of OTEC in 1986. It examined 25
potential sites for the location of the OTEC facility, which it narrowed
down to three sites in 1994. The Okinawa Prefecture Deep Sea Water
Research Center was established in 2000. The extensive preparations
ensured the effectiveness of the OTEC facility’s operations.
The multi-stakeholder collaboration is also a key feature. The
Kumejima Town Office spearheaded a multi-stakeholder and cross-
sectoral partnership with the support of the Okinawa Prefecture
government. The Kumejima Town Office established the Global Ocean
Resource and Energy Association Institute as a consortium to promote
OTEC in 2014.
The funding was also critical. The national government and
the Okinawa Prefecture government created a mechanism whereby
the users of deep seawater for aquaculture, manufacturing, and leisure
purposes pay fees in exchange for receiving deep seawater. Though
the operation ceased temporarily at the time of tourism closure due to
COVID-19 in 2020, a spa that used deep seawater offered thalassotherapy
for a half-price entry fee to local residents. Tours for the public also
take place for awareness raising, learning, and education. These factors
have helped increase the social acceptance of OTEC in Kumejima.
People considered the secondary use of deep seawater as collateral at the
initial stage. However, it has become a major driver of the expansion of
OTEC’s capacity, particularly in terms of extracting deep seawater. The
collaboration between OTEC in Kumejima and NELHA has flourished,
and the institutionalization of a growing partnership resulted, for

instance, in the establishment of the Ocean Thermal Energy Association
in October 2020 as an international coalition of scientists and experts to
promote OTEC around the world.6
Shrimp or kuruma prawn accounts for 47.7% of the total economic
production based on the secondary use of deep seawater (Ikegami
2015). The volume of prawn aquaculture production was 248 tons
in 2010 and fluctuated afterwards, falling to 122 tons in 2015 but
rising to 186 tons in 2017 (Figure 7.8). The production volume did not
necessarily show a linear upward trend. Data on the value of prawn
production in Kumejima are not available. A possible explanation for
the fall in the production is that it is a consequence of prawn disease,
and a possible explanation for the stagnation of the production is that
the producers sell juvenile prawns to the mainland in Okinawa before
they mature. Data on the market value of prawns are available on the
Okinawa prefectural level (Figure 7.9). The prawn production declined
from 652 tons in 2006 to 545 tons in 2012. It fluctuated thereafter and
was 523 tons in 2017, a decrease of 19.8% from the 2006 level. The
production value fluctuated and was ¥2.67 billion ($23.6 million) in
2017, which was 17.8% less than the ¥3.24 billion ($28.7) in 2006. With
respect to the value/weight, it was ¥5.1 million per ton in 2017, which
was 2.5% more than the ¥5.0 million per ton in 2006. Despite the
prawn production weight and value decreasing by 17.8%–19.8% in the
2006–2017 period, it is possible to interpret the increase in the value per
production weight of 2.5% as an improvement in prawn productivity.
A further analysis of the prawn productivity is necessary throughout
the supply chain from production and retailing to consumption. The
economic returns to the prawn growers also require assessment based
on the dynamic market conditions.
6
The details of the Ocean Thermal Energy Association are available at http://www
.ocean-thermal.org/about/ (accessed 5 January 2021).
Figure 7.8: Prawn Aquaculture Production in Kumejima,

Okinawa, 2008–2017
300
250
200
Tons
150
100
50
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Note: The authors used mean imputation to construct the data for 2011.
Source: Authors’ development using data from the Ministry of Internal Affairs and Communication,
Japan at www.e-stat.go.jp.
Figure 7.9: Prawn Production in Okinawa, 2006–2017

700 6
600 5
¥ billion and ¥ million/t
500
4
400
Tons
3
300
2
200
100 1
0 0
08
06
09
07
10
14
12
16
13
15
17
11
20
20
20
20
20
20
20
20
20
20
20
20
Prawn production (tons) Value per weight (¥ million/ton) Value (¥ billion)
Source: Authors’ development using information from Okinawa Prefecture at https://www.pref

.okinawa.jp/site/norin/norinkikaku/kenkyu/documents/gaikyou52-58.pdf (accessed 5 January 2021).
Erimo, Hokkaido
Erimo Town is located in Southeast Hokkaido, surrounded by nature.
Its economy is based on fisheries and tourism. The total population is
4,500, and the workforce is 3,200, of which 48.6% works in the primary
sector, 39.0% in the service sector, and 12.3% in the manufacturing
sector.7 The fisheries production in Erimo consists of mainly kelp and

seaweed, cod, salmon and trout, and clams. Erimo faced stagnation of
its fish production during the 1940s and 1950s. Local fishers considered
deforestation and soil erosion to be a major cause of the slump in
fishery production. Soil particles falling into the seawater accumulated
as sediment and undermined the habitat of the kelp, seaweed, and fish
stocks. The local fishers took the initiative to restore the land cover
with vegetation and restoration in the 1950s. They reforested 3 ha of
barren land in 1954. However, the survival rate of planted trees was not
promising. In 1957, they introduced a system to use kelp and seaweed
as organic fertilizer to enhance the soil nourishment. Thereafter, they
started planting pine trees to arrest the soil erosion (Ministry of the
Environment, Japan 2009). The Forestry Agency of Japan supported
the reforestation activities and procured kelp and seagrass for use as soil
nourishment. By 1970, it had reforested 192 ha in accordance with the
reforestation plan.
There was a correlation between the increase in vegetation and
reforested areas and the increase in fisheries production. Fisheries
production started increasing in proportion with the revegetation and
reforestation in Erimo (Figure 7.10). The revegetation with grass expanded
faster than the reforestation. Soil erosion arrested in 1965, when the grass
revegetation covered 80% of the targeted areas. Fishery production
increased from 72 tons in 1952 to 2,264 tons in 2001. The case represents
the virtuous correlation between the state of terrestrial ecosystems and
the productivity in coastal and marine ecosystems.
Kelp production in Erimo peaked at 3,700 tons in 1993 and
then declined to 1,400 in 2018, a 61.4% reduction (Figure 7.11). The
production value decreased from ¥3.8 billion ($33.2 million) in 1993 to
¥2.2 billion ($20.0 million) in 2018, representing a 41.6% reduction. The
reason for the reduction in kelp production is not the resurgence of soil
erosion but presumably the increased seawater temperature. The Japan
Meteorological Agency (2019) reported that the seawater temperature in
the northern part of Hokkaido, where Erimo is located, has risen by 1.18°C
over the past century. There was a 5°C difference between March 2019
and March 2020 (Figure 7.12). The difference may be due to the current
change, but it needs further verification. A high seawater temperature,
particularly in winter, has been a notable phenomenon around Japan in
recent years. Further research is necessary on the correlation between
a poor kelp harvest and the seawater temperature rise in Erimo. The
presence of other predatory species also needs verification.
7
The information on Erimo Town is available at https://www.town.erimo.lg.jp/
(accessed 6 January 2021).
Figure 7.10: Revegetation/Reforestation and Fisheries

Production in Erimo, 1953–2008
250 4,000
3,500
200
3,000
150 2,500
Hectares
Tons
2,000
100
1,500
1,000
50
500
0 0
1953 1963 1973 1983 1993 2003 2008
Areas revegetated Areas revegetated Fishery production

with grass with trees
Source: Ministry of the Environment, Japan (2009).
Figure 7.11: Kelp Production in Erimo, 1991–2018

4.0 4.0
3.0 3.0
Thousand tons
¥ million
2.0 2.0
1.0 1.0
0.0 0.0
1
94
97
03
06
09
12
15
8
9
1
0
20
19
20
20
19
19
20
20
20
20
Production (tons) Production value (¥ million)
Source: Authors’ development using data from Marinenet Hokkaido (2020) at http://www.fishexp
.hro.or.jp.
Figure 7.12: Trend of Seawater Temperature

in Eastern Hokkaido, 2018–2020
30 30
25 25
20 20
15 15
ºC
10 10
5 5
0 0
–5 –5
01 02 03 04 05 06 07 08 09 10 11 12 Month
2020 2019 2018 Average (dot), 5 year average (line) Highest and lowest for the 5 years
Source: Japan Meteorological Agency (2020) at www.data.jma.go.jp (accessed 7 January 2021).
7.4.2 Quezon Province, Philippines
The Philippines is an archipelago country in Southeast Asia. Fisheries

and aquaculture are a vital part of the Philippine economy. A shift has
occurred in fisheries and aquaculture in the Philippines as the linear
upward trend in the fishery sector turned downward in 2010 and
aquaculture surpassed fisheries (Figure 7.13). The fishery production
was 1.9 million tons in 2000, reaching a peak of 2.5 million tons in 2010
and gradually declining to 2.1 tons in 2018. Conversely, aquaculture
production was 1.1 tons in 2000 and peaked at 2.6 tons in 2011,
fluctuating to 2.3 tons in 2018. During the 2000–2018 period, fisheries
grew by only 6.9%, while aquaculture doubled, with a growth rate
of 109%.
In Quezon Province, 185 km southeast of Manila, fisheries and
aquaculture are an important part of the local economy. The trend of
declining fisheries and growing aquaculture is apparent in Quezon
Province as well. The total fisheries and aquaculture production grew
by 40% over the 2000–2019 period in Quezon Province (Figure 7.14).
Aquaculture expanded the most, with a growth rate of 214%. Municipal
fisheries also grew by 134%. On the other hand, commercial fisheries
shrank by 40% in the same period. It is arguable that the increase in
aquaculture and municipal fisheries that caused the total 40% expansion
in fisheries and aquaculture in the 2000–2019 period offset the decrease
in commercial fisheries.
Figure 7.13: Fisheries and Aquaculture Production of the

Philippines, 2000–2018
3.0
2.5
2.0
Million tons
1.5
1.0
0.5
0.0
00
02
04
12
08
16
14
18
10
06
20
20
20
20
20
20
20
20
20
20
Fishery Aquaculture
Source: Authors’ development using data from the Food and Agriculture Organization of the United
Nations at www.fao.org/fishery/statistics/software/fishstatj/en (accessed 7 January 2021).
Figure 7.14: Fisheries and Aquaculture in Quezon Province,

2000–2019
10
8
Billion Pesos
0
0
02
04
12
08
16
14
0
18
06
0
20
20
20
20
20
20
20
20
20
20
Total of fisheries and aquaculture Municipal fisheries (marine and inland)

Aquaculture Commercial fisheries
Source: Authors’ development using data from the Philippine Statistics Authority.
The expansion of aquaculture seems to have exerted further pressure

on coastal and terrestrial ecosystems. As aquaculture ponds expanded,
mangrove cover decreased. In the period 1970–1992, statistics show that
aquaculture ponds increased by 55.5%, while the mangrove coverage
declined by 57% (Figure 7.15) (Garcia, Gevaña, and Malabrigo 2013).
There was an obvious correlation or trade-off. Another study indicated

that the mangrove coverage in the Philippines fell from 269,000 ha in
1990 to 241,000 ha in 2010, with a 10.5% reduction (Figure 7.16) (Long
et al. 2014). In Quezon Province, the mangrove destruction occurred
more rapidly than the national average. The mangrove coverage fell
from 14,900 ha in 1990 to 14,200 ha in 2000, with a 4.7% reduction rate.
However, it rose from 14,200 ha in 2000 to 14,400 ha in 2010, representing
a 1.4% increase. As a result, the mangrove cover fell by 3.4% in the 1990–
2010 period, a slightly lower reduction rate than the national average of
10.5%. In Pagbilao, Quezon Province, a 145 ha mangrove area became the
Pagbilao Mangrove Experimental Forest in 1975. Nonetheless, the illegal
conversion of mangrove forests into aquaculture fishponds was a main
driver of their destruction (Ron and Padilla 1999). Volunteers, including
youths, have undertaken awareness-raising campaigns and mangrove
reforestation activities (DENR Philippines 2020).
Mangrove forests provide important multiple ecosystem services.
They offer breeding and feeding sites for aquatic and avian species. The
fish stocks that the coastal mangrove areas harness are vital for small-
scale coastal fishers. Mangrove forests also provide bio-protection
from coastal erosion and function as a carbon sink. Mangroves perform
indispensable tasks for climate change mitigation and adaptation. There
is a possible causal link between the reduction in commercial fishing,
the increase in aquaculture, and the reduction in mangrove cover.
The government has introduced increased regulations to protect
Figure 7.15: Changes in Mangrove Cover and Brackish Water

Fishponds in the Philippines, 1970–1992
350
300
250
Hectares
200
150
100
50
0
70
72
74
82
84
78
8
86
80
90
92
76
8
19
19
19
19
19
19
19
19
19
19
19
19
Mangrove Brackish water fishpond
Source: Tingson’s development using information from the Forest Management Bureau and the
Bureau of Fisheries and Aquatic Resources, Philippines.
Figure 7.16: Changes in Mangrove Cover

in the Philippines and Quezon Province
Quezon Province’s mangrove cover

280 15.0
Philippines’ mangrove cover
14.8
(thousand hectares)
(thousand hectares)
270
260 14.6
14.4
250
14.2
240 14.0
230 13.8
220 13.6
1990 2000 2010
Philippines Quezon Province
Source: Authors’ development using information from Long et al. (2014).
mangrove forests. Their policy effectiveness needs assessment. At the

same time, the causal link between aquaculture expansion and mangrove
forest reduction requires monitoring to ensure that fisheries and
aquaculture operate in a sustainable manner without creating damage
that is detrimental to marine, coastal, and terrestrial ecosystems.
7.4.3 Palau
The Republic of Palau is an archipelago in the Pacific with over

700 islands and a total land area of 488 km2 (MNRET Palau 2016).
Palau’s EEZ covers 3.1 million km2. This is why Palau, like other small
island countries, is called a small island and large ocean state (Office
of the President, Republic of Palau 2020). Its diverse marine fauna
and flora and its topography attract tourists from around the world.
Tourism has become a major industry for Palau. The United Nations
Educational, Scientific, and Cultural Organization (UNESCO) World
Heritage listed the Rock Islands Southern Lagoon in Koror State, which
includes 445 uninhabited limestone islands and has over 385 species
of coral reefs, as a natural site in 2012.8 The Government of Palau has
reinforced nature conservation as a policy priority and legislated the
8
The International Union for Conservation of Nature (IUCN).
https://worldheritageoutlook.iucn.org/explore-sites/wdpaid/555547992 (accessed
7 January 2021).
Palau National Marine Sanctuary Act in 2015, which aims to protect

80% of its EEZ as a no-take marine protected area, with no permitted
commercial fishing as of 1 January 2020 (Government of Palau 2015).
The Act established domestic fishing zones around the main island of
Babeldaob. The vessel days, a permit for operating fishing vessels under
the Nauru Agreement, were to decrease each year from 2016 to 2019.
In June 2019, with a view to enhancing the conservation efficiency and
supporting the development of the fisheries and seafood sectors, the
government revised the Act to relocate the fishing zone to the northwest
of Palau and allow foreign fishing vessels to fish with permits from the
Minister for Marine Resources, Environment, and Tourism (Office of
the President, Republic of Palau 2019).
Palau has also introduced a green fee, which it raised to $100 per
tourist and renamed the Palau Pristine Paradise Environmental Tax in
January 2018. Koror State also collects a fee of $100 for the entry permit
to Rock Islands and Jellyfish Lake, popular tourist destinations. The
elimination of illegal fishing has become an important policy goal, and
Palau has developed its cooperation with international partners, such as
the Nippon Foundation and the Government of Australia, to strengthen
its maritime surveillance capacity (Government of Palau 2018; Carreon
2020a). Palau has reinforced the progressive shift from fisheries
to marine conservation and tourism. The total number of foreign
tourists to Palau increased from 85,000 in 2010 to 164,000 in 2015, a
93% increase. The Rock Island inscription on the list of International
Union for Conservation of Nature World Heritage natural sites in 2012
presumably boosted the increase. In terms of the nationality of foreign
tourists, it is notable that the number of tourists from the People’s
Republic of China (PRC) jumped from 1,000 in 2010 to 88,000 in 2015,
an eightfold increase (Figure 7.17). Meanwhile, the number of tourists
from Japan; Taipei,China; and the Republic of Korea declined from
their peak in 2012. The number of tourists from the PRC plunged from
88,000 in 2015 to 30,000 in 2019. The total number of tourists in 2019
increased by 11.2% from 2010 but declined by 42.6% from 2015.
Multiple factors were involved in the declining tourist numbers.
A severe drought hit Palau in 2016, and the government issued water
use restrictions, though the measures that it took were to ensure the
comfort of the tourists (Government of Palau 2016). The PRC’s authority
banned group tours from the PRC in November 2017, presumably
due to the absence of diplomatic relations between the Republic of
Palau and the PRC (Cole 2017). Jellyfish Lake, one of the popular
tourist destinations, continued to suffer the impacts of the drought.
Jellyfish disappeared, and the tour operators suspended their visits.
Jellyfish Lake was closed for 2 years to support the recovery of
Figure 7.17: Trends in the Top Five Numbers

of Tourists Visiting Palau, 2008–2019
100
90
80
70
60
Thousand
50
40
30
20
10
0
12
13
08
09
16
17
14
15
18
19
10
11
20
20
20
20
20
20
20
20
20
20
20
20
PRC Japan Taipei,China

Korea, Rep. of United States/Canada
PRC = People’s Republic of China.
Source: Authors’ development using information from the Government of Palau (https://www
.palaugov.pw/visitor-arrivals/).
the jellyfish. The jellyfish population was an estimated 10 million–

20 million, with a peak of 30 million in 2005, which disappeared after
the 2016 drought. Previously, about 700 visitors per day had paid $50 for
an entry permit. The estimated lost revenue from the closure of Jellyfish
Lake could be $35,000 per day and over $1 million per year. It revived to
630,000 in January 2019, when Jellyfish Lake reopened after the 2-year
closure (Wong 2019). In addition, recurring super typhoons damaged
the coral reefs, another tourist attraction in Palau (PICRC 2015). It is
possible to support tourism by enabling policy measures to capitalize on
the potential synergies between nature conservation and tourism. At the
same time, political and climatic conditions can affect tourism.
Tourism benefits Palau’s economy at multifaceted levels. The
major revenue from tourism for the national government is from
the departure tax, which is now called Palau’s Pristine Paradise Tax.
The total revenue fluctuates depending on the number of tourists
and the amount of fees that they pay. The revenue from the departure
tax, for instance, has mainly been larger than the revenue from fishing
license fees in the past (Figure 7.18). Due to COVID-19, Palau has
suspended tourism since March 2020, which could result in a short-
Figure 7.18: Changes in Government Revenues, 2014–2019

12
10
8
$ million
0
14 15 16 17 18 19
20 20 20 20 20 20
Departure tax/green fee Fish license fees
Source: Authors’ development using information from the Government of Palau (https://www
.palaugov.pw/wp-content/uploads/2020/07/2019-Statistical-Yearbook.pdf, accessed 2 January
2021).
term deficiency in the policy’s performance (Carreon 2020b). The

policy direction and its impacts need continuous monitoring to balance
and optimize the multiple policy goals toward the achievement of
the conservation and sustainable management of marine ecosystems
and the promotion of sustainable development.
7.5 Discussion
The cases that the previous sections presented exhibited the
multidimensional interface of biophysical, socioeconomic, and policy
and institutional aspects that are vital for promoting a sustainable
blue economy. There are enabling factors that appear to be important
in the pursuit of a sustainable blue economy. Figure 7.19 illustrates
the multifaceted interface of enabling and intervening factors for a
sustainable blue economy. The aforementioned case studies presented
many enabling and intervening factors, though some more appear here
to substantiate further the depiction of the multifaceted interface of
enabling and intervening factors for a sustainable blue economy.
Policy frameworks. Japan enacted the Basic Act on Ocean Policy,
which the Basic Plan on Ocean Policy embodied, encouraging Taketomi
Town to develop its own local basic ocean policy plan. Palau’s National
Marine Sanctuary Act signaled a clear-cut message to both national and

international stakeholders on the priority importance that it attached to
marine ecosystem conservation and law enforcement in this respect. It
is useful to develop such a policy framework.
Multi- and cross-sectoral platform. In Minamisanriku, Hinase,
and Erimo, fishers collaborated to promote environmentally sound
oyster production, seagrass restoration, and coastal vegetation
activities. Hinase formed a multi-stakeholder platform to promote
seagrass restoration, social learning, and tourism. In Kumejima, a cross-
sectoral platform allowed businesses and entrepreneurs to collaborate
to promote the secondary use of deep seawater.
Multiple benefit promotion. It is necessary to turn the benefits
arising from biological resources into other ecological or socioeconomic
benefits. The value of mangroves became the basis for sea kayaking
ecotourism in Taketomi. The improvement of terrestrial vegetation
cover acted as a driver to improve kelp and fishery production in Erimo.
The Philippines considered the conservation of mangroves as important
to local tourism as well as coastal ecosystems and fisheries. Marine
conservation was a recognized centerpiece of Palau’s policy to promote
tourism.
Science and innovation. In Minamisanriku, coastal and marine
ecosystem assessment and advice from experts provided useful
perspectives for the local oyster farmers to shift from intensive farming
to optimal farming. Thorough feasibility studies and expert guidance
reinforced the foundation for the successful launch and operation of
OTEC in Kumejima. The acquisition of Marine Stewardship Council
certificates in Minamisanriku was a result of social innovation and
partnership.
Finance. In Kumejima, funding from the national and local
government was the key to planning and constructing the OTEC facility.
In Erimo, funding from the Forestry Agency was critical. In forging the
capacity for marine surveillance, international partnership appeared
to be important to support the Government of Palau in enforcing its
sanctuary policy.
On the other hand, a number of challenges have arisen in the pursuit
of a sustainable blue economy. The most notable factor is climate
change. In Erimo, the seawater temperature rise is now detrimental to
kelp production. In Palau, drought and typhoons affect tourism. There
are a number of trade-offs in the use of coastal and marine resources.
The case of Quezon Province indicated the possible vicious cycle of fish
stock depletion, rapid development of aquaculture, and destruction of
mangroves. The impacts of the COVID-19 pandemic need assessment.
The blue economy, particularly the tourism and fishery sectors, is prone
to such external shocks. Adaptive management in the pursuit of the
sustainable blue economy is vital as countries and stakeholders remain
susceptible to the myriad changes and uncertainties that can affect the
efforts to promote the sustainable blue economy.
Figure 7.19: Multifaceted Interface of Enabling and Intervening

Factors for the Sustainable Blue Economy
s
ystem Econom
ecos y and ind
co astal Fishery ustries
e and Fish stock Aquaculture
Marin
Tourism
Coral reefs
Renewable energy
Seagrass
Law enforcement
Sustainable blue
economies
Mangrove Finance
Seawater Science and technology

temperature
acity
Typhoons International l cap
Drought partnership nd socia
Climate change Po licy a
Environmental and socioeconomic monitoring and assessment,

multifaceted innovation, capacity development,
social and international partnership
Source: ???
7.6 Conclusion
The Asia and the Pacific region has considerable potential to benefit
from the promotion of a sustainable blue economy. On the other hand,
the region remains susceptible to various potential trade-offs and
uncertainty. Adaptive management continues to be a key feature of
the pursuit of a sustainable blue economy. Innovation and social and
international partnership are a vital part of such efforts. It is important
to capitalize on the momentum of the sustainable blue economy, and it
is useful to forge policies and institutional frameworks at multiple levels
in this respect. Policy and institutional transformations need support

from inclusive policy dialogues based on science. It is vital for policy
makers and stakeholders to reinforce their partnership and interaction
to demonstrate success stories and achieve the common goals of
promoting a sustainable blue economy and handing over healthy oceans
to future generations.
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8
Addressing Marine Litter
through Sustainable Tourism:
The Case of the Siargao Islands
in the Southern Philippines
Kevin Roy B. Serrona, Jeongsoo Yu, and Mary Jean A. Camarin
8.1 Introduction
The Philippines has emerged among the most-favored tourist
destinations in the world. Being an archipelagic country in Southeast
Asia, its 7,641 islands offer a range of breathtaking tourism attractions.
To the west of the country is the Western Exclusive Economic Zone
and to the east is the Philippine Sea. The country has a total land area
of 298,170 square kilometers and an extensive and rich coastline of
36,289 kilometers that serves as a major tourism asset. As of 2019, the
country’s total population was over 108 million (World Bank 2020), of
which the coastal population constitutes about 62%.
The ocean economy in the Philippines employs around 2.15 million
people, which is 5.5% of the total employment. It accounts for 7% of the
country’s gross domestic product, valued at $11.9 billion. The tourism
sector contributes around $3 billion in value added (PEMSEA 2017).
The tourist arrivals in the country have grown strongly and steadily in
the last 10 years. They escalated to a growth rate of 6.07%, with more
than 8 million arrivals, in 2019, generating 5.7 million jobs in the same
year. This figure represents an increase of 6.5% in the employment
rate compared with 2018 (DOT 2019).
The Philippines has enjoyed the benefits of the ocean economy
primarily through tourism. However, the issue of marine litter has
emerged as one of its major challenges. Marine litter from inland sources
and marine debris coming from international waters have become a
gargantuan problem. A study conducted by Ocean Conservancy (2017)
190
Addressing Marine Litter through Sustainable Tourism:
revealed that the People’s Republic of China, Indonesia, the Philippines,

Viet Nam, and Thailand are the top five countries that contribute
more than half of the plastic waste in the ocean. The Philippines
alone generates about 2.7 million tons of plastics annually (Lor 2019).
Marine litter degrades the pristine coastal and marine assets and
threatens tourism resources. If left unchecked, the tourism industry is
likely to lose its vibrancy, and this will affect a huge population that is
highly dependent on tourism for employment. Currently, many local
governments units (LGUs) are betting on tourism as a major economic
lifeline. The Government of the Philippines has exerted direct efforts to
address the deterioration of nature-based tourism destinations through
ecotourism.
The greater challenge, however, lies in the advent of the global health
pandemic. Recent data from the Philippine Department of Tourism
(DOT) revealed that tourist arrivals in the country had plummeted to
a low of 82.05% (Rey 2021). Only 1,482,535 tourists visited in 2020 as
opposed to 8,260,913 in 2019. Foreign tourists’ expenditure plunged to a
low of 83.12% from ₱482.16 billion in 2019 to ₱81.4 billion in 2020. The
pandemic has caused enormous economic distress in tourism, triggering
leaders in the industry to rethink the industry. Marine litter is a major
area that needs immediate interventions. As domestic tourism leads the
recovery of the industry (DOT, ALTCFT, GTTP 2020), the government
has issued health guidelines to ensure global health compliance in
destinations. These require tourists and host communities to use
personal protective equipment (PPE), face masks, and the like, which
will further increase the generation of waste. A synergistic approach
of cooperation at the local, national, and international levels will help
considerably in achieving this end.
This chapter aims to discuss the existing and emerging measures
to address marine litter in the Siargao Islands along with strategic and
sustainable waste management solutions to maintain its ecological
integrity and its position as a tourism destination. To arrest the linear
thinking of consumption and disposal, it proposes juxtaposing circular
economy—oriented measures with interventions like tourism branding,
diversification, and enhanced partnerships.
8.2 Research Methodology

8.2.1 Tourism in the Caraga Region and Siargao Islands
Caraga is one of the administrative regions of the Philippines. It
is composed of five provinces: Agusan del Norte, Agusan del Sur,
Dinagat Islands, Surigao del Norte, and Surigao del Sur. Located at the
northeastern tip of Mindanao, Caraga Region is a tourist’s paradise.

Its topography, consisting of mountainous areas, flat rolling lands,
and long stretches of coastlines, is among its major tourism strengths.
These natural endowments provide huge advantages to tourism and
other industries, such as forestry, agriculture, and even mining. Caraga
Region’s declaration as a separate administrative region on 23 February
1995 helped to gain momentum for the tourism industry, enabling it to
flourish as one of the major economic drivers of the region.
Since surfing was introduced in the Siargao Islands in the 1980s,
tourism development has experienced unprecedented growth. Surfing
events attracted substantial attention from enthusiasts and eventually
earned the island international recognition as the surfing capital of Asia.
The wealth of the island’s marine resources made it even more popular
through the International Game Fishing Tournament. Apart from the
yearly water sports adventure events, the Siargao Islands’ diverse natural
attractions, such as long stretches of white sand beaches, waterfalls,
islands, lagoons, and caves, enticed more tourists to visit.
Tourism flourished almost effortlessly because of the island’s natural
affluence. Its tourist arrival growth rate has swelled by 18.27% in the last
5 years. In 2018, there were 181,782 tourists, 42% more than the 257,900
who visited in 2019. While tourism has undoubtedly brought progress,
the surge of tourists has become a growing concern in maintaining the
integrity of the island as a protected area. Long before they became a
popular tourism destination, the Siargao Islands were a protected area
by virtue of Presidential Proclamation No. 902 in 1996, known as the
Siargao Islands Protected Landscape and Seascape (SIPLAS). There are
trade-offs with tourism development such that the tourism-carrying
capacity has emerged as a major issue. An increase in tourist arrivals
equates to increased waste generation. In 2020, tourists generated an
estimated 125 tons of waste. The expectation is that this figure will rise
in the advent of the global health pandemic. Domestic tourism is the
Philippine Department of Tourism’s direction toward recovery with
the enforcement of global standards of safety measures. The wearing of
face masks, face shields, and PPE is mandatory and is likely to double
the volume of waste on the islands.
The coronavirus disease 2019 (COVID-19) pandemic’s disruption of
travel and tourism in Siargao decreased tourist arrivals by 3.57% in the
first quarter of 2020, with 53,820 visitors compared to 55,814 in 2019.
On the one hand, the pandemic caused heavy economic losses; on the
other, it provided a break for many ecotourism sites. However, threat
springs anew as destinations are slowly opening for domestic tourism.
The threat of plastic pollution is foreseeable as health protocols require
the wearing of face masks and the use of PPE.
8.2.2 Literature Review
This research combined secondary data collection and a desk review

of concepts, approaches, and methods of sustainable tourism and
the circular economy. It analyzed sustainable tourism strategies and
activities in island-based tourist destinations in Caraga Region, Siargao,
in particular. It reviewed the policy and regulatory framework to identify
the prevailing policies and regulations that affect tourism and waste
management. The chapter presents a discussion of marine litter issues
and interventions in Siargao using data from LGUs. The study analyzed
the development patterns in the region and the existing and emerging
sources of waste to gain an understanding of the waste pollution
problem in the pilot area, including the approaches and technologies
that are in operation in coastal marine litter management. The study
selected Siargao as the featured area because it is one of the premiere
tourist destination sites in the Philippines, with a steady growth rate
of 20% in tourist arrivals in recent years. It also faces the Pacific, from
which it receives trash and debris from the Great Pacific Garbage Patch
during the northeast monsoon seasons.
In the 1950s to the 1970s, the tourism sector expanded almost on its
own, without the support of proper planning and development policies.
The absence of specific tourism planning controls, the inadequacy of
legislation, and inadequate and ineffective tourism organizations were
responsible for the failure of tourism planning (Dowling and Fennel
2003). According to Costa (2001), tourism was under the umbrella
of town planning, which was dependent on urban growth. It lacked
the planning instruments capable of coordinating and regulating the
development of resorts, which resulted in failure to control tourism’s
development. After the 1980s, tourism planning theory and practice
started to emerge with the support of evidence and research through a
unique body of knowledge (Buhalis and Costa 2006).
Getz’s (1986) integrative systems model emerged as an approach
that introduced cohesive planning activity incorporating economic,
social, and environmental components, spatial concerns, and temporal
or evolutionary stage implications (Dowling and Fennel 2003). It is
based on research and evaluation, in which planning and theory must
interrelate and goal setting must complement the development plan.
The model highlights the optimization of the potential contribution
to human welfare and environmental quality. Getz stressed that a
more comprehensive approach would be to incorporate salient issues,
stakeholders, and unbiased information on regional impacts.
Related to Getz’s integrative systems model is Gunn’s (1988)
interactive systems model, which contributed to the foundation of the
sustainable development concept. He emphasized the need to integrate

continuous tourism planning with all other planning for social and
economic development. The model seeks to strike a balance between
tourism and the protection of the cultural and natural resources on
which tourism depends. It underscores the symbiotic relationship
between a thriving tourism industry and a protected environment
through the use of tourists’ satisfaction as the basis for tourism planning.
It factors in tourism planning, tourism systems, and the supply versus
demand relationship. The goal is to integrate tourism into the social and
economic life of a community. Hence, the focus of planning is mainly
on generating income and employment as well as ensuring resource
conservation and traveler satisfaction.
Inskeep (1991) established approaches and guidelines for integrated
and sustainable development. He was among those who opposed
the market-driven approach of the tourism development model. He
reasoned that the tourist market may demand attractions, facilities, and
services that could result in environmental destruction and damage to
the sociocultural integrity of the tourism area. In contrast, the supply-
led approach implies that it is best to integrate those types of attractions,
facilities, and services into tourism, resulting in the minimum impacts
on the local development patterns and society. Marketing aims to attract
only those tourists who find this product to be of interest (Andriotis
2015). Hall, Finsterwalder, and Ram (2015) advanced the idea that the
achievement of tourism development occurs when tourists and the
local community are satisfied. They said that, in the long run, the most
sustainable tourist destination is not one that relies on tourism alone but
one that lives, works, and interacts with diverse communities, allowing
their distinctive identities to evolve over time. Its primary focus is on
meeting the community’s needs (Hall, Finsterwalder, and Ram 2015).
8.3 Tourism in the Context of the Philippines

8.3.1 Definition and Classification
The United Nations World Tourism Organization (2011) defined tourism
as comprising the activities of persons traveling to and staying in places
outside their usual environment for not more than 1 consecutive
year for leisure, business, and other purposes. The Philippines, like all
other countries, aims to increase its number of tourist arrivals as a major
economic indicator of tourism growth. According to the World Tourism
Organization’s definition, a visitor is any person who travels to a country
other than that in which the person has his or her usual residence
but outside his or her usual environment for a period not exceeding
12 months and whose main purpose of visiting is other than the exercise
of an activity to receive remuneration from within the country visited.
The person is a tourist if he or she stays for at least one night in collective
or private accommodation in the country. However, a visitor who does
not spend the night in collective or private accommodation in the
country is a same-day visitor.
The Philippines offers rich and diverse tourism resources. The
National Tourism Development Plan outlined a portfolio of 10 tourism
products: nature based; cultural; agricultural (or agri-tourism); sun and
beach; health, wellness, and retirement; cruise and nautical; education;
meetings, incentives, conferences, and exhibits (or MICE); leisure and
entertainment; and diving and marine sports. The 10 major tourism
products emerged from the results of a market-product analysis
recommending the prioritization of enriching the tourist experience
and boosting the product diversification.
8.3.2 Approaches and Strategies
The Philippines Department of Tourism has adopted the tourism cluster

approach for destination development among the guiding principles of
the National Tourism Development Plan (NTDP). The strategy involves
linking tourism development areas (TDAs) into logical groupings
of transport networks, natural and cultural tourism sites, and urban
service centers that provide facilities and amenities, all with at least a
primary gateway providing services. There are 49 TDAs in the country,
and the province of Surigao del Norte is part of the Southern Philippines
Tourism Cluster.
The convergence approach is also an essential guiding principle of
the NTDP’s implementation. It involves the creation of partnerships
with public and private stakeholders, ensuring participatory governance
and strengthening stakeholders’ capacity. The analysis of tourism’s
current situation addressing the major challenges of the industry drew
the strategic directions.
8.4 Policy and Regulatory Framework

As is apparent from the above discussion, all the policies are in place
(Table 8.1). There are clearly defined areas for collaboration between and
among government agencies, but an increase in their implementation
and enforcement is necessary. LGUs, which are the frontline
for addressing environmental issues such as marine litter, should have
the available capacity and resources and at the same time the proper
guidance from the national government to generate resources and
navigate local solutions.
Table 8.1: Philippine Laws and Policies
Laws/ Salient Enforcement Implementation

Plans Provisions Entities Challenges
Global The United Nations UNEP, • Gaining the
Partnership on Environment Programme multiple involvement of
Marine Litter (UNEP) hosts the GPML, stakeholders stakeholders
(GPML)a which it launched during (national and local)
the UN Conference on • Identifying a
Sustainable Development common circular
(Rio+20) in June 2012. economy framework
It focuses on three main to address marine
areas (marine litter, litter in areas such as
nutrient arrangement, packaging, labeling,
and wastewater), through and infrastructure
voluntary multistakeholder
partnerships of governments,
academia, the private sector,
and civil society. It provides
a platform for cooperation,
as well as the sharing of
ideas and expertise among
stakeholders.
Tourism The act provides a policy DOT, national • Tourism officers
Act of 2009 direction aiming to harness government do not hold regular
(Republic tourism as an engine of agencies positions at the local
Act 9593)b socioeconomic growth (NGAs), local level
and cultural affirmation to government • Limited budgetary
generate investment, foreign units (LGUs) allocation to
exchange, and employment implement programs
and promote national pride
among Filipinos. It expanded
the roles and powers of the
Department of Tourism
(DOT) as the primary
planning, programming,
coordinating, implementing,
and regulatory agency in the
development and promotion
of the tourism industry.
Table 8.1 continued
National Outlines the vision and DOT, NGAs, • Some LGUs have
Tourism strategic directions of the LGUs limited or no capacity
Development Philippine tourism sector to implement
Plan (NTDP)c using a strategic and programs on the
innovative approach to ground
promote inclusive growth in • Tourism officers do
strategic programs ranging not have a permanent
from transport infrastructure, position, which
marketing, human resources results in challenges
and service standards, related to overseeing
and gender and women’s the project
empowerment, to risk implementation
and crisis management. It and continuity of
promotes a cluster approach programs
to the development of • Some DOT staff at
identified tourism areas and the regional level
a convergence approach do not have the
to enhance efficiency and absorptive capacity
inclusivity. The NTDP to implement
underpins sustainable downloaded
tourism as its general programs due to
framework for developing limited personnel
the country’s rich tourism and numerous
resources. expectations
National The United Nations Department of • Most of the partner
Ecotourism Sustainable Development Environment institutions have
Strategy and Goals underscore the and Natural not adopted
Action Plan importance of promoting Resources interventions in the
2013–2022d ecotourism to address (DENR), DOT, programs, projects,
poverty and protect the and LGUs and activities due to
environment. As such, the the lack of awareness
National Ecotourism Strategy of the plan’s
lays out the direction of the existence
Philippine government in • Inadequate sources
gaining significant access of funds for project
to the ecotourism market implementation
and niche areas. The key • Weak monitoring
is preserving natural and and evaluation
cultural heritage while mechanisms
ensuring that the benefits
of tourism are shared with
host communities and
marginalized groups.
Table 8.1 continued
Ecological The Ecological Solid DENR; • Limited technical
Solid Waste Waste Management NSWMC; city, knowledge of some
Management Act of 2000 is landmark provincial, LGUs to execute the
Act of 2021 environmental legislation in and local provisions of the law
(Republic the Philippines that adopts government • Limited funding amid
Act 9003)e systematic, comprehensive, units competing priorities
and ecological waste at the local level
management programs. • Limited government–
It emphasizes source private sector
reduction composting, complementation
recycling, and reuse and
promotes the establishment
of materials recovery
facilities in communities.
The National Solid Waste
Management Commission
(NSWMC) is the agency
tasked with implementing
Republic Act 9003. It is also
responsible for establishing
the National Ecology Center,
which serves as the platform
on which to conduct
research and develop
databases and training and
networking services.
Climate The act was the country’s Climate • Building local
Change response to the worldwide Change capacities to plan,
Act of 2009 phenomenon of climate Commission, implement, monitor,
(Republic change. It provides a NGAs, LGUs and evaluate climate
Act 9729)f comprehensive framework change initiatives/
for integrating the concept projects
of climate change with risk
reduction in various phases
of policy formulation,
development plans, poverty
reduction, strategies, and
other development tools and
techniques.
Sources: a UNEP (2020); b DOT (2020); c DOT Central Office (2011); d DENR (2022); e National Solid Waste
Management Commission (2021); f Climate Change Commission (2021).
Seamless coordination among these bodies is imperative to

establish coherent programs to address identified issues. The Mandanas
ruling, which the government intends to implement in 2022, aims
to bridge the gaps along this line. It seeks to improve the capacity of
the LGUs to implement plans by devolving some functions of the
national government. These include concerns about the environment
and tourism. Integral to the Mandanas ruling is the increase in the
tax revenue shares of the LGUs. Executive Order 138 provides for
the full devolution of certain functions of the executive branch to the
local governments and the creation of a committee on devolution.
The Mandanas ruling is the Philippine Supreme Court decision that
clarified the method for calculating LGUs’ share in the national taxes
(DILG 2021).
8.4.1 Institutional Arrangements
The National Integrated Protected Area System or Republic Act 7586

classifies the Siargao Islands as a wildlife sanctuary. Their management is
under the tutelage of the Protected Area Management Board (PAMB) by
virtue of Presidential Proclamation No. 902, Series of 1996, as the Siargao
Island Protected Landscape and Seascape (SIPLAS). The PAMB serves
as the deciding body for all major development interventions on the
islands, with the aim of protecting its rich natural resources. It consists
of the regional executive director of the Department of Environment
and Natural Resources (DENR) Caraga, the provincial development
officer, the local chief executive of each of the nine municipalities of
the Siargao Islands, and three representatives from nongovernment or
local community organizations. DOT’s role is to provide the provincial
and municipal LGUs with technical support in the development and
promotion of the Siargao Islands as a visitor destination. These include,
among others, the formulation of a tourism development plan aiming
to improve tourism products and linking them to other tourism hubs to
expand the market niche (DENR 2015).
8.4.2 Implementation Gaps
Some implementation issues and gaps in the management of the Siargao

Islands relate to political, technical, social, and economic factors.
Political differences harm the continuity of initiatives and tend to become
compartmentalized rather than being comprehensive because local
leaders do not belong to the same political party. Regarding the aspect
of waste management, the absence of an island-wide authority prevents
LGUs from crafting island-wide resource recovery programs designed

to reduce, recover, and recycle waste materials. The tendency is for each
LGU to develop its own programs. There is also insufficient technical
know-how on managing marine litter, which causes the abandonment
of marine debris on coastal shores or its disposal at solid waste facilities
without recovery efforts. Added to this is the lack of organized island-
wide mechanisms to manage marine litter. At the community level, there
is limited effort to heighten the awareness of proper waste disposal,
which contributes to marine littering. The inability of LGUs to mobilize
resources is due to their limited funds because of competing priorities
like health, education, and sanitation.
The Siargao Islands Situational Report (Tourism Enterprise Zone
Authority 2018) identified specific challenges in the island’s solid waste
management (SWM). There is poor implementation of segregation
at the source, particularly at the household level, as the mixed-waste
collection practice of most municipalities evidences. An inefficient waste
collection system due to the lack of resource allocation compounds
the burden. Most of the municipalities have only one waste collection
vehicle, which is vulnerable to breakdown. In most cases, when this
happens, waste accumulates at the source. Residents look for alternatives
for waste disposal, such as open pits in their backyards. The majority of
the municipalities continue to operate illegal dumpsites. There is also a
lack of waste diversion structures, such as materials recovery facilities
(MRFs) and composting facilities. The islands do not have adequate
final disposal facilities, such as an engineered sanitary landfill or waste-
to-energy facility.
8.5 Marine Litter and Tourism

in the Siargao Islands
8.5.1 Sources of Waste
The Siargao Islands generate waste from households, tourists, offices,

shops, schools, and markets. Data from selected LGUs show that the
average annual waste generation per municipality ranges from 300 to
2,000 tons, with average per capita waste generation of 0.30–0.65
kilograms per day. In terms of composition, Siargao’s waste consists
primarily of biodegradable (47%), recyclable (36%), residual (11%),
and special waste (8%). These figures are based on the initial average
of data from four LGUs: Pilar, Santa Monica, Socorro, and San Benito.
The increase in generation is attributable to the surge of tourist arrivals
(Table 8.2).
Table 8.2: Tourist Arrivals in Siargao Islands, 2016–2020
Year Foreign Local Total

2016 27,843 109,211 139,070
2017 34,166 95,564 131,747
2018 57,939 123,843 183,800
2019 74,858 183,042 259,919
2020 13,941 39,879 53,820
2021 22,456 97,810 120,266
2022 22,917 104,530 127,447
2023 23,386 111,713 135,099
2024 23,865 119,389 143,255
2025 29,930 143,329 173,259
Source: DOT Caraga.
DOT Caraga has estimated that each tourist generates about

0.3 kilograms of waste per day and stays in Siargao for a minimum of
7 days (Table 8.3).
Table 8.3: Tourist Arrivals vis-à-vis Solid Waste Generation

in the Siargao Islands, 2016–2020
Waste
Tourist Arrivals Tourist Arrivals Waste Generation/
(Caraga (Siargao Generation/Year Tourist/Year
Year Region)* Islands)* (kilogram)** (ton)
2016 1,464,124 139,070 292,047 322
2017 1,756,949 131,747 276,669 305
2018 2,108,339 183,800 385,980 425
2019 2,530,006 259,919 545,830 602
2020 194,498 53,820 113,022 125
* Domestic and foreign tourists combined.
** Based on 0.3 kilograms per capita waste generation multiplied by 7 days’ minimum stay.
Source: DOT Caraga.
8.5.2 Development Patterns
Siargao has been undergoing infrastructural development for the

past several years in response to the rising tourism market demand.
The islands have become a popular tourist destination. Facing the
Pacific Ocean, their tropical climate and exposure to strong winds,
which generate large waves, make it a prime destination for local and
international tourists who enjoy surfing and sports fishing. As such,
resorts, hotels, and restaurants abound on the islands. A domestic
airport provides a link from key cities, such as Metro Manila, Cebu, and
Clark. Boats and ferries provide daily trips from and to Surigao City.
A number of tourist facilities exist in Siargao. Table 8.4 shows the
number of tourism facilities on the islands.
Table 8.4: Number of Tourism-Related

Facilities on the Siargao Islands, 2020
Facilities Number
Other tourism-related establishments 63
Accommodation establishments 502
Source: DOT Caraga.
The number of commercial establishments, likewise, is increasing

to serve the needs of local residents and tourists. These are usually
located in the central area of each LGU.
SIPLAS is divided into two zones: the strict protection zone (SPZ)
and the multiple use zone (MUZ). The former covers both terrestrial
and marine areas and constitutes only 3% while the latter occupies 97%
of the protected area. The SPZ is closed to human activities except for
scientific studies. In short, its designation is purely for protection and
conservation, while the MUZ is for settlements, sustainable land use,
extractive activities, and other revenue-generating activities (DENR
2015).
Some issues of the development patterns in Siargao include
resorts along coastal areas violating the 20-meter easement rule,
which prohibits establishments from erecting structures close to the
shore. Another issue is noncompliance with the government’s required
Environmental Compliance Certificate (ECC) to ensure that projects
do not have negative impacts on the environment. Most of the tourism-

related enterprises (TREs) and accommodation establishments do not
have sewerage treatment plants to treat sewage before discharging it to
the environment. Republic Act 9593 requires their accreditation with the
DOT, but because of their noncompliance with the ECC requirements,
very few establishments have registered with the DOT.
8.5.3 Plastic Pollution Epidemic
The Philippines produces 2.7 million metric tons of plastic annually, and

estimations indicate that it has the third-highest rate of mismanaged
plastic waste in the world (Cervantes 2020). Siargao, which consists of
islands, faces the problem of high proliferation of single-use packaging
materials for goods and products entering the islands. Tourists bring in
bottled water and food items in single-use plastic bags. Currently, no LGU
has legislation banning its use, so the problem lingers. Nongovernment
organizations’ clean-up drives have resulted in the collection of a large
number of plastic items, and they have ended up in open dumping
sites because there is no sanitary landfill in Siargao. The DOT’s rapid
assessment of solid waste facilities in 2017 revealed that plastics and
paper are inundating disposal sites and that the disposal site in General
Luna becomes submerged during the rainy season.
8.5.4 COVID-19 Impacts
The COVID-19 pandemic has had a tremendous impact on tourism in

Siargao and in Caraga Region in general. The government-imposed
lockdown in March 2020 shut down Siargao from tourists. Siargao
airport was likewise closed, preventing commerce on the islands. Some
businesses had to close because of the situation, leading to a loss of
revenue and jobs for local residents. Those who had previously worked
in the tourism industry returned to fishing and farming to survive. As
of the writing of this study, Siargao remains closed to foreign tourists,
according to DOT Caraga, with plans to reopen in November 2020.
Conversely, the pandemic has given the islands a needed break from
tourism activities and allowed the environment to heal and grow.
As an intervention, the Philippine Congress passed the proposed
₱165 billion Bayanihan to Recover as One Act in August 2020. One of
its purposes is to provide soft loans for badly hit sectors, such as micro,
small, and medium-sized enterprises, transport, tourism, and agriculture
(Yap 2020). The assistance will provide the necessary relief for tourism-
related enterprises and accommodation establishments in Siargao.
8.6 Development Interventions

8.6.1 The Circular Economy
The current global resource consumption model of take, make,
and dispose has depleted natural resources enormously and led to
environmental pollution. One of the main effects is the proliferation of
single-use plastics and their indiscriminate disposal on streets and in
waterways. In the Philippines, this causes the clogging of drains during
flood events. The limited or lacking solid waste infrastructure to capture
and recover this kind of material perpetuates the problem. One of
the solutions is the concept of a circular economy, which aims to
minimize or eliminate waste pollution, keep products and materials
in use, and regenerate natural systems (Ellen MacArthur Foundation
2020). The idea of the circular economy is simple: to produce products
that are reusable to avoid extraction in producing new products.
8.6.2 Practices to Reduce and Manage Waste

in the Siargao Islands
The SIPLAS Management Plan articulates standards and guidelines.
Regarding waste management, solid and liquid waste management
programs require the approval of the PAMB and enforcement in all
facilities and communities. Training is also part of the program to ensure
sustainability. In compliance with Republic Act 9003, some LGUs
practice segregated waste collection. Waste collection on the islands
is the responsibility of LGUs. Generally, it is not performed regularly
due to the limited number of collection vehicles, which, in some cases,
departments share with each other. For example, in Del Carmen, the
Engineering Department also uses the collection vehicle. In most
cases, only the main barangays receive a service, leaving peripheral
communities to manage waste on their own. In Del Carmen, the
collection rate is only about 28%, covering only two urban barangays.
Some LGUs, such as Pilar, have a separate collection schedule for non-
biodegradable and biodegradable materials. The collection of health-
care waste is separate from that of municipal waste. The form of
treatment is the use of septic vaults.
The recovery of recyclable and biodegradable wastes is mandatory
under Republic Act 9003 through the establishment of an MRF in each
LGU or cluster of LGUs. Most of the municipalities in Siargao, including
Del Carmen, Santa Monica, General Luna, and San Benito, have existing
MRFs. In Dapa, the location of the main port, enterprising individuals
have storage facilities for recyclable materials. However, the recovery of

recyclable materials could still be low in Siargao due to its informality
and the large deposits in disposal sites. The Municipal Environment and
Resources Office reported that recycling has only reached 10% in San
Benito.
The LGUs have enacted ordinances to reduce and manage waste.
Pilar, Socorro, Del Carmen, Santa Monica, San Isidro, and General Luna
are among those that have piloted an ordinance banning single-use
plastics. Other local laws include mandatory backyard composting and
proper waste segregation in Santa Monica. San Isidro and Del Carmen
have adopted a SWM and environmental code. Socorro has legislated its
Tourism Code, which defines the carrying capacity of its major tourism
sites. Del Carmen practices annual closure of its major tourism sites for
weeks to allow the areas’ rehabilitation and natural rejuvenation. The
LGUs also regularly conduct clean-up drives in coastal areas to remove
litter from the shores of Siargao.
Siargao Tourism Operators Association

The Siargao Tourism Operators Association (STOA) serves as the united
voice of tourism business operators in Siargao and aims to influence
local policy making positively. Its mission is to synergize and strengthen
business operators for the conservation and sustainable development
of the islands as a tourist destination and a national asset. Its primary
goal is to overcome the challenge of indiscriminate disposal of waste.
Its main activities include awareness campaigns on integrated SWM,
research and preparation of solid waste assessment reports, and active
work with LGUs to improve local waste management (STOA 2017). Its
clean-up drives include collecting trash along main roads and seashores.
It also has drop-off points for recyclable items.
Siargao Environmental Awareness Movement

The Siargao Environmental Awareness Movement (SEA Movement) is a
volunteer organization that advocates for the preservation of the natural
resources and beauty of Siargao. It is a platform to connect people with
talents and skills to solve the island’s environmental problems (SEA
Movement 2020). Its mission is to initiate and execute environmental
awareness and protection projects in tandem with local stakeholders
to institutionalize sustainable tourism on the islands. Its main projects
include training women to become skilled in converting waste materials
into fashionable items, workshops, video production on SWM, SEA
Patrol clean-ups, and a plastic bottle campaign. The last project aims
to convince business owners to provide water stations and reusable
water bottles to reduce the dependence on single-use plastic bottles
and eventually remove them from the waste stream. The clean-up drive
takes place regularly and mobilizes communities and volunteers to
remove marine litter from the seashores.
Caraga Departmental Initiatives

In 2015, the DOT Caraga in partnership with the DENR initiated a
region-wide solid waste planning program aimed at integrating waste
management at tourism sites, activities, and local festivals. The program
had two results: the SWM communication plan and the assessment of
SWM in Siargao. The first output aimed to strengthen the education
component by identifying key messages on solid waste. The second
output was an assessment of the solid waste situation on the Siargao
Islands and some key recommendations to reduce the use of plastics
(DOT Caraga 2015). One key proposal was to implement a plastic
beverage recycling program through a redemption program that will
buy used plastic beverage containers from residents and tourists and
sell them to processors in bulk. The program is a partnership between a
private entity, the provincial government of Surigao del Norte, and the
municipalities comprising Siargao. The private entity that will manage
the program will receive a share of the income from selling recyclables
through a profit-sharing arrangement. The DOT and DENR Caraga will
provide technical assistance.
International Donors
The DOT has partnered with the World Bank in a program called
Transforming Communities Towards Resilient, Inclusive and
Sustainable Tourism (TouRIST). It aims to improve access to priority
infrastructures and to strengthen local economic development and
disaster and crisis preparedness in select tourism destinations in the
Philippines. The Siargao Islands are a recipient of an integrated SWM
project with components focusing on priority infrastructure investments;
information, education, and communication (IEC) campaigns and
knowledge management; capacity building and enhancement; and
project implementation and management support. The project costs
₱282.78 million.
The priority infrastructure investments cover the acquisition of
four waste collection vehicles, 375 waste bins, sanitary landfill, an MRF,
and composting equipment. The project also covers the construction of
a sanitary landfill and a composting facility.
The technical components of the project include IEC and
knowledge management, and capacity building and enhancement. The
former involves conducting public awareness-raising campaigns and
augmenting the present LGUs’ capability to disseminate information
via digital media platforms to serve as a repository of SWM knowledge.

The latter focuses on the improvement of the technical monitoring
and evaluation capacity of LGU staff on environmental, physical,
engineering, and technical standards and criteria, including training on
SWM accounting, tariff setting, landfill operation, and collection.
The project implementation and management support component
completes the SWM TouRIST initiative. It provides technical support
in terms of data analysis, the identification and preparation of
project proposals and detailed engineering design standards, financing
schemes, and business plans for legal and institutional administrative
structures and arrangements. The roll-out of the TouRIST program is
expected to take place in the early part of 2021.
Technologies in Coastal Marine Litter Management

The collection of marine litter in Siargao remains highly manual, with
groups and volunteers using jute sacks and debris-grabbing sticks.
During the monsoon season, marine debris ends up on shorelines and
LGUs mobilize employees to participate as well. They also provide the
containment trucks and food for the volunteers.
8.6.3 Solving Marine Plastic Issues to Achieve

the Sustainable Development Goals
Interventions to address marine litter relate to some key Sustainable

Development Goals (SDGs). SDG 12 stresses sustainable production
and consumption, redefining and broadening the scope of extended
producer responsibility and ensuring the participation of key players,
such as the chemical industry, plastic recycling companies, distributors,
dealers, local governments, and consumers. Marine pollution cuts
across boundaries and has regional and global impacts, so international
cooperation and global partnerships, which SDG 17 embodies, are
crucial. The Global Partnership on Marine Litter, which the United
Nations Environment Programme hosts, aims to make an impact in terms
of achieving SDG 14, specifically target 14.1, which aims to prevent and
reduce marine pollution from land-based activities, including marine
debris and nutrient pollution; and target 14.7, which aims to increase the
economic benefits for least-developed countries from the sustainable
use of marine resources through the sustainable management of fisheries,
aquaculture, and tourism (UNEP 2020). Another relevant goal is SDG 14
on responsible consumption and production. Also, SDG target 12.5 aims
to reduce waste generation through prevention, reduction, recycling,
and reuse. It is possible to prevent marine litter by creating products
with packaging materials that are reusable, biodegradable, and easy
to recycle.
8.7 Conclusions
The transition to a circular economy in the Philippines is a long process
because of the sociocultural, political, and economic barriers. Republic
Act 9003 institutionalized the reduce, reuse, and recycle (3Rs) approach
at the regional, provincial, city, and barangay levels and placed the
responsibility for waste management on LGUs. Through their SWM
plans, they must articulate and implement soft and hard infrastructure.
For example, some LGUs have enacted ordinances on banning single-
use plastics in commercial establishments. However, some have faced
difficulties passing similar legislation due to the abovementioned
barriers. At the national government level, the National Solid Waste
Management Commission (NSWMC) passed Resolution No. 1363, Series
of 2020, directing the DENR to prepare and implement the banning and
use of unnecessary single-use plastics in national government agencies,
LGUs, offices, and all other government-controlled offices. The Lower
House of the Philippine Congress has introduced a bill to prohibit the
manufacture, importation, sale, and use of all single-use plastic products.
However, there has been a counterproposal at the Philippine Senate to
regulate instead of banning single-use plastics, requiring companies and
manufacturers to recycle single-use plastics (Terrazola 2020).
One of the prerequisites for sustainable tourism in the Philippines is
a legislative and policy backbone to address marine litter not just at the
national level but in the Asian region. Siargao is vulnerable to external
and internal marine litter, and addressing it involves instigating resource
recovery systems that are sustainable, cost-effective, and participatory.
Local residents remain dependent on the sea for their livelihood (fishing
and tourism), so a blue economy on the islands must include a sound
waste management system to ensure the health of marine life and assets.
8.8 Recommendations
8.8.1 Siargao Central Waste Authority
Siargao’s growing island-based tourism economy and the increasing

requirements for coherent waste management call for the creation of a
single solid waste authority. The goal is to strengthen waste management
as a public service and enforce legislation consistently. An authority
with a semi-corporate character would provide flexibility and efficiency
in managing recycling programs and waste management facilities.
The nine municipalities of the Siargao Islands cannot separate
themselves from each other in managing their common resources as an
island-based tourism economy operating within a nationally declared
protected area. The existing institutional mechanisms with which

the LGUs operate separately only further the fragmentation of efforts
toward a common goal, which at times become counterproductive.
The authority can even expand its agenda from waste management to
health-related concerns and other important island affairs.
8.8.2 Siargao Beverage Recycling Program
Recyclable materials, such as polyethylene terephthalate or PET

bottles and bags, constitute about 35% of the waste stream of Siargao.
Unmanaged, they end up in streets, drains, and water channels and
pollute the environment heavily. They are part of marine litter, which
kills aquatic life and ecosystems. A deposit–refund system would fit the
geographical character of Siargao and would capture plastic beverage
containers centrally, through a profit-sharing scheme, and sell them to
processors. A private entity–led program would run as a business and
be sustainable. A necessary ingredient of any deposit–refund system is
the establishment of extended producer responsibility, which would
elevate manufacturers’ participation in the recycling arena.
8.8.3 Sustainable Residual Waste Recovery
Most LGUs in Siargao engage in open dumping because of the

unavailability of sanitary landfills. However, Republic Act 9003 allows a
cluster approach to landfilling whereby LGUs can co-manage a landfill
and share the costs of maintaining a disposal facility. Siargao does not
need a landfill for each LGU but rather a centralized one with transfer
stations to facilitate the shipment of waste to the central disposal facility.
When the proposed centralized landfill starts to operate, the recovery
of refuse-derived fuel can be undertaken along with landfill mining to
prolong its life. It is also possible to establish a recovery center at the
facility to recover more valuable waste materials, like metals, textile, and
appliances, prior to their final disposal.
8.8.4 Zero-Carbon Resorts
The TREs in the Siargao Islands use a significant amount of electricity,

water, and sewers. The push toward sustainable tourism requires a
significant reduction in resource consumption and carbon dioxide
emissions and decreased dependence on fossil fuel. To realize this,
the DOT and DENR Caraga advocate the use of renewable energy to
power resorts. The Most Environmentally Responsible Tourism-
related Establishment initiative was launched in 2018, encouraging
the reduction of carbon footprints in TREs. The criteria include best

practices in TREs’ waste management, the use of renewable energy,
support for community enterprises, corporate social responsibility,
and compliance with government regulatory requirements. For a start,
some establishments have started to use solar panels as the island
enjoys year-round light and heat from the sun. Rainwater collection is
another existing practice. Activities such as these can expand further
to other tourism facilities and utilities, such as transportation units
and restrooms, to produce more impactful results. In the near future,
waterless toilets could save precious water. Tour boats could also use
solar energy and electricity to reduce their reliance on petrol, which is
expensive on the islands.
8.8.5 Tourism Branding
The DOT has branded the Siargao Islands as the ultimate surfing and
game fishing destination in the world. More than a haven for surfers
and anglers, this island paradise offers many learning experiences from
its natural endowments, its people, and the unseen but strongly felt
island vibe that make up the total of the Siargao Islands’ charm. Tourism
branding needs to raise its pitch explicitly to carry key messages
of responsible tourism to increase tourists’ consciousness of their
behavior toward the environment and people. It is worth highlighting
the islands’ notable practices in marine litter management through an
innovative resource recovery program, multistakeholder partnership,
and other efforts for environmental protection in tourism promotional
campaigns. The introduction of mangrove- and tree-planting activities
among tourists and community interactions in people’s everyday life can
strengthen the image of the destination as a vibrant tourism destination
that upholds its integrity as a declared protected area.
Other island destinations can learn great practical lessons that
they may replicate in tourism island management. The Siargao Islands
have the potential to become an island destination benchmark for other
LGUs, especially with big-ticket project interventions from international
donors.
8.8.6 Appropriate Technology to Manage Marine Litter
Land- and water-based technologies are emerging to tackle marine litter.

Japan, for example, has developed plastic bottles made of 100% plant
oil, which are biodegradable. It is also developing sorting technologies
to improve the efficiency of plastic recycling using a combination of
optical, gravity, and near-infrared technology. For example, Shibaura

Institute of Technology, Tohoku University, and Shizuoka University in
Japan are developing a new sorting machine using a terahertz device
that greatly enhances plastic separation. The near-infrared sorter is
the most popular technology in the recycling industry. However, it
has difficulty sorting out colored plastic packaging and is expensive.
In general, sorting machines remain costly for developing economies,
and a partnership framework, of which the transfer of technology is
a component, is necessary. Hence, the three mentioned universities
are exploring avenues to introduce the technology into developing
countries such as the Philippines. The terahertz-based technology has
the potential to produce high-quality recycled plastic materials while
creating employment.
Japan’s waste-to-energy technology captures single-use plastics
effectively, thereby minimizing the leakage of plastic into the oceans.
Over the years, sorting out plastic materials has become increasingly
challenging in Japan due to the emergence of a multitude of plastics with
complex properties. In the case of the Philippines, it is important for
technological interventions to be appropriate, cost-effective, and locally
accepted to ensure that they are sustainable. Regarding the sorting
of plastics, a coastal community like Siargao can use a hybrid type of
technology combining manual collection and handy sorting machines.
The key is to be able to separate plastics based on their resin property,
like polyethylene terephthalate (PET), polyethylene (PE), polystyrene
(PS), and polypropylene (PP), because doing so would increase the value
of plastic materials. The result is recycling efficiency and the creation of
jobs for local communities. Beyond technology is the need to develop
multidimensional solutions ranging from institutional reforms, capacity
building, and innovation to knowledge sharing, which the Group of 20’s
Osaka Blue Ocean Vision best encapsulates.
8.8.7 Sustainable Financing
The use of economic instruments could enable LGUs to have a constant

source of revenue to manage local solid waste infrastructure. A user fee
is one tool whereby households, tourists, and businesses pay for the
management of waste. Residents and tourists may pay a fixed yearly
amount, while the businesses’ fee depends on their size and nature. The
government could impose tariffs on beverage containers arriving on
the islands.
8.8.8 Regional and International Cooperation

to Deter Ocean Waste Pollution
Addressing marine litter entails a strong push from the national

government in cooperation with regional and global communities.
Limiting or eliminating the use of single-use plastics in one country
will not solve the problem. There should be a coordinated effort among
countries because a blue economy will prosper in shared waters.
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PART III
Blue Economy–
Related Industry
9
Offshore Wind Energy
as an Emergent Ocean
Infrastructure in India:
Mapping the Social and
Environmental Impacts
Gopal K. Sarangi
9.1 Introduction
In the basket of renewables, offshore wind energy is emerging as a
promising energy source worldwide, having far-reaching potential
to meet the burgeoning energy demand. The International Energy
Agency (IEA) (2018) has even recognized that “off-shore wind energy
is a rising force.” Globally, offshore wind energy is gaining traction as
an alternative source of energy, and the technology is fast achieving
maturity and increasing its market penetration. Countries are also
prioritizing offshore wind as a source of energy to mitigate climate-
related challenges.
Given that offshore wind is carbon neutral and can meet the growing
appetite for energy, coastal countries across the globe are considering it
as a potential source. Though offshore wind assets constitute 5% of the
total deployed wind assets globally, with cumulative global installations
of 30 gigawatts (GW), projections have indicated that offshore wind
energy will grow rapidly in the future to meet the renewable target of
2030. It has become an important part of the green and blue recovery of
many countries impacted by the coronavirus disease 2019 (COVID-19)
pandemic. Some countries, such as the United Kingdom, are even
renewing their focus on offshore wind energy as a mechanism to realize
the ambitious 2050 target of net zero emissions. The projections of the
219
International Renewable Energy Agency (IRENA) (2020b) have revealed

that the global offshore wind energy capacity will touch 228 GW by
2030 and could further leapfrog to 1,000 GW by 2050. While European
countries are taking the lead in deploying such energy assets, several
countries in the Asia and the Pacific region are showing fresh interest
in this form of energy. IRENA (2020b) projects that Asia will take the
lead in future offshore wind energy capacity addition. The European
success story largely draws its strength from regional cooperation for
interconnection along with well-designed marine spatial planning,
which appears to be critical for the successful deployment of offshore
wind energy. Importantly, one of the major drivers of offshore wind
energy deployment is the dramatic reduction in the cost of electricity
from this source of energy. IRENA (2020b) estimations revealed that
the levelized cost of electricity plummeted from $0.16 per kilowatt-hour
(kWh) in 2010 to $0.13/kWh in 2018—and is likely to fall further in the
future.
India is making long strides in driving its varied sources of
renewables and has taken strategic policy actions in that direction.
Both global commitments and domestic compulsion have redefined and
reconfigured the country’s focus on renewable energy development. The
target to deploy 500 GW of energy from non-fossil fuel by 2030 is a clear
manifestation of such policy thrusts. To achieve the target and to meet
the country’s surging energy demand, it is also imperative to diversify
its energy portfolio to include all possible renewable energy sources.
Offshore wind energy, among other things, offers an opportunity to
diversify India’s renewable sources and exploit this new form of energy.
The importance of achieving energy security and provisioning quality
and reliable energy holds primacy as the country performs poorly in
several key energy indicators. For instance, while India’s per capita
electricity consumption is close to 1,100 kWh, that of the People’s
Republic of China (PRC) is four times higher.
India, a resource-rich country in terms of its 7,600-kilometer
coastline, possesses huge potential for offshore wind energy generation.
Offshore wind energy is a promising alternative source of energy
for a country like India, which continues to be land deprived and is
increasingly facing difficulties in acquiring land for energy projects. In
addition, the momentum behind the blue economy, with its emphasis
on utilizing the “ocean as a resource,” has reiterated the need to exploit
this vital source of energy. Some estimates have revealed that the
blue economy’s share at present is 4% of the country’s gross domestic
product (GDP), and this figure is likely to increase in the future. Besides,
policy makers are considering offshore wind energy as a “strategic
source of energy” to achieve energy security in the country. They are
Offshore Wind Energy as an Emergent Ocean Infrastructure in India:
Mapping the Social and Environmental Impacts 221
prioritizing offshore wind energy as it has higher capacity factors than

its counterpart onshore wind energy (Wei, Zou, and Lin 2021). Studies
have also asserted that offshore wind could offer a more predictable
source of energy than its counterparts, solar photovoltaic and onshore
wind (IRENA 2020b; Kumar et al. 2020). It can better serve the load
centers near the coastline and can be a major source of energy for them
in the future. Though potential estimates have varied significantly across
studies, the offshore wind energy potential in the country reportedly lies
somewhere between 200 GW and 500 GW (Mani and Dhingra 2013a).
Considering the potential, the available technology, and the cost, the
country has set medium- and long-term targets of deploying 5 GW of
offshore wind energy by 2022 and 30 GW of offshore wind energy by
2030. In fact, the country has undertaken the initial efforts in 2018 to
deploy 1 GW in an offshore wind project on the Gujarat coast. However,
the project became mired in controversy and has not taken off so far
due to a high capital expenditure and a lack of government support
(Bhatti 2021). In fact, there have been shifts in the industry’s interest
from Gujarat to Tamil Nadu due to the high wind resource potential and
favorable geotechnical conditions in the state of Tamil Nadu.
Kumar et al. (2020) asserted that offshore wind energy would be a
critical addition to the country’s current emphasis on renewables. To
drive the offshore wind energy development in the country, the Ministry
of New and Renewable Energy (MNRE) issued a dedicated policy called
the National Offshore Wind Energy Policy in 2015. The most recent
development was the MNRE’s declaration of the Draft Offshore Wind
Energy Lease Rules, 2019, which spells out mechanisms to lease out
blocks for offshore wind energy projects.
Though a good number of scholarly efforts in the past have focused
on analyzing various aspects of offshore wind energy development in
the country, such as the potential and feasibility of deployment, the need
for policy drivers and policy instruments, technological configurations,
and the geophysical aspects of such potential, there has been a
dearth of scholarly studies understanding and analyzing the possible
environmental and social conundrums of such large-scale infrastructure
deployment. For instance, Nagababu, Kachhwaha, and Savsani (2017)
and Nagababu et al. (2017) attempted to assess the offshore wind
energy potential and feasibility of deploying such technologies in the
country by employing geographic information system (GIS) and remote
sensing tools. Similarly, studies by Mani and Dhingra (2013a, 2013b,
2013c) largely focused on the policy aspects of offshore wind energy
development in India and evaluated the need for a robust set of policies
and policy instruments for the large-scale deployment of offshore
wind energy in the country. On other hand, some other studies (Kota,
Bayne, and Nimmagada 2015) have attempted to compare the offshore

wind energy development in India with that in the United Kingdom
and the United States. These studies showed that there has been poor
understanding of the possible environmental and social impacts of such
infrastructure deployment. This is partly because of a lack of physical
presence and implementation of such projects at present; however,
such an understanding is of utmost importance at this juncture as the
country is gearing up for the deployment of such assets in the near
future (Aggarwal 2019). Several studies in other country contexts have
pointed to the environmental and social challenges involved in offshore
energy deployment (Bergström, Sundqvist, and Bergström 2013; Bailey,
Brookes, and Thompson 2014; WWF 2014).
In this context, the present study aims to undertake the following
tasks:
• To critically analyze and assess the policy and institutional
framework governing offshore wind energy development in the
country from the perspective of its environmental and social
impacts.
• To carry out a detailed mapping of the possible environmental
and social impacts of such projects on marine ecology and the
livelihoods of fishing communities.
The study employs a qualitative research approach by using various

types of secondary information and data. It carries out a detailed
assessment of the existing laws and policies to understand and critically
analyzes the legal and institutional framework governing such projects.
It gathers various types of secondary data and information to map the
possible impacts of these projects. The gathered information aligned
with that of similar studies in other country contexts that have assessed
such impacts. In addition, a select set of expert consultations was
carried out to understand the contextual impacts of such infrastructure
projects in the Indian policy setting. The findings of the study will help
policy makers in their decision to deploy such projects and in taking the
necessary policy actions at all layers of governance to minimize their
environmental and social threats.
9.2 Offshore Wind Energy as an Emergent

Ocean Infrastructure in India
India’s long coastline offers huge offshore wind energy potential. It also
has 2.3 million square kilometers of exclusive economic zones (EEZs),
which offer an enormous offshore area for the deployment of ocean
infrastructure. The country has nine maritime states, of which Gujarat
has the longest coastline, followed by Tamil Nadu. The development

of offshore energy infrastructure in India is not new; the offshore oil
and gas industry has been thriving for quite some time. India’s Oil and
Natural Gas Corporation has been operating offshore oil and gas fields
in Mumbai, known as “Bombay High,” since 1976. Similarly, there
have been offshore energy assets deployed in the Krishna–Godavari–
Mahanadi basin on the eastern coast of the country. Studies have
reported that the deep water basins of Mahanadi also hold good potential
for hydrocarbons. The most recent development in this space was the
subsea development project of Reliance and British Petroleum in the
Krishna–Godavari basin. They installed ultra-deep infrastructures for
the extraction of gas. Three recently developed deep-water gas projects
have the potential to fulfill 15% of India’s gas demand by 2023. The
most recent development in this space is the Government of India’s
proposed “Deep Ocean Mission,” which emphasizes, among others,
exploring minerals and energy. The Ministry of Earth Sciences of India
has lauded it as a “futuristic and game changing” mission. The Union
Budget of the Government of India 2021–22 placed special emphasis
on the Deep Ocean Mission, with a budgetary allocation of ₹40.77 billion
over a 5-year period. Although offshore wind energy received an explicit
mention in the Deep Ocean Mission, its larger goal is to accelerate the
blue economy, which can contribute to India’s development and help in
meeting India’s future energy requirements.
Offshore wind energy is new to the country, and such technologies
are evolving fast globally. Offshore wind energy technologies have been
developing globally over the past 3 decades. They have received high
prioritization due to their strength and steadiness and their greater
efficiency and predictability (Kumar et al. 2020; Wei, Zou, and Lin
2021). The cost of generating electricity using these energy sources
remains high, but the expectation is that it will fall in the near future
with the large-scale deployment of such systems and technological
advancements (IRENA 2020b).
There have been several efforts globally to develop offshore wind
assets of varying forms and sizes. While Europe leads in terms of the
deployment of offshore wind installations, the PRC is fast ramping up its
new capacity and dominates in terms of new capacity additions, energy
generation, and technological advancements, and other economies in
Asia and the Pacific (e.g., Taipei,China; Viet Nam; Japan; and the Republic
of Korea) are increasingly paying attention to offshore wind energy as an
alternative and efficient source of energy. Though offshore wind assets
constitute 5% of the total deployed wind assets globally, with cumulative
global installations close to 30 GW, projections have indicated that
they need to grow rapidly in the future to meet the renewable target
of 2030. IRENA’s (2020a) projections revealed that the global offshore
wind energy capacity will touch 228 GW by 2030, further escalating to

1,000 GW in 2050. The year 2019 showed a historical record of 6.1 GW
deployment of offshore wind energy assets globally (Figure 9.1). The
projections of the Global Wind Energy Council (GWEC) (2020) also
revealed that India has high potential for offshore wind energy and will
be producing from this source from 2027 onward. Table 9.1 presents the
cumulative offshore wind installations so far globally, and Figure 9.1
shows the compound annual growth rate of offshore wind energy across
the globe.
Table 9.1: Cumulative Offshore Wind Installation

in Major Offshore Wind-Deploying Countries
Country Installed Capacity (megawatt)

United Kingdom 9,603
Germany 7,566
People’s Republic of China 6,984
Denmark 1,746
Belgium 1,455
Netherlands 1,164
Others 582
Source: GWEC (2020).
Figure 9.1: Compound Annual Growth Rate

of Offshore Wind Energy
–0.1
New Installations
GW, offshore 6.1
0.1
CAGR* –0.03 2.4
+24% 4.5 4.3
3.4 1.2
0.4 1.6
0.1
0.1 0.2 2.2
0.1 1.7 1.7 3.6
0.1 0.2
1.3 3.0 0.6 3.2
1.0 1.0 2.7
0.6 1.6 1.5 1.6
0.5 0.9 0.8 1.2
0.1 0.2 0.6
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Offshore share of new 2–3% 4% 8% 10%

installations, 1%
Rest of world PRC Europe
GW = gigawatt, PRC = People’s Republic of China.
Source: GWEC (2020).

In the Indian context, though some crucial developments

have taken place in offshore wind energy, implementation is still in
the nascent stage. Offshore wind energy is emerging as a crucial source
of energy and a preferable alternative to onshore wind energy due to
the inherent land acquisition problems combined with the increasing
difficulty in obtaining windy sites. Given that India has a successful
history of onshore wind energy and ranks as the fourth-largest wind
energy producer globally, it is likely that it could capitalize on some
of the experiences and learning from onshore wind deployment for
its offshore wind energy deployment. It is an opportune time for the
country to accelerate its offshore wind development given the favorable
economic and climate-related commitments and compulsion.
Multiple agencies have estimated the offshore wind energy
potential in the country. For instance, according to the estimates of the
Lawrence Berkeley Laboratory, India has close to 214 GW of offshore
wind energy potential (Phadke, Bharvirkar, and Khangura 2012). Mani
and Dhingra (2013a), in one of their studies, estimated that the potential
of offshore wind energy in India lies between 200 GW and 500 GW.
However, most potential sites lie along the coasts of Gujarat and Tamil
Nadu. Some of the Government of India’s preliminary estimates have
revealed that Gujarat alone has the potential to generate around 106 GW
of offshore wind energy, whereas Tamil Nadu has potential close to
60 GW (Aggarwal 2019), two high potential states in India, and the rest
of the potential lies in other coastal states.
FOWIND (2017) carried out a detailed baseline mapping and supply
chain assessment and investigated the feasibility of grid integration for
these two Indian states: Gujarat and Tamil Nadu. The report identified
five crucial factors for offshore wind development in the country:
(i) drawing a long-term road map, (ii) developing a transparent consent
and permission system, (iii) strengthening the regional and national
grid, (iv) developing a well-structured financial support system, and
(v) developing the necessary skill sets and competencies. According to
the FOWIND (2017) study, the road map should involve identifying the
policy drivers, setting the targets, and laying out a clear implementation
plan. Given that the technology is nascent and quite complex,
clear procedures are necessary in which consent and permission should
be consistent, which would boost private investors’ spirit to venture
into this risky sector. The third important aspect is grid integration. The
problem of poor grid integration will have technical as well as financial
implications for the sector’s development. This will become more
pronounced due to the lack of a policy for offshore energy transmission.
The fourth important factor is the creation of an ecosystem for the
provisioning of the much-needed financing for the sector, given that
these technologies are nascent and the cost of generating electricity is
relatively high compared with the cost of other forms of energy. The
government should extend the necessary financial support through the
provision of smart subsidies along with easy access to credit for project
developers. The final and most important factor is the development
of the necessary skill set and competencies. A diverse set of skills is
necessary during the life cycle of an offshore project. The most necessary
skills are specialized and hence require building over time. Therefore,
there is a need to develop an indigenous skill set through framework
agreements with other countries for training and capacity building,
through knowledge transfer, and through joint partnerships during
project execution, implementation, and decommissioning (FOWIND
2017).
While there have been some efforts to install the first 1 GW of
offshore wind energy in the country in the Gulf of Khambhat on the
coast of Gujarat, the progress is slow and tardy. Toward that end, efforts
have been undertaken to conduct the required geophysical study for an
area of 365 square kilometers, as well as geotechnical and met-ocean
studies, and to seek first stage clearance following the guidelines of
the National Offshore Wind Energy Policy, 2015. The MNRE has also
highlighted that the National Institute of Oceanography, Goa, has the
responsibility for carrying out the environmental impact assessment
(EIA) of the proposed project site. The next stage in the process is to
select a developer through a competitive bidding procedure and then
seek the second stage clearance for the project. Expecting the tariff
to be high for this project, the MNRE has proposed to provide central
financial assistance in the form of viability gap funding. However, the
project has suffered considerable delays and has been unable to meet the
targeted schedules. There are further proposals to deploy LiDAR or light
detection and ranging off the coasts of Gujarat and Tamil Nadu to carry
out a wind resource assessment along with geophysical, geotechnical,
and oceanographic studies (Randall-Smith 2020).
9.3 Policy and Institutional Framework

Governing the Offshore Wind Energy
Development in India
It is necessary to highlight the larger policy and institutional framework
governing the ocean infrastructure in general and offshore wind
energy in particular. Both the Union Government and the provincial
governments in India govern the marine resource management. This
has led to often overlapping and conflicting jurisdiction of existing laws,
regulations, guidelines, and notifications among the different layers of

institutions, resulting in ambiguities in ocean governance in India. In
addition, climate change considerations have compounded the problems
of marine resource governance and management in India (Jayaram
2016). However, the emphasis in this section is on assessing the major
laws, regulations, and notifications that directly and indirectly affect the
offshore wind energy development in the country.
Two sets of recently declared policies and guidelines—the National
Offshore Wind Energy Policy, 2015 and the Draft Offshore Wind Energy
Lease Rules, 2019—govern the policy environment of offshore wind
energy in India. These two policy documents set the tone and lay down
the governance setting for the offshore wind energy policy making in
the country. This section presents a detailed and critical mapping and
evaluation.
9.3.1 National Offshore Wind Energy Policy, 2015
Considering the importance of offshore wind energy in India, the

Government of India produced the National Offshore Wind Energy
Policy in 2015. The policy sets out the institutional mechanism for the
offshore energy development in the country. The MNRE acts as the
nodal ministry. As such, it is responsible for carrying out the overall
monitoring of projects; coordinating with other ministries; offering
guidelines and directives; providing support for the National Institute
of Wind Energy (NIWE); promoting international cooperation; and
conducting coordination in matters relating to tariff decisions and
other such regulatory matters. The NIWE acts as a nodal agency
for conducting the resource assessment and demarcating blocks for
facilitating the development of offshore wind energy in the country. In
addition to the nodal ministry and the nodal agency, the policy refers
to the formation of an “Offshore Wind Energy Steering Committee”
within the MNRE, with the Secretary as its chairperson, which
would not only provide policy guidelines from time to time but would
also oversee the execution and effective implementation of offshore
wind project activities on a regular basis. In addition, the Ministry
of Shipping, Central Transmission Utilities, and State Transmission
Utilities will be part of the offshore wind energy development in the
country. Besides, given that these technologies are new and complex,
the policy requires clearance from a host of ministries, such as the
Ministry of Defence and the Ministry of Environment, Forest and
Climate Change (MoEFCC). Figure 9.2 presents a schematic of the
institutional mapping.
Figure 9.2: Schematic of the Institutional Mechanisms

Governing Offshore Wind Energy in India
MNRE Coordination with
Nodal Ministry other ministries Other Central Ministries e.g.,
Ministry of Shipping,
Offshore Wind Energy Ministry of Defence, MoEFCC
Steering Committee and other Ministries
Offer guidelines/directives EIA clearances

CTU Oversee execution and from MoEFFCC
implementation
NIWE
STU Nodal agency
- Resource assessment Dedicated Committees
- Demarcate blocks by State Governments
Other clearances from
Resource assessment
Demarcation of blocks state-level agencies
Project Developers
Grid interconnection
and integration issues
CTU = Central Transmission Utilities; EIA = environmental impact assessment, MNRE = Ministry of
New and Renewable Energy; MoEFCC = Ministry of Environment, Forest and Climate Change;
NIWE = National Institute of Wind Energy; STU = State Transmission Utilities.
Source: Author’s construct.
A detailed mapping of the policies reveals that they offer a broad

policy framework for the development of offshore wind energy in the
country. It highlights that offshore wind energy is at the nascent stage
of development and has yet to gain a comparable position with other
competing sources of renewables. Since onshore wind energy is one
of the country’s successful initiatives, it is likely that it will draw from
the rich and varied experiences gained from onshore wind energy and
embed the best practices of onshore wind energy into the framing and
implementation of offshore wind energy projects. The policy document
also highlighted that India has reasonable potential for offshore wind
energy development and that two main maritime zones in the country are
potential areas for offshore wind energy development: 1) within India’s
territorial waters, which cover 12 nautical miles from the coastline
toward the sea; and 2) EEZs beyond the 12-nautical-mile areas into the
sea up to 200 nautical miles. The targets for offshore wind energy are
to produce 5 GW by 2022 and 30 GW by 2030. The policy objectives
clearly emphasize the need for such policies from the point of view of
both energy security and carbon reduction. They also prioritize the need
for public–private partnerships for offshore wind energy development,
promoting such wind farms in the country’s EEZs.
The policy recognizes a host of challenges for the development of
offshore wind energy in the country: resource characterization, subsea
cabling, turbine foundation, the installation of turbines, including

logistics, grid interconnection, and operation issues, the construction
of transmission infrastructure, integration with the national grid
infrastructure, and associated coastal security issues. The policy
acknowledges the important aspect of the impact of such projects on
fishing and the livelihood of local fishing communities during the
project planning stage. It prescribes that projects should make all efforts
to avoid developing project sites in fishing grounds. If there is a need
to relocate the fishing grounds, fishing communities should be given
adequate compensation in accordance with the policies of the central
and state governments. In addition, the policy recognizes the need to
carry out EIA to assess the impact on aquatic life and fishing; this is
unique in the forms of renewable energy development in the country. As
part of the EIA, the policy guidelines suggest that the developer should
provide the details of decommissioning and site restoration before the
offshore construction begins. In this regard, it should gain the necessary
clearance from the MoEFCC and other ministries. It also gives state
governments the responsibility for forming dedicated committees
for the development and promotion of offshore wind projects in their
respective states.
While the policy speaks volumes about various aspects of offshore
wind energy development in the country, the proof of the pudding lies
in the eating. The effectiveness of the policy is in its implementation.
Though the proposal to deploy 1 GW of commercial offshore wind energy
in the Gulf of Khambhat represents some efforts in that direction, the
progress has been slow at best. The policy has certain lacunae, such as
the lack of a permission and consenting regime for wind energy. Given
the context-specific nature of the impacts of such policies, the policy
does not explicitly mention the development of the needed institutional
mechanism at the decentralized level. In addition, the policy document
does not refer to other environmental laws, regulations, and guidelines
that apply to such projects. While it discusses environmental and
social impacts, carrying out such assessments requires a contextual
understanding and the devising of strategies at the local scale.
9.3.2 Draft Offshore Wind Energy Lease Rules, 2019
The second-most important policy guideline is the Draft Offshore

Wind Energy Lease Rules, 2019, which has a specific focus on lease
rules. Here, the study extracts and analyzes relevant environmental and
social provisions to highlight the way in which the rules deal with these
matters. They assign primacy to the “decommissioning” of the project,
in which the uprooting and demolition of foundation structures and
the removal of debris will follow the relevant marine environmental
norms. It also states that the lessee does not have the right to block or
bar routine activities, including activities related to fishing. Another
important clause concerns the cancellation of the lease agreement if the
project causes environmental damage to flora and fauna lying under the
sea and can pose threats to human life and property both while carrying
out activities under water and while operating during the lease period.
In addition, the rules state that the Union Government may take over
the operation if the lessee misuses the operation of offshore wind zones
and areas, including those under environmental protection. The central
government can shut down the firm if it finds that it is causing damage
to the environment or property and generating pollution.
9.3.3 Other Laws and Regulations Governing

the Marine Environmental Systems
While the National Offshore Wind Energy Policy 2015 and the Draft
Offshore Wind Energy Lease Rules 2019 refer to direct environmental
and social considerations concerning offshore wind energy deployment
in the country, there are other laws and regulations governing the
marine environmental systems that have a bearing, albeit indirectly, on
the offshore wind energy deployment in the country.
One such regulation is the Coastal Regulation Zone Notification
2019. Under such notification, while the central government specifies
the coastal regulation zone norms, the state government should
declare its coastal zone management plans and set up the Coastal Zone
Management Authority. The framing of these notifications falls under
the umbrella legislation of the Environmental Protection Act 1986;
hence, their design is primarily intended to protect the marine ecosystem
and marine environment. The government framed the first rule in 1991,
further revising it in 2011 to allow some flexibility, and declared the
latest one in 2018–2019. According to the latest rule, the thrust is on the
management and conservation of marine ecosystems, the promotion
of coastal areas, ecotourism, and livelihood options with specific
reference to fishing communities and sustainable development at
large. While different segments of zones exist, ecologically sensitive
areas, such as mangroves, coral and coral reefs, sand dunes, biologically
active mudflats, other parks, salt marshes, turtle nesting grounds,
horseshoe crab habitats, sea grass beds, and nesting grounds of birds,
require specific attention. It clearly identifies the coastal areas that
require special focus and consideration, declaring as critical vulnerable
coastal areas the Sundarban region of West Bengal, the Gulf of Khambat
and Gulf of Kutchh in Gujarat, Malvan, Achra-Ratnagiri in Maharashtra,
Karwar and Coondapur in Karnataka, Vembanad in Kerala, the Gulf of
Mannar in Tamil Nadu, Bhaitarkanika in Odisha,1 and Coringa, East

Godavari, and Krishna in Andhra Pradesh.
In addition, India, as a signatory to the Convention on Biological
Diversity (CBD), has to follow the conservation norms that the
convention has specified. It identifies protected areas as key
mechanisms to safeguard biodiversity (Legal Initiative for Forest and
Environment 2014). Marine protected areas (MPAs), which come under
the CBD, constitute an important component of marine biodiversity
and marine ecosystems. Four key areas are legally declared protected
areas, specifically national parks or wildlife sanctuaries, conservation
reserves, and community reserves. Nearly 700 such locations had been
recognized as protected areas in India by 2014 (Sivakumar, Mathur,
and Pande 2013). These MPAs provide a range of ecological services.
Table 9.2 presents a mapping of the impacts and gaps drawing from
the key policies and regulations governing offshore wind energy in the
country.
Table 9.2: Mapping of the Impacts and Gaps from the Key Policies
and Regulations Governing Offshore Wind Energy in India
Policy Identified Impacts Proposed Measures Identified Gaps

National Impacts on fish Not to develop Lack of a wind
Offshore catching and project sites on permission and
Wind Energy livelihood impacts on fishing grounds; in consenting regime;
Policy, 2015 fishing communities the case of relocation lack of clarity on
of fishing grounds, local-level institutional
to provide adequate mechanisms; lack
compensation of clarity regarding
integration with
Impacts on aquatic life Need to carry out
other marine laws,
and fishing environmental impact
regulations, and
assessment; the
guidelines
developer should
provide details of
decommissioning and
site restoration
1
In 2011, the Government of India approved the name change of the State of Orissa
to Odisha. This document reflects this change. However, when reference is made to
policies that predate the name change, the formal name Orissa is retained.
Table 9.2 continued
Policy Identified Impacts Proposed Measures Identified Gaps
Draft Impacts during the In accordance with the No clarity on the
Offshore decommissioning marine environmental exact nature of
Wind Energy of the projects norms impacts and stages of
Lease Rules, impacts; lack of clarity
Impacts on fish No right to block or
2019 regarding integration
catching bar routine activities,
with other marine
including activities
laws, regulations,
related to fishing
and guidelines; no
Damage to flora Cancellation of the assignment of a
and fauna lease agreement if specific role to state
the project causes governments or other
environmental decentralized bodies
damage to flora
and fauna lying under
the sea
Damage to the Shutting down of firms
environment and the
generation of pollution
Source: Author’s compilation and analysis.
9.4 P
ossible Impacts of Offshore
Wind Energy Projects
Oceans deliver a range of material, economic, and non-economic benefits.
In fact, the importance of oceans and their ecological significance has
become more pronounced in the face of the ongoing COVID-19 crisis.
While offshore wind energy projects generate a host of benefits
compared with other forms of renewable energy, such as high efficiency,
no land requirement, and negligible transmission costs, it is possible that
these forms of energy interventions involve significant environmental
and social costs (WWF 2014). Most importantly, studies have pointed
out the inherent uncertainties of the environmental impacts of offshore
wind energy projects. They have asserted that often environmental
effects could sustain through the entire project life cycle. Studies
assessing the environmental and social impacts of offshore wind energy
projects have often posited that these projects generate both positive and
negative environmental impacts. One of the most cited positive impacts
is the formation of artificial reefs through the turbine structures (Kumar
et al. 2020). Researchers have asserted that these artificial reefs could
enhance the species population and biomass types. Artificial habitat

creation through reefs may increase the fish population, bird species,
and marine mammals (Lindeboom et al. 2011).
However, some reports have denied such claims of increased
diversity of ocean animals and fish populations following the deployment
of offshore wind energy plants (Bergström, Sundqvist, and Bergström
2013). Negative impacts are also apparent in terms of the construction
of offshore wind energy plants and consequent activities, such as
transportation, deployment, and operational noise, and their impacts on
marine life and marine ecosystems (Kumar et al. 2020). For instance,
understanding the water depth and seabed characteristics is a crucial
element of the deployment of such systems as this knowledge helps
to identify the deployment sites. Similarly, the type of wind turbine
generator and its positioning are two very important components of
projects with significant environmental and ecological impacts. If
not properly designed and contextualized, the generator may create
possible environmental impacts, such as disturbing sea bird feeding
areas, fish spawning areas, and protected species, along with negative
visual impacts. For instance, the construction of wind plants within
the sea impairs seabed habitats and generates negative consequences
in the long run (Bailey, Brookes, and Thompson 2014). Offshore
wind energy farms reportedly have negative impacts, decreasing the
marine population, richness of species, biodiversity, functioning of
marine species, their abundance, and their community structures—
often affecting the behavior of marine lives. However, the cumulative
environmental and ecological impacts are not clear and are often
context based. Some studies have reported the visual impacts of offshore
wind farms and pointed out that the nearer the installation of farms,
the greater the visual impacts (Parsons et al. 2020). The noise that these
projects emit might also have negative environmental consequences for
marine species and their movements. The generated noise is harmful for
mammals; loud sounds could also be detrimental to sea animals, causing
hearing impairments and obstructing their communication, leading to
their migration and relocation (Thompson et al. 2013; Bailey, Brookes,
and Thompson 2014; Kumar et al. 2020).
Apart from the environmental impacts, such energy infrastructure
generates a host of social impacts. Research has asserted that
understanding the human dimension of such projects is vital for their
successful implementation. Some studies have raised concerns about
the impacts on the fishing industry (Ciara et al. 2020), and others have
identified the negative impacts on ecotourism (Kumar et al. 2020). The
local area and local people, terrestrial life and marine life, and the ocean
ecosystem would experience significant impacts.
9.5 Mapping the Ecological and Social Impacts

of Offshore Wind Energy Projects in India
While the full-scale impact of offshore wind projects in India will only
be apparent after their implementation, drawing from the international
experiences and expert interactions, this study has mapped, identified,
and contextualized a host of possible impacts to understand their
magnitude and their varying dimensions. Given that these projects
involve large degrees of uncertainty regarding their environmental and
social impacts (IRENA 2020b; Kumar et al. 2020), it is imperative to
carry out full-scale mapping for offshore wind projects. Studies have
contended that the extent and magnitude of the ecological disturbances
that these projects may generate are still unexplored, underestimated,
and at best poorly mapped (Kumar et al. 2020). This mapping exercise
becomes more pertinent as most of the renewable energy in India
does not fall under the ambit of the EIA Notification of 2006, and the
pollution regulatory authorities at the subnational scale (i.e., state
pollution control boards) tag renewable energy projects such as solar
and wind as “green” (Thapar 2017).
Recent developments have also pointed to the need to perform
this mapping exercise. For instance, some preliminary observations
have revealed the looming dangers of extracting hydrocarbons from
oceans in India and the possible ecological hazards of such extraction
for ocean flora and fauna (Singh 2020). Notably, the recent focus on the
blue economy, in which the private sector plays a dominant role in the
exploitation of ocean resources, has brought the debated issue of social
licensing to operate to the forefront (Roy 2019; Voyer and Leeuwen
2019). Traditionally, people have considered the ocean as a common pool
resource that has deep social, cultural, and spiritual connections with
the people of India (Roy 2019) and that is a major source of livelihood
for a large chunk of the Indian population (Singh 2020). For instance, in
India, close to 15 million people draw their livelihood from fishing and
fishing-related activities alone, and fishing contributes nearly 5% of the
GDP and 10% of foreign exchanges for the country. In addition, a range of
climate-related challenges, such as ocean acidification, extreme weather
events, and sea-level rise, have exacerbated the problems affecting the
aquatic lives of ocean inhabitants, their distribution and movement
patterns, and their behavior. Poor ocean literacy is arguably also causing
problems in marine conservation and ecological restoration.
9.5.1 Environmental Impacts of Offshore Wind Projects
The Indian Ocean system is rich in ecosystems, such as beaches,

mangroves, coral reefs, estuaries, islands, tidal mudflats, lagoons,
marshes, and vegetated wetland coastal islands. Extensive stretches
of mangroves, coral reefs, and sea grass beds form an ecosystem for many
ocean animals and species. Not only do these coastlines and oceans have
significant value in terms of giving shelter to wildlife, but they also
provide cultural value, natural landscape benefits, and archaeological
value. Studies have pointed out that the Indian Ocean is home to a host of
marine ecosystems, offering habitats to various ocean animals and birds.
Given the richness of the Indian Ocean’s ecosystem, the impacts could
vary, with differing intensities depending on the context and ecosystem
characteristics. Hence, before implementing any proposed offshore
wind project, there should be careful scrutiny of its environmental and
social impacts.
The proposed offshore wind projects could be distortionary in many
ways. They could disturb the marine biodiversity, create noise pollution
for marine habitats, pollute the ocean water at various stages of project
development and implementation, such as construction, operation,
maintenance, and decommissioning, and disturb marine habitats and
their residents’ breeding and feeding seasons and grounds.
In both the Bay of Bengal and the Arabian Sea, there are a number
of MPAs, which constitute important ecologically sensitive areas
for any developmental projects (Singh 2020). Table 9.3 captures the
major marine national parks and sanctuaries in India. Some of these
areas are fragile in nature; hence, the protection of these areas should
receive the utmost priority. Many of these MPAs are host to a number of
mangrove species—for example, Bhitar Kanika Sanctuary and
Gahirmatha Marine Sanctuary. Considering the importance of
mangroves, the Government of India has identified 31 mangrove areas
for intensive conservation (Singh 2003). There has been apprehension
that offshore wind projects could adversely affect mangroves. For
instance, the proposed project in the Gulf of Khambat will affect
stretches of mangroves that have already faced degradation for the
last couple of decades (Aggarwal 2018). In fact, the proposed project
site of the Gulf of Khambhat is home to a variety of plants, animals,
and birds. Developing such projects without adequate measures in
hand could further accentuate the degradation of mangroves and exert
an adverse impact on the marine biodiversity in the region. A report
of the Gujarat Ecology Commission echoed this. It warned that, due
to the strategic geographical location of the Gulf of Khambhat, it is
becoming increasingly vulnerable to human-led activities, such as rapid
Table 9.3: Major Marine National Parks and Sanctuaries in India

Gulf of Kachchh Marine National Park, Gulf of Mannar Marine National Park,
Gujarat Tamil Nadu
Gulf of Kachchh Marine Pulicat Lake Bird Sanctuary (Tamil Nadu
Sanctuary, Gujarat and Andhra Pradesh)
Malvan Marine Sanctuary, Point Calimere Wildlife and Bird Sanctuary,
Maharashtra Tamil Nadu
Bhitar Kanika Sanctuary, Odisha Coringa Wildlife Sanctuary, Odisha
Gahirmatha Marine Sanctuary, Odisha Krishna Wildlife Sanctuary, Andhra Pradesh
Chilika Lake Wetland System, Odisha Sundarban Tiger Reserve National Park,
West Bengal
Holliday Island Wildlife Sanctuary, Sajnekhali Wildlife Sanctuary,
West Bengal West Bengal
Source: Author’s compilation.
industrialization, the fast building of coastal infrastructures, and other

developmental projects, such as ports and oil terminals, which continue
to endanger and disturb the ecological balance (Aggarwal 2018). Hence,
the proposed project could further jeopardize the ecological balance in
the area.
Similarly, some of these areas are rich in coral reefs, which are known
dynamic ecosystems and help significantly in protecting the coastlines
from erosion. For instance, the Gulf of Mannar, Gulf of Kutch, and Palk
Strait are rich in coral reefs and represent diverse ocean ecosystems.
Some of these areas also are prospective sites for offshore project
development. While the impact of offshore wind energy on coral reefs
is unclear at best, considering the other negative environmental and
ecological impacts of these projects, it is pivotal to conduct a detailed
EIA to avoid probable impacts on coral reefs.
Similarly, MPAs are home to various sea animals and are known as
fish boxes, which are closed for certain periods of time as part of the
restrictions of the management regime. Certain marine biodiversity
areas with estuaries serve as the breeding and feeding grounds for sea
animals. For instance, the estuaries of Gujarat provide feeding grounds
for whale sharks. Both the Arabian Ocean and the Bay of Bengal are
home to a variety of sea animals. For instance, dugongs live along the
Gujarat coastline. Similarly, Indian coastlines act as a breeding ground
for sea turtles, for which the coast of Saurashtra is a hatching ground.
Gahirmatha Beach in Odisha is the largest known mass nesting site for
Olive Ridley turtles. Chilika Lake is famous as a wintering ground for
migratory birds. Given this richness of the Indian Ocean as a home to
a variety of sea animals and birds, offshore wind projects could pose
major risks for their habitats, if precautionary measures are not taken.
Enough evidence exists in other countries of such negative impacts of
these projects on ocean ecosystems and ocean biodiversity. For instance,
the proposed project site in Gujarat is the ground for hundreds of plant
species and for sea animals, and migratory birds and non-migratory
birds. Without taking adequate measures, the project could impose
significant negative impacts (Aggarwal 2019). For instance, these
projects could block the migratory path of birds, and collisions with wind
turbines could kill or injure birds. There have been instances in which
offshore wind projects have generated great risks for seabird colonies.
For instance, the Royal Society for the Protection of Birds challenged the
government’s decision to deploy wind farms in Scotland.
Apart from all these ecological impacts, the noise that these projects
create could disturb the marine ecology and generate harmful effects.
Noises emanating from construction sites could affect fish and other sea
Table 9.4: Mapping of the Key Environmental Impacts

Stages in the Project Life and Possible Impacts
Impacts/
Stressor Types Construction Operation Maintenance Transportation Decommissioning
Habitat loss *** ** ** ** ***
Disturbing *** ** ** ** ***
sea birds’
feeding areas
Disturbing fish *** ** ** ** ***
spawning areas
Injury or mortality ** *** * ** ***
to species
Risks of collision * *** * * *
of birds
Community ** ** * ** **
structure of
marine species
Relocation and *** ** * ** ***
migration of
marine species
Disturbance of *** *** * ** ***
animal behavior
Noise pollution *** ** *** * ***
Ocean water *** ** ** * ***
pollution
Visual impacts ** *** ** * **
* represents a negligible impact, ** a moderate impact, and *** a high impact.
Source: Author’s construct based on inputs from experts.
animals and change their behavior. Projects should employ advanced

technologies to reduce the noise by using a soft-start or ramp-up
procedure (OSPAR Commission 2008). Radiation from these plants,
such as electromagnetic and heat radiation, could negatively affect
marine animals. Table 9.4 captures the mapping of key environmental
impacts based on the expert consultation.
9.5.2 Social Impacts of Offshore Wind Projects
The social impacts largely are concerned with the possibility that these
projects will adversely affect the livelihood of fishing communities
by reducing the fish catches. Even the National Offshore Wind
Energy Policy of Government of India and the FOWIND (2017) study
clearly recognized the importance of fishing as a major source of
livelihood for Indian coastal communities. Studies have reported that
there are short- and long-term effects of the development of offshore
wind energy on the livelihood of fishing communities. However,
the understanding of the complex linkage between wind energy
development and its impacts on fish behavior and fishing communities’
livelihood is, at best, poor in India.
In India, nearly 15 million people draw their livelihood from fishing
and fishing-related activities, and fishing contributes close to 5% of
GDP and 10% of foreign exchange. Out of the total fishing production
in the country, sea fishing constitutes 45%. Tamil Nadu, which is one
of the designated states for offshore wind energy projects, is home to
600 marine fishing villages, and nearly 1.2 million people earn their
livelihood directly from fishing. Both Tamil Nadu and Gujarat rank as the
states with the largest amount of marine fish production in the country.
While the livelihood of fishing communities is already under threat from
ocean pollution and climate change considerations (Srinivasan 2019),
the proposed offshore wind energy projects could further accentuate
the problem.
Impacts on fishing could occur in multiple ways. Fishing through
trawling could be damaging to the structure of offshore wind plants as
trawling can cause damage to the seafloor and seabed. Often, in the case
of floating turbines, trawling could damage the anchorage of moorings.
Because of these effects, trawling is not permissible in offshore wind
areas. This can create considerable hardship for fishing communities. If
they lose their trawling ground, they lose their fish catches. In addition,
these projects could disturb the fish habitat, and the noise that these
wind farms create could be harmful to the fish population. Certain
parts of the ocean, such as the Bay of Bengal, are already suffering from
overfishing, aggravating the problem (Singh 2020).
It is also important to recognize that marine fishery resources

have specific characteristics that make them difficult to monitor and
manage, hence compounding the problem of mapping of wind farms’
impacts. For instance, they continue to migrate, largely dependent
on the sea conditions, so it is challenging to monitor and assess them
clearly. All these issues pose additional challenges to assessing offshore
wind projects’ impact on fishing and devising appropriate strategies.
While the National Wind Energy Policy prescribes the identification of
fishing grounds and the relocation of such grounds, given the volatility
in the migration character of sea fish, such relocation is difficult to
execute.
Offshore wind projects could impair the visual and scenic beauty of
the sea and have a negative impact on ocean-based tourism. The visual
impacts depend on the location of the wind farms in relation to the coast.
Studies in the context of other countries have pointed to the presence
of such impacts (Ladenburg 2009; Maslov et al. 2017). While there has
been considerable emphasis on coastal tourism, through schemes such
as Sagarmala, the location of offshore wind energy projects may conflict
with nature. The Indian coasts serve as a major source of tourism and
constitute a major source of revenue in India.
It is evident from the mapping of impacts that they differ in
their intensities across various stages of the project life and for
different categories of environmental and social elements. Given the
importance of ocean ecosystems and the ecological significance of
marine biodiversity and species, development projects like offshore
wind energy require detailed scrutiny and assessment. This becomes
more pronounced as the policy envisages public–private partnerships,
which often give less importance to such environmental and social
considerations. Further, while the most substantial study, which
FOWIND (2017) carried out, recognized the possible environmental
and social impacts of such projects, it did not consider these impacts
as crucial factors for offshore wind energy development in the country.
The next section offers some possible pathways for the development of
such energy assets.
9.6 O
ffshore Wind Energy Infrastructure
in India: Mapping the Future Pathways
While the previous section mapped the possible environmental and
social impacts of offshore wind energy projects, this section suggests
some possible pathways.
9.6.1 Need to Develop Robust Environmental

and Social Impact Assessment
There is a need to develop robust and detailed guidelines for

environmental and social impact assessment, which are crucial for
understanding the possible environmental and social impacts and
the management practices necessary to minimize such threats. While
the National Wind Energy Policy 2015 refers to EIA and the possible
impacts on fishing communities, detailed guidelines are lacking.
Besides, the policy is silent regarding the institutional mechanism that it
is necessary to develop to carry out such assessments, particularly at the
subnational scale. The scale and timing of such impacts are also quite
pertinent given that offshore wind energy technologies are new and
the impacts are largely unknown. It is also important to identify localized
impacts and undertake the required action plans. In many instances, the
detailed environmental constraints have a strong link to the adopted
technological approaches. Hence, efforts to carry out an EIA devoid
of technological solutions will be suboptimal.
9.6.2 Detailed Marine Spatial Planning
Projects require a detailed marine spatial planning exercise to assess the

possible environmental and social impacts. Most European countries
carry out detailed marine spatial planning, which consists of developing
a good understanding of the environmental constraints, conducting
extensive stakeholder surveys, and so on. These are more pronounced in
a country like India, where local community protests are very strong and
importantly competing interests exist for the use of marine spaces exist.
There is historical evidence that many power projects suffer delays or
cancellation due to a poor understanding of their environmental and
social impacts.
Spatial planning could also involve implementing the necessary
action plans considering the contextual aspects. For instance, action
plans are needed to identify birds’ migratory paths and avoid the
construction of such projects in those paths, to produce technical
designs for wind farms, such as grouping turbines to avoid flying paths,
to increase the visibility of rotor blades with colors to reduce collisions,
and so on. Similarly, the deployment of advanced technologies can
reduce the noise by using the soft-start or ramp-up procedure (OSPAR
Commission 2008). Necessary steps, such as the use of suitable cables,
shielding of cables, and burial of cables at a safe depth, can reduce such
negative impacts. While technological developments could help to
address some of the spatial issues of the development of offshore wind

energy projects, it is important to carry out stakeholder consultations
at every stage of project development to minimize frictions between
different stakeholders in the use of marine areas and spaces.
9.6.3 Detailed Stakeholder Mapping
To assess the social impacts, it is pertinent to carry out detailed

stakeholder surveys. For instance, fishing constitutes an important
source of livelihoods in India. It is important for the proposed projects
to start engaging with fishing communities from the very beginning of
the project. Detailed engagement with various fishing communities and
entities is crucial, such as with local fishing cooperatives; the National
Coastal Zone Management Authority; the Department of Animal
Husbandry, Dairying, and Fisheries; and the State Fisheries Department.
This could build confidence and reduce the uncertainties.
Similarly, carrying out EIA involves engaging with the local
stakeholders in both social and environmental matters and taking them
into confidence in decision-making. Given that the thrust of these
projects is on private development, poor and fragmented community
engagement could generate adverse repercussions in the long run.
While social issues, such as livelihoods, are more direct and immediate,
the environmental issues will largely emerge over different phases
of project operation. Inclusive, participatory, and well-informed
stakeholder engagement is crucial for these projects.
These are a few action plans that could reduce the environmental
and social impacts of offshore wind energy project development. For
instance, the FOWIND (2017) study identified an extended list of
stakeholders to consult when carrying out the EIA.
9.6.4 Transiting from Management to Governance
As it is likely that primarily private actors will develop and manage

offshore wind energy infrastructures, it is necessary for sustainable
ocean governance to move beyond the management structures to
governance systems involving public, private, and other actors, such
as cooperatives, informal groups, and civil society groups. A mix of
management and a well-governed system could deliver the optimal
outcomes. Governance is crucial as there are competing interests among
varying stakeholders in extracting marine resources of different forms.
On the one hand, maintaining the marine ecosystem and retaining
its functionality are crucial; on the other, there has been increasing
pressure on marine resources through various policy initiatives, such as

deep ocean missions.
It is also important to focus on creating local jobs through these
interventions. Studies have pointed out that offshore wind energy
projects generate many sustainable jobs in various segments of the
supply chain. For instance, the GWEC (2021) estimates suggested that
offshore wind projects on average generate about 17 person-years per
megawatt over the 25-year lifetime of the project. However, given the
Indian context and the heavy reliance on the ocean for livelihoods, it is
important to provide those who are losing their livelihoods with some
alternative employment opportunities.
9.7 Concluding Remarks

In the basket of renewables, offshore wind energy is emerging as a
promising energy infrastructure worldwide, with far-reaching potential
to meet the burgeoning energy demand. Offshore wind energy is
promising as an alternative source of energy for a country like India,
which continues to be land deprived and increasingly faces difficulties
in acquiring land for energy. Considering the potential, the available
technology, and the cost, the country has set medium- and long-term
targets of deploying 5 GW of offshore wind energy by 2022 and 30 GW by
2030. While some scholarly efforts in the Indian context have analyzed
various aspects of offshore wind energy development, there is a dearth
of studies understanding and analyzing the associated environmental
and social challenges of such infrastructure deployment.
The development of the necessary policy and institutional
framework governing offshore wind energy development has taken
place and includes provisions to assess the environmental impact
and the effects on livelihoods. However, the policy does not explicitly
mention the institutional mechanisms that it is necessary to create at
the subnational scale. The policy document also does not refer to other
environmental laws, regulations, and guidelines that are applicable to
such projects.
While the full-scale impact will be apparent after projects’
operationalization, drawing from the international experiences
and expert consultation, this chapter identifies a host of possible
environmental and social impacts. This mapping is more pertinent given
that the EIA Notification of 2006 does not cover most of the renewable
energy in India under its ambit and most of the state pollution control
boards tag renewable energy projects such as solar and wind projects as
“green.” There has been apprehension that offshore wind projects could
adversely affect the MPAs and their ecosystems. It emerged from the
analysis that mangroves, for instance, could suffer adverse impacts,

particularly from the proposed project in the Gulf of Khambhat,
which has stretches of mangroves. Developing such projects without
implementing adequate measures could accentuate the degradation of
mangroves (Aggarwal 2018). Similarly, rich coral reef sites exist in the
proposed offshore wind project states. For instance, the Gulf of Mannar,
Gulf of Kutch, and Palk Strait are rich in coral reefs. Though the impacts
on coral reefs are unclear, it is necessary to undertake precautionary
measures to reduce the possible negative impacts. Offshore wind
projects could pose major risks to the habitats of ocean animals and
birds. For instance, the proposed project site in Gujarat is the ground
for hundreds of plant species and a place for sea animals, and migratory
and non-migratory birds (Aggarwal 2019). Without adequate measures,
the project could exert strong negative impacts. For instance, the impact
on migratory birds could be significant. It could be in the form of
blocking their migratory paths or killing birds due to collision with wind
turbines. Apart from all these impacts, the noise and radiation emanating
from these plants, such as electromagnetic and heat radiation, could
negatively affect marine animals. They could create harmful effects on
fish and other sea animals and may change their behavior.
The social impacts are largely in the form of adverse impacts on
the livelihood of fishing communities. The impacts on fishing could
occur in multiple ways. Fishing through trawling could be damaging
for the structure of the offshore wind plants; hence, offshore wind
areas usually ban trawling. This can create substantial hardship for
fishing communities. The noise that these wind farms create could also
be harmful for the fish population. More importantly, marine fishery
resources have specific characteristics that make them difficult to
monitor and manage. For instance, fish continue to migrate frequently,
largely affected by the sea conditions. While the National Wind Energy
Policy prescribes the identification of fishing grounds and their
relocation, given the fishing characteristics, it is difficult to execute
such relocation. The overall mapping revealed that the impacts would
be different at different stages of project development and operation.
Hence, careful scrutiny and analysis are necessary before implementing
such projects.
Our study offers some possible pathways to minimize these impacts.
There is a need to develop robust and detailed environmental and
social impact assessment guidelines. The assessments should consider
localized effects. It is necessary to create adequate local-level capacities
to deal with such impacts. The emphasis should be on detailed marine
spatial planning exercises. Understanding environmental constraints
is important. In the Indian context, it is crucial to conduct detailed
stakeholder surveys, including all possible stakeholders. Finally, there

is a need to make appropriate action plans. For instance, to reduce the
impacts of offshore wind projects on migratory birds, it is important to
identify birds’ migratory paths, increase the visibility of motor blades,
and so on.
Though the assessment that this study carried out offers some
direction for the offshore wind energy development in the country, it
has limitations as it did not perform an in-depth survey to identify the
localized impacts of such project development. Given the diversity and
contextual heterogeneity, it is important to understand the possible
impacts of such projects on the ground. Context-specific impact
assessment that considers the heterogeneity of ocean ecology and ocean
biodiversity would highlight the context-specific challenges. This opens
up new areas of research and analysis for the future.
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10
Sustainable Coastal
and Maritime Tourism:
A Potential Blue Economy
Avenue for Bangladesh
Md Wasiul Islam and Tapan Sarker
10.1 Introduction
Coastal and maritime tourism (CMT) is very popular in various corners
of the world. It is arguably the largest component of the tourism industry
as well as one of the largest wedges of the maritime economy sector
(Tegar and Gurning 2018). Research has considered both coastal and
maritime tourism to be among the oldest and largest segments of the
tourism industry (Hall 2001; Ecorys 2013). Coastal tourism and marine
tourism are interconnected as both rely on the marine environment
(Vierros and De Fontaubert 2017; Tegar and Gurning 2018). These
coastal and marine zones are well-known for providing specific habitats
for diverse and unique biodiversity along with picturesque scenic beauty
that attracts many tourists, offering the potential for CMT. This is part
of blue tourism, along with some other types of sectoral development,
including the exploration of offshore hydrocarbons and other natural
resource extraction (Islam and Mostaque 2018; Alam 2019).
Coastal tourism takes place in a coastal environment, which refers
to both beach-based and non-beach-focused land-based recreational
and tourism activities depending on the vicinity of the sea and includes
the suppliers and various manufacturing industries with connections
to these activities. Examples of beach-based activities are swimming,
sunbathing, surfing, and various other sports and activities. Conversely,
examples of non-beach-focused activities are coastal walks, wildlife
watching, accommodation, food and drink, and so on in that specific
coastal environment. In contrast, marine or maritime tourism takes
248
Sustainable Coastal and Maritime Tourism: A Potential Blue Economy Avenue for Bangladesh 249
place at sea and consists of mainly water-based (rather than land-

based) activities, such as cruising, sailing, boating, yachting, and
various nautical sports. However, it includes the operation of land-
based facilities and services and the manufacturing of the equipment
necessary for such recreational and tourism activities (Ecorys 2013).
The blue economy is an economic development paradigm based
on ecosystem principles that conceptualize oceans as “development
spaces” where spatial planning integrates conservation, sustainable use,
oil and mineral wealth extraction, bioprospecting, sustainable energy
production, and marine transport (UNDP 2018). CMT comprises a
crucial segment of the blue economy (Tegar and Gurning 2018),
which represents 5% of the world gross domestic product (GDP).
Being a human-resource-intensive subsector, CMT is increasingly
involving local communities in its value chain, which can facilitate the
development of the local economy and the reduction of poverty (UNDP
2018; Tonazzini et al. 2019).
CMT can claim to be even more important for many developing
countries for boosting their domestic economy and significantly
contributing to the tourism sector, enabling it to become the top
export category. CMT is highly dependent on the quality of natural
ecosystems to attract visitors but at the same time contributes strongly
to their depletion and fragilization, hence putting its own sustainability
at risk (Tonazzini et al. 2019). Consequently, research has identified
CMT in many cases as a controversial issue, which strongly warrants
consideration of the concept of sustainable development (Islam et al.
2013; Hossain et al. 2014; Islam and Shamsuddoha 2018; Hassan and Alam
2019; Hussain, Failler, and Sarker 2019; Patil, Failler, and Alam 2019).
Therefore, the issues of developing and promoting CMT demand critical
analysis to maximize the positive impacts and to reduce the negative
impacts and ensure sustainable CMT. Consequently, sustainable CMT
requires various institutional instruments and governance mechanisms
to regulate its various functions and activities as well as to boost the blue
economy sector.
Bangladesh, a South Asian country, is a floodplain delta, where
thousands of rivers and canals spread all over the land. The country
leans gently from the north to the south, meeting the Bay of Bengal at
its southern end. The entire coast runs parallel to the Bay of Bengal,
forming a coastline 710 kilometers long (Ministry of Water Resources
2005a). Considering the nature of these coastal areas, they are known
as zones of both vulnerability and opportunities. According to the
Bangladesh Maritime Zones Act 2019, the country will be able to
exercise its sovereign rights on its sea territory, including the inland
waters and water column suprajacent to the seabed; extend contiguous
zones and exclusive economic zones up to 200 nautical miles and on

the continental shelf beyond 200 nautical miles; and explore the sea
resources on the continent for up to 354 nautical miles (Maritime Affairs
2019). These areas are crucial for the political, economic, and security
interests of Bangladesh (Alam 2019; Iqbal 2019).
The discussions on the blue economy of Bangladesh received
special momentum just after the settlement of the maritime boundary
delimitation dispute with neighboring countries. This momentum
started after the declaration of a verdict by the International Tribunal
for the Law of the Sea in Germany on 14 March 2012. Similarly, the
verdict with India declared on 7 July 2014 permitted the sovereignty
rights of Bangladesh to all the living and mineral resources of the
continental shelf of the Bay of Bengal. Consequently, Bangladesh has
become an important maritime state with a long coastline and sea lanes
of communication. Currently, it covers 118,813 square kilometers (km2)
of the territorial sea due to these two historical verdicts. Therefore,
Bangladesh has rights over a maritime zone that is almost the size of the
country itself (147,570 km2). These two landmark verdicts have widened
many existing and new opportunities, including CMT, in Bangladesh.
Due to the geographical situation and territorial resources, the
islands are a top destination for CMT for millions of tourists every year.
Islands constitute economic, social, cultural, and strategic heritage that
supports 20% of the global biodiversity (IUCN 2020). Some policies and
acts, along with other legal documents (see Table A10.1 in the Appendix),
have created “windows of opportunity” for Bangladesh, allowing
and recommending tourism development in the coastal and marine
environment for the greater interest of the country on which it can base
sociocultural, economic, environmental, and institutional development
(Islam 2010; Islam, Iftekhar, and Islam 2011; Islam et al. 2013; Hossain et
al. 2014; Islam and Shamsuddoha 2018; Hassan and Alam 2019; Hussain,
Failler, and Sarker 2019; Patil, Failler, and Alam 2019).
Bangladesh is blessed with extraordinary natural beauty mixed
with green slashes of forests, mountains, a variety of cultivation systems,
and various water bodies, including ponds, haors, baors, canals, rivers,
and the sea, along with diversified cultural wealth and a wide range of
archaeological and historical attractions that can easily entice tourists
to visit. Though nature-based tourism, particularly relating to forests,
mountains, and rivers, has been popular in Bangladesh, CMT has not
yet flourished significantly except for beach and mangrove tourism
(mainly focusing on the Sundarbans) at some spots of the Bay of
Bengal. The tourism facilities that the country has developed at these
CMT destinations so far are very popular, particularly among domestic
tourists. However, there is still huge untapped potential for CMT,

especially considering maritime tourism resources. Judging by the
existing and potential resources of CMT, especially after winning the
two international cases against neighboring countries, environmental
issues in these destinations have differentiated this subsector from
others, particularly due to the excessive number of tourists at some
beaches, the ongoing coronavirus disease 2019 (COVID-19) pandemic,
recent priorities of the government for CMT development, and so on.
The Government of Bangladesh has identified CMT as one of the
tools to develop the blue economy, and it is in the process of taking
various initiatives in this regard (Alam 2019; Mukit 2019). Research has
indicated that a marine tourism-based blue economy may attract both
domestic and international tourists (domestic and inbound tourism),
which may contribute significantly to the economy of Bangladesh.
However, it has suggested sustainable marine tourism to ensure
the balanced development of this untapped subsector of tourism.
This therefore warrants a scientific study to explore how to develop
sustainable CMT in Bangladesh. Against this backdrop, this chapter
examines the institutional arrangements to study the prospects and
challenges of developing sustainable CMT in Bangladesh. It investigates
the existing institutions supporting CMT and suggests policy guidelines
to develop sustainable CMT practices in Bangladesh.
10.2 Methodology
This qualitative study performed a systematic literature review
and meta-analysis to examine various existing policies, acts, rules,
regulations, and other institutional and governance arrangements to
assess their suitability for addressing and accommodating sustainable
CMT development in the context of Bangladesh. The search for
these national institutional instruments and governance mechanisms
(national) used various keywords, such as tourism policy, acts, rules,
regulations, strategies, and programs. Similarly, the authors searched
for regional and international (global) institutional instruments and
governance mechanisms using different keywords, such as international
agreements, treaties, conventions, protocols, collaboration, associations,
Sustainable Development Goals (SDGs), and memorandum of
understanding (MOU) on tourism in the context of Bangladesh.
The keyword search used online search engines, including Google
and Google Scholar, which led to various websites and archives relating
to these institutional instruments and governance mechanisms. The
authors visited websites from the list of links to judge whether they were
relevant to the issues in focus. Furthermore, they deliberately visited the

websites of different government ministries of Bangladesh and other
organizations for the same purpose, as well as consulted various online
books, journals, reports, blogs, and newspapers. After reading these
sources, they sorted, organized, and analyzed relevant data to fulfill
the objective of the study. They made special attempts to find specific
information concerning CMT. The authors prepared a chart (see Table
A10.1 in the Appendix) to list all these relevant institutional instruments
and governance mechanisms (national) that could directly or indirectly
regulate and influence CMT, categorizing them into different themes,
like the constitution, acts and orders, rules, visions, plans, strategies
and action plans, and programs or schemes. Moreover, they categorized
relevant institutional instruments and governance mechanisms
(regional and global) into treaties, conventions, agreements, protocols,
frameworks, SDGs, MOUs, and so on.
The Preferred Reporting Items for Systematic Reviews and Meta-
Analyses (PRISMA) aims to assist researchers in developing the
reporting of systematic reviews and meta-analyses. Moreover, PRISMA
may provide a framework for a critical assessment of published
systematic reviews. However, this study did not treat PRISMA as an
instrument to assess the quality of a systematic review (PRISMA 2015),
following the PRISMA framework that Moher et al. (2009) prescribed.
10.3 S
tatus of Coastal and Maritime Tourism
in Bangladesh
Globally, CMT represents 5% of the world GDP. The expectation is that
it will generate job opportunities for approximately 8.5 million people
by 2030 (7 million employed in 2010) through CMT. The share of CMT
in the total maritime industry value added is likely to reach 26% by 2030,
making it the largest contributor to the blue economy (Tonazzini et al.
2019). The growth of the overall international tourist arrivals (ITAs) is
overwhelming and likely to increase to 65% in 2030 compared to 2010,
with an expected 1.8 billion tourists per year, and to be even higher in
developing economies than in developed economies. Nevertheless,
COVID-19 reduced ITAs by 84% between March and December 2020
(74% in 2020) compared with the previous year. However, such ITAs
fell even more (80%–90% in 2020) in many developing economies.
A similar trend emerged at the beginning of 2021, with an average
global ITA decline of 88%. Estimates have indicated that the economic
losses could be $1.7 trillion–$2.4 trillion, with the potential loss of
100 million–120 million direct tourism jobs in 2021 (UNCTAD 2021;
UNWTO 2021). There is an expectation that effective tourism recovery

policies will help to recover the loss within a few years.
The current blue economy of Bangladesh focuses mainly on
tourism and recreation (25%), followed by marine capture fisheries
and aquaculture (22%), transportation (22%), offshore gas and oil
extraction (19%), ship and boat building/breaking (9%), and minerals
(3%) (Figure 10.1). Around 30 million people (including both employees
and their household dependents) rely on the blue economy. Forecasts
have indicated that the investment in the CMT sector will grow to more
than 9% annually (Patil et al. 2018). Micro, small, and medium-sized
enterprises, especially restaurants, region-based hotels, tour operators,
and recreational activities, are strong drivers of Bangladesh’s tourism
industry (Uddin 2019).
Bangladesh’s tourism sector generated revenue of $1,567.43 million
from the blue economy in 2014–2015. The tourism satellite account for
Bangladesh was not available in that period. Therefore, the researchers
used aggregate data for the whole country and assumed that 16% of
this gross value added came from CMT (Patil et al. 2018). The blue
economy of Bangladesh contributes around $6.0 billion annually to
the national GDP (4.3% of the GDP in 2016). The gross value added of
the blue economy was $6.2 billion in 2015 (Business Standard 2020). The
contributions of tourism and recreation to the national GDP amounted
to over $10 billion in 2016, and they created more than 2 million direct
and indirect jobs. This sector of Bangladesh bases its activity on domestic
travel and tourism, which account for 98% of the total (WTTC 2017).
The recent report on Voluntary National Reviews of Bangladesh 2020
(focusing on the achievement of SDG 2030) published the achievements
of various sectors, including tourism (Government of Bangladesh
2020). According to the report, the tourism industry currently supports
1.3 million direct employees, while 2.4 million jobs are indirect.
Coastal tourism in Bangladesh mostly takes place on the world’s
longest (120 kilometers) unbroken and natural sea beach, Cox’s Bazar,
which is one of the most popular tourist destinations in Bangladesh.
Gradually, the subsector has flourished due to the development of
many other sea beaches, such as Patenga; Himchari, Inani, and its
adjacent areas, representing a marine drive; Kuakata; Saint Martin;
Char Kukri-Mukri; and several beaches at the Sundarbans, such as
Jamtala, Kochikhali, Dublar Char, Trikona Char, Bangobondhu Char,
and Mandarbaria. Nowadays, coastal tourism is one of the most popular
forms of tourism in Bangladesh. However, maritime tourism is still
popular. The government and the tourism-based private sector are
Figure 10.1: Blue Economy Sectors of Bangladesh

(%)
Minerals 3
Ship and boat building/breaking 9
Offshore gas and oil extraction 19
Transportation 22
Marine capture fisheries and aquaculture 22
Tourism and recreation 25
0 5 10 15 20 25 30
Source: BBS and World Bank (unpublished) cited in Patil et al. (2018).
taking various initiatives to develop and promote maritime tourism in

the country.
CMT mainly focuses on beaches, where people like to take part
in different activities, such as walking, running, playing, swimming,
sunbathing, enjoying the beach environment, relaxing on sun loungers
under beach umbrellas, shopping, eating, photography, horse riding,
surfing, and riding on beach riders. Different places of accommodation,
restaurants, shopping centers, and amusement facilities are available,
particularly in the Cox’s Bazar and Chottogram districts, which support
the national economy significantly by contributing to the GDP as well
as generating diversified employment opportunities. Currently, coastal
tourism is flourishing in Bangladesh. However, there are ongoing
debates about the implementation and management of these activities
(mainly construction and tourism-related activities). Many researchers
have found that these activities are not sustainable, hampering the
overall coastal and marine environment (e.g., Vierros and De Fontaubert
2017; Tegar and Gurning 2018; Tonazzini et al. 2019) and warranting
sustainable CMT practices. Sustainable CMT practices have the
potential to strengthen the blue economy (Tegar and Gurning 2018;
Alam 2019).
10.4 N
ational Institutional Arrangements for
Developing Coastal and Maritime Tourism
The Constitution of Bangladesh (Government of Bangladesh 1972b)
established recreation and tourism-related basic necessities for citizens
in section 15(c), which formed the foundation of tourism development
of the country. This study provides a list of 41 institutional and
governance arrangements (policies, acts, orders, rules, visions, plans,
strategies, guidelines, etc.) which it identified through a systematic
content analysis as being somehow linked to the development and
flourishing of the overall tourism sector of Bangladesh (see Table A10.1
in the Appendix). However, very few such arrangements have focused
specifically on CMT. Two policies—the National Tourism Policy 2010
and the National Industrial Policy 2016—specifically and directly
recognized and recommended various forms of tourism, including
CMT. Besides these, six policies, which various ministries formulated,
have addressed tourism, which can also accommodate CMT. Moreover,
various government ministries have formulated eleven acts and orders,
three rules, three visions, four plans, seven strategies and action plans,
and three programs or schemes as supporting institutional instruments
and governance mechanisms to develop and promote tourism, which
may also address CMT. The current Government of Bangladesh has
tried (especially after resolving its conflicts with neighboring countries)
to emphasize this specific subsector of tourism as a crucial part of the
blue economy. As a result, it has attempted to formulate various legal
institutional arrangements to promote CMT, especially during the last
decade.
Several government ministries are involved in endeavors to
promote CMT in Bangladesh. These include the Ministry of Civil
Aviation and Tourism (Bangladesh Tourism Board and Bangladesh
Parjatan Corporation); Ministry of Foreign Affairs; Ministry of Shipping;
Ministry of Home Affairs; Ministry of Environment, Forests, and Climate
Change; Ministry of Cultural Affairs; Ministry of Finance; Ministry of
Local Government, Rural Development, and Co-operatives; Ministry
of Law, Justice, and Parliamentary Affairs; Ministry of Chittagong
Hill Tracts Affairs; and Ministry of Land. The Energy and Mineral
Resources Division of the Ministry of Power, Energy, and Mineral
Resources formed an administrative cell titled the “Blue Economy Cell”
in 2017 to look after various issues of the blue economy. Moreover, some
autonomous, private, and nongovernment organizations are cooperating
with these ministries in their efforts to advance this tourism subsector.
However, ensuring good collaborative relationships and functional
networks among these ministries, departments, and other bodies is a

major challenge. Therefore, Bangladesh needs to formulate integrated
planning to develop and promote CMT.
Various higher education and research organizations focus on
coastal and marine resources, such as the Bangabandhu Sheikh Mujibur
Rahman Maritime University; some other universities with programs in
oceanography, marine biology, and marine resources technology (Dhaka
University, Chottogram University, Khulna University, etc.); National
Maritime Institute; Marine Academy; Bangladesh Oceanographic
Research Institute; Institute of Water Modelling; Center for
Environmental and Geographic Information Services; and Bangladesh
Institute of Maritime Research and Development (BIMRAD). Moreover,
there are some training institutes, such as the Bangladesh Parjatan
Corporation, as well as maritime and other private training institutes.
The Bangladesh Forest Department, Coast Guard, Water Resources
Planning Organization, Bangladesh Inland Water Transport Authority,
different chambers of commerce, some nongovernment organizations,
and private organizations are also playing a role in developing and
facilitating CMT in Bangladesh.
Currently, the Bangladesh Tourism Board, under the Ministry of
Civil Aviation and Tourism (MoCAT), is playing an important part in
creating a competitive tourism industry, including ecotourism and CMT.
It is attempting to improve the existing tourism facilities as well as create
new tourism facilities in various tourism destinations in Bangladesh,
including coastal and maritime tourist destinations. Moreover, they are
promoting these destinations to domestic and international tourists.
They have started to prepare a “Tourism Master Plan” for Bangladesh,
which will also include CMT development and promotion.
Recently, the Ministry of Shipping has engaged in short-,
medium-, and long-term strategic planning for the development of
the blue economy, including CMT development and promotion issues,
considering domestic, inbound, and outbound tourism. Some of the
short-term initiatives (with an implementation period of not more
than 2 years) include steps toward Bangladesh–India sea cruise/coastal
tourism; a feasibility analysis to develop coastal tourism with Maldives
and Sri Lanka; a project for designing and purchasing cruise ships and
involving private entrepreneurs in introducing cruise tourism between
Bangladesh, India, Maldives, and Sri Lanka; the establishment of river
ports at Cox’s Bazar, Teknaf, Saint Martin’s Island, and Moju Chowdhury
Hat (Laxmipur) to facilitate coastal tourism; the introduction of coastal
passenger services for the Cox’s Bazar–Saint Martin’s and Cox’s Bazar–
Moheshkhali routes; the introduction of passenger service through
internal river routes for the Dhaka–Chottogram–Cox’s Bazar route;
the introduction of a master’s course in maritime education; and the

establishment of the National Maritime Institute, Madaripur branch
project. Some of the medium-term initiatives (with an implementation
period of 2–5 years) include the conservation of sea and sea resources
and their sustainable use and postgraduate courses (master’s and
doctorate) in coastal and maritime affairs.
Besides these endeavors, other ministries and departments have
relevant initiatives to facilitate CMT development in Bangladesh.
Examples include a notable initiative from the Bangladesh Economic
Zones Authority (BEZA) (under the Prime Minister’s Office) to
establish the Sabrang Tourism Park (an ongoing project with an area
of 1,027 acres) as the first tourism-based special economic zone and
the first exclusive tourism zone in Bangladesh. The park’s location is
in amazing hill and sea beach territory with a multifaceted and diverse
landscape and culture in Teknaf subdistrict in the Cox’s Bazar district.
According to the master plan, this park will become a hub of tourism
destinations around Cox’s Bazar and its neighboring areas. Moreover,
the BEZA has prepared the master plan of the Sonadia Ecotourism Park
(8,967 acres) and the Naf Tourism Park (271 acres) in the Cox’s Bazar
district to attract domestic and international tourists.
10.5 Regional and International (Global)

Institutional Arrangements
Bangladesh has signed and/or ratified various international treaties,
conventions, and agreements. Some of these arrangements directly
and indirectly concern different issues of CMT as well as the
abovementioned national institutional arrangements. Among these
international institutional arrangements are the Convention on
Biological Diversity (CBD); Aichi Biodiversity Targets; 2030 Agenda for
Sustainable Development (SDGs); Kyoto Protocol to the United Nations
Framework Convention on Climate Change; Paris Agreement; World
Conservation Strategy; International Convention for the Prevention
of Pollution of the Sea by Oil; International Convention Relating to
Intervention on the High Seas in Cases of Oil Pollution Casualties;
Convention on Wetlands of International Importance Especially as
Waterfowl Habitat (Ramsar Convention); Convention Concerning the
Protection of the World Cultural and Natural Heritage (World Heritage
Convention); Nagoya Protocol; Convention on International Trade in
Endangered Species of Wild Fauna and Flora (CITES Convention);
United Nations Convention on the Law of the Sea; Agreement on the
Network of Aquaculture Centres in Asia and the Pacific; International
Convention on Oil Pollution Preparedness, Response, and Cooperation;

United Nations Framework Convention on Climate Change; Cartagena
Protocol; and Convention on Persistent Organic Pollutants.
Moreover, the Government of Bangladesh and other countries
and organizations have signed other institutional arrangements, such
as bilateral or multilateral agreements and MOUs, to facilitate the
development of CMT. Focusing on regional institutional arrangements,
countries have recognized the significant role of tourism since the
establishment of the South Asian Association for Regional Cooperation
(SAARC) in 1985. Some initiatives were taken to strengthen tourism in
the SAARC region when the leaders met during the Second Summit
in Bangalore, India, in 1986, and successive summits reiterated the
significance of various forms of tourism, including CMT (SAARC
2018). The second meeting of tourism ministers embraced the SAARC
Action Plan on Promotion of Tourism, which included a joint proactive
marketing campaign of the SAARC landmass as a composite destination
in the international market. The plan incorporated the roles of private
sectors in this region in promoting and developing tourism both intra-
regionally and internationally.
The Bay of Bengal Initiative for Multi-Sectoral Technical and
Economic Cooperation (BIMSTEC) (established in 1997) is another
platform for intra-regional cooperation among seven South and
Southeast Asian countries (Bangladesh, Bhutan, India, Myanmar, Nepal,
Sri Lanka, and Thailand). It covers 3.7% of the global area and a market
of around 1.7 billion people (i.e., 22.2% of the global population). Tourism
has been one of the 14 sectors of cooperation since the inception of this
platform. A seminar on “Tourism Connectivity in BIMSTEC Region”
took place in Dhaka on 28 September 2019 in collaboration with the 8th
Asian Tourism Fair 2019. The seminar took various steps to promote
regional tourism in the Bay of Bengal and emphasized the necessity
of more intense cooperation among government agencies and private
sector tour operators as well as hospitality industry entrepreneurs.
It also formulated the Plan of Action for Tourism Development and
Promotion for the BIMSTEC Region (BIMSTEC 2019).
Five maritime countries (Bangladesh, India, Maldives, Pakistan,
and Sri Lanka) established another maritime regional platform,
the South Asian Seas Programme, under the Regional Seas Program
and South Asian Seas Action Plan (adopted in 1995). It recognized
recreation and tourism as a vital sector to contribute to the member
states and the region considering its economic, social, and cultural
importance. The Asian Development Bank (ADB) prepared the South
Asia Subregional Economic Cooperation Tourism Development Plan
(SASEC Tourism Plan), which represents the profiles of existing
tourism status, patterns, and future tourism development agendas of

Bangladesh, Bhutan, the eastern states of India, Nepal, and Sri Lanka.
Moreover, it recommends core strategic directions for the Technical
Working Group (ADB 2004). In addition, Bangladesh has an active
association with various global organizations, including the United
Nations World Tourism Organization (UNWTO), World Travel and
Tourism Council (WTTC), and Pacific Asia Travel Association, which
guide and facilitate the development and promotion of the tourism
sector and CMT-related issues.
10.6 Challenges
10.6.1 L
ack of a Dedicated Coastal and Maritime Tourism
Policy and Coordination
Despite the increasing global interest, Bangladesh has not yet produced
a well-coordinated blue economy policy or plan to strengthen the
sector (Uddin 2019). It is clear that, though several legal institutional
frameworks from different ministries have directly and indirectly
touched on coastal and marine tourism (see the Appendix), there is still
no integrated and dedicated policy, act, or plan focusing on this specific
form of tourism. Moreover, there is a clear coordination gap among
the concerned ministries regarding the implementation of the existing
institutional instruments and governance mechanisms. Additionally,
there is a low level of participation of local stakeholders in planning
and implementing these institutional instruments and governance
mechanisms. Currently, the tourism sector of Bangladesh enjoys no
economic support, like cash incentives, tax holidays, and value-added
tax exemption on imports, from the government (Uddin 2019).
10.6.2 Anthropogenic Pressure
The development and promotion of CMT face various challenges in

Bangladesh, most of which are anthropogenic in nature. CMT is a
complex phenomenon that has both positive and negative impacts
on coastal and marine environments due to various tourism activities
(Marafa 2008; Rahman et al. 2020). On the one hand, a healthy natural
environment is a great asset for CMT. On the other hand, tourism exerts
considerable pressure on the local environment and ecosystems, such
as greater use of water, other resources, and energy; increased waste
generation; and accumulated emissions from various sources, such as
air, road, and sea transport, particularly in peak seasons.
The rapid growth of the unplanned and uncontrolled domestic

tourism industry has harmful impacts on the marine environment,
particularly on Saint Martin’s Island and in Cox’s Bazar and the
Sundarbans. These include harmful activities such as the collection of
shells, corals, and eggs of various animals, as well as damage to coastal
vegetation through trampling. Such an uncontrolled influx of tourists
and their rampant abandonment of solid waste (e.g., plastic bags, cans,
wrappers, water bottles, and other non-biodegradable substances) are
becoming major threats to these sensitive ecosystems, causing various
types of significant environmental pollution. Moreover, noise pollution
from uncontrolled mechanized vehicles is triggering problems for the
ecosystems, specifically the wildlife of coastal forests. Therefore, the
Department of Environment (2006, 2010a, 2015) has identified coastal
tourism as one of the 15 major sources of coastal and marine pollution.
Moreover, conflict in coastal land use presents another challenge in
addressing the sustainable development of the area (GED 2013). All
these issues are responsible for the deteriorating coastal biodiversity of
Bangladesh (TBS Report 2020).
10.6.3 Climate Change

The coastal area of Bangladesh is especially vulnerable to the effects
of climate change. According to the influential Intergovernmental
Panel on Climate Change, a 1-meter sea-level rise would flood 17% of
the country and create 20 million refugees by 2050 (Sarwar 2005;
Szczepanski, Sedlar, and Shalant 2018). Consequently, such a situation
would adversely affect the entire coastal zone of Bangladesh and CMT.
10.6.4 Domestic Tourism and COVID-19

Domestic tourism is the main source (97%) of earnings in tourism,
indicating that Bangladesh is not a popular destination among
foreign tourists (WTTC 2020a). The COVID-19 pandemic situation
will aggravate the situation for inbound tourism in Bangladesh.
There will be more pressure on domestic tourists in the coastal and
marine destinations, which will create more of the abovementioned
anthropogenic challenges.
10.6.5 Other Challenges

Other challenges that warrant attention in developing and promoting
CMT in Bangladesh include insufficiently trained and competent
human resources, lacking innovative and creative thinking abilities; the
knowledge gap; inadequate infrastructure for tourism facilities; the lack

of CMT branding; insufficient coordination and partnerships among
the concerned ministries, departments, and the private sector; poor
promotional activities; the lack of certification guidelines for tourism
products and services; the lack of a best practice-sharing culture; the
poor tourism budget; and insufficient research and links between
research and development, as well as policy formulation.
10.7 Prospects
10.7.1 Institutional Arrangements
Despite the absence of any specific and dedicated policy, act, or plan,
the national, regional, and global institutional arrangements that
relate directly and indirectly to CMT are somehow supportive of
the development and promotion of this specific form of tourism in
Bangladesh (see section 10.3 for the details). The current government
has already made special considerations to promote the blue economy
of Bangladesh, emphasizing CMT as one of the crucial subsectors. The
Ministry of Foreign Affairs established a “Blue Economy Cell” in 2017
with the authorization to synchronize blue economy initiatives across
different sectoral ministries. The Seventh Five Year Plan of Bangladesh
declared a competitive tourism industry, including ecotourism and
marine cruises, as one of the 12 activities to create and maintain a
prosperous and sustainable blue economy. The ongoing Eighth Five
Year Plan also emphasizes coastal tourism under the blue economy,
which includes several activities aiming to develop the sector.
The CMT sector depends strongly on maintaining the marine
ecosystems (Roy and Roy 2015). Considering the sensitivity of the
ecosystems, the Government of Bangladesh has already declared Saint
Martin’s Island (a coral island), Cox’s Bazar–Teknaf sea beach, and the
Sundarbans as ecologically critical areas to protect their biodiversity.
These ecologically critical areas, along with other coastal and marine
areas, are also potential CMT destinations for the greater welfare of the
local community as well as the environment. Scuba diving, recreational
fishing, water skiing, windsurfing, cruise tourism, and tours to marine
protected areas (MPAs) are some examples of potential activities under
CMT. However, various tourism activities exert significant negative
impacts, causing coastal and marine pollution, as different studies have
reported (e.g., DoE 2006; Business Standard 2020).
The natural resources below sea level (particularly biodiversity)
and the beauty of Bangladesh remain unexplored as a new horizon for
maritime tourism. There are two MPAs in Bangladesh. The first such
area is the Swatch of No Ground (consisting of an area of 1,738 km2) and

Nijhum Dwip Marine Reserve/MPA (an area of 3,188 km2) in the South
Bay of Bengal. There is an intention to propose another 1,743 km2 area
adjacent to Saint Martin’s Island as an MPA to conserve its extraordinary
biodiversity. All these MPAs offer substantial potential for maritime
tourism. Tourists have the unique opportunity to enjoy endangered
marine dolphins, whales, and sharks and facilitate their conservation
through awareness creation and fund generation. Various actions are
undergoing implementation there to foster the conservation of marine
biodiversity, including dolphins and turtles.
10.7.2 Cruise Ships
Recently, the maritime tourism history of Bangladesh has reached some

new milestones. International luxury cruise ships started to travel to
Bangladesh in 2017, and the number increased in 2019. Moreover, the
introduction of the first domestic luxury cruise ship (MV Bay-One)
took place in December 2020, with the capacity to accommodate more
than 2,000 guests. The ship started its operation on the Cox’s Bazar–
Saint Martin’s–Cox’s Bazar route. It recently introduced a new route
(Chattogram–Cox’s Bazar–Saint Martin), and other routes to adjacent
islands are likely to commence in the near future to develop CMT
further. Nonetheless, the ongoing COVID-19 pandemic has caused the
cancellation or delay of many such endeavors. Therefore, CMT has good
prospects for developing and promoting all types (domestic, inbound,
and outbound) of tourism in Bangladesh.
10.7.3 Natural Attractions
The culture, tradition, and trades of Bangladesh are intimately

concomitant with the Bay of Bengal—part of the Indian Ocean. The
Bay of Bengal and the entire coastal zone (47,201 km2, i.e., 32% of the
country under 19 coastal districts) of the country are rich in natural
resources, which play crucial roles in the national economy; contribute
profoundly to protecting against natural disasters through the
natural green belt, particularly the Sundarbans; conserve important
biodiversity of the coastal and marine environment; and protect
the special culture of the region, among others. The potential for
the development of CMT in Bangladesh is unique due to the presence of
many glorious natural resources, including the world’s longest unbroken
sandy sea beach (Cox’s Bazar), the largest single tract of mangrove forest
(the Sundarbans), the magnificent Teknaf peninsula, the marvelous

Saint Martin, and long coastal and maritime areas and their unique
forest and aquatic biodiversity. Though Bangladesh is a small country, it
contains some amazing and alluring islands. Most of these islands lie in
the Bay of Bengal, although some of them are in the Padma River. Travel
Mate (2019) identified the 15 most beautiful islands in Bangladesh and
suggested that tourists visit these islands to experience their pristine
nature, biodiversity, unique culture, and traditions. Since 2007, 29 new
islands (with a total area of 507 km2) have emerged in the Bay of Bengal,
and these are potential tourism destinations, particularly for adventure
travel tourists (The Straits Times 2017). However, very few studies have
been conducted on such tourism potential on these islands.
10.7.4 C
ontribution to the National Gross
Domestic Product
Despite the small contributions of the tourism sector to the national

GDP of Bangladesh, various studies have reported that Bangladesh
is a prospective country for tourism development (Islam 2010; Islam,
Iftekhar, and Islam 2011; Uddin 2019; Arif 2020), particularly for
CMT (DoE 2015; Nobi and Majumder 2019; Business Standard 2020).
The international visitor impact is still very low in Bangladesh (spent
$333.5 million), accounting for only 0.7% of the total exports in 2019.
International visitors contribute only 4% of the total spending on travel
and tourism. However, this is likely to grow by 7.1% per year or 4.7%
of the country’s GDP by 2027 (WTTC 2020b). The strong backward
and forward linkages of ecotourism are its strength in supporting
the local and national economy of Bangladesh through its significant
contributions to the livelihood and well-being of the destinations (DoE
2015). Considering the current status of the territory that Bangladesh
owns, it is possible to earn as much as $250 million every year from oil–
gas exploration, fishing, and the expansion of seaport facilities and CMT
(Rana 2019).
The contribution of the travel and tourism sector to Bangladesh’s
GDP was 3% in 2019 (6.8% growth over 2018), and it generated 2.9% of
the total employment. Moreover, the number of international visitors is
expected to increase by 6.1% per year with growth in the total tourism
GDP of 6.2% per year and employment growth of 1.8% per year (WTTC
2020b). All these statistics indicate that there are immense opportunities
for inbound tourism growth in Bangladesh, which will increase the
overall impacts of CMT in Bangladesh.
10.7.5 Tourism Growth Potential
Bangladesh is among the top 25 countries in the world for tourism

growth. Estimations have indicated that the overall tourism sector
will grow at an annual rate of 6.1% from 2017 to 2027. Though not
all the activities are part of the blue economy (WTTC 2017), CMT is
likely to play an important role in such growth considering its current
contributions and potential.
According to a World Bank study, the population growth rate of
Bangladesh will approach zero after 2050. This population growth
pattern will affect the future of the blue economy, including increased
CMT tourism demands (Patil et al. 2018). The Organisation for Economic
Co-operation and Development (2016) projected the global growth
of CMT in the future, which also applies to Bangladesh, where the growth
of investment in the tourism sector is likely to be 9.3% per year from 2018
to 2027. Additionally, urban areas will experience considerable growth
during this period, which will ultimately lead to CMT development
on various beaches, like Patenga, Cox’s Bazar, Himchori, Inani, Saint
Martin, Moheshkhai, the Sundarbans, Kuakata, Bhola, and Monpura
(Hussain et al. 2017).
10.7.6 Application of Different Forms of Tourism
Different forms of tourism may have potential in the context of the

coastal environment of Bangladesh. Considering the abovementioned
natural attractions and CMT, the principles of ecotourism (TIES 2019)
and sustainable tourism (UNWTO 2020b) are crucial to consider when
selecting a specific form of CMT. Consequently, community-based
ecotourism, pro-poor tourism-based rural tourism, beach/sand tourism,
cultural and heritage tourism, and tribal/ethnic tourism are some of the
possible forms to adopt in such a coastal environment.
The Government of Bangladesh has prescribed controlled
ecotourism as a protective form of tourism, especially for the key
biodiversity areas and protected areas, including the coastal and maritime
areas. Consequently, various formal documents have recognized
controlled/managed ecotourism, including several legal documents (e.g.,
the National Tourism Policy 2010; Coastal Development Strategy 2006;
Vision 2041; Seventh and Eighth Five Year Plans; National Forestry Policy
1994 and 2016 (draft); and National Biodiversity Strategy and Action
Plan of Bangladesh 2016–2021). Ecotourism with a controlled entry of
tourists is permissible anywhere that the government has declared as a
protected area and restricted for general uses. It has suggested following
successful sustainable models of ecotourism from countries in the Asia

and Pacific region (MoEF 2012).
Tourism scholars posit that competent human resource development
and good management of such forms of tourism to generate positive
sociocultural, economic, environmental, and institutional impacts and
control various negative impacts to facilitate sustainable CMT practice.
Moreover, the feasibility analysis, demand, and supply of these forms
of tourism will help to identify a specific form of CMT. The theme of
“tourism and rural development” of World Tourism Day 2020 needs
exploration in this regard to strengthen the selection of a specific form
of tourism.
10.7.7 S
ustainable Coastal and Maritime Tourism
to Promote Sustainable Development
Sustainable CMT is one of the ways to foster sustainable development,
which is still an unexplored sector in Bangladesh. Sustainable CMT
has the potential to contribute to natural resource conservation and
management and natural disaster risk reduction. It can also offer better
living standards by improving people’s livelihoods (i.e., sustainable
livelihoods) and is capable of earning millions in foreign exchanges
and preserving the culture and traditions. Generally, there is a lack
of environmental awareness and education among the people of
Bangladesh. Sustainable CMT practice can improve this and control the
various forms of environmental pollution, which constitutes one of the
important challenges facing the country.
10.7.8 Sustainable Development Goals

As mentioned, the forecasted investment in the CMT sector will grow
to more than 9% annually (Patil et al. 2018). Therefore, the expansion
of various forms of the CMT industry is likely to facilitate the blue
economy in achieving the 2030 Agenda for Sustainable Development
by creating more opportunities, especially for women, including tribal
and other minorities, reducing poverty through new livelihoods and
job creation, enhancing environmental awareness and education,
promoting biodiversity conservation both in water and on land,
improving governance, and promoting the sustainable use of coastal and
maritime natural resources as well as social and cultural sustainability.
The expectation is that the implementation of the Tourism Master Plan
(SDG 8) will create more than 6 million jobs by 2030 once ADB has
financed the South Asia Tourism Infrastructure Development Project
(Bangladesh Portion), aiming to improve culture-based tourism and to

strengthen linkages between tourism and local people by building the
capacity of communities to obtain greater benefits from the tourism
sector (SDG 11).
Addressing sustainable consumption (SDG 12), the government
has considered sustainable tourism. The Ministry of Civil Aviation and
Tourism (MoCAT) is responsible for developing and implementing tools
to monitor the impacts of tourism related to the sociocultural, economic,
and environmental perspectives. MoCAT has prepared short-, medium-,
and long-term action plans to achieve the objectives of sustainable
tourism through which it will promote sustainable development. In 2013,
the Government of Bangladesh established the Bangabandhu Sheikh
Mujibur Rahman Maritime University, which is the third maritime
university in South Asia and the twelfth maritime university in the world.
This university focuses particularly on SDG 14 and plans to conduct
both undergraduate and postgraduate academic and research courses
in various coastal and maritime fields, including CMT. Currently, the
Ministry of Foreign Affairs (MoFA) is formulating the legal framework
according to the instruments of the United Nations Convention on the
Law of the Sea to ensure the protection and conservation of the coastal
and maritime environment and its biodiversity. Tourism development
needs an integrated plan to conserve and preserve the life below the
water of such sensitive coastal and marine ecosystems, which will also
accelerate the blue economy.
The Bangladesh government is taking various initiatives to address
the effects of climate change. It is also investing in clean energy sectors,
which can contribute to reducing greenhouse gases (SDG 13). However,
it has not yet included tourism extensively in such interventions. The
recently formed Global Centre on Adaptation for South Asia established
a regional office in Dhaka. The expectation is that this will function as
a center of excellence for climate change adaptation measures in the
region.
CMT can directly influence life below water (SDG 14) due to its
operational nature. It can promote the conservation of coastal and
marine biodiversity by controlling environmental pollution, which it
will achieve by providing environmental education and awareness,
creating new jobs and livelihoods, and improving governance and multi-
stakeholder collaboration. According to Mojibul et al. (2018); Hussain,
Failler, and Sarker (2019); and Bhuiyan, Darda, and Habib (2020),
coastal and marine fishery activities, including recreational fishing, are
one of the attractions of CMT that can generate considerable economic
benefits, employment opportunities, and livelihoods for the local coastal
communities of Bangladesh. Various stakeholders have perceived CMT
as a facilitator of the coastal and marine fishery subsector. Furthermore,

CMT has a strong impact on the generation of various livelihoods for
coastal communities by introducing different service-oriented economic
activities, such as providing diversified accommodation, restaurant
facilities, handicraft manufacturing and marketing, transportation
services, tour guiding, and amusement facilities. However, there is a
specific research gap on the impacts of CMT on the fishery sector as
well as other livelihood-generating sectors in Bangladesh. Moreover,
terrestrial ecosystems and their biodiversity are important tourist
attractions. Such attractions can generate sustainable revenue and
create alternative livelihoods for the local people, which can eventually
promote the conservation of life on land (SDG 15) as well as the cultural
heritage of the destinations.
10.7.9 Upcoming Institutional Development

The Bangladesh Tourism Board is currently preparing a tourism master
plan, and the Bangladesh Investment Development Authority has
identified tourism as a potential sector for the overall development
of Bangladesh. Moreover, the development of the Bangladesh Tour
Operators and Tour Guides (Registration and Operation) Act 2021,
the Community-Based Tourism Policy, and the Ecotourism Policy, the
upgrading of the National Tourism Policy 2010, and the review of the
master plan for airports are among the significant examples of ongoing
activities to promote sustainable tourism in Bangladesh, which will also
enhance the sustainability of CMT. MoCAT has also taken initiatives to
construct a “Marine Aquarium” in Cox’s Bazar from 2017/18 to 2020/21.
In a nutshell, considering the existing situation, there is a substantial
opportunity for developing and promoting CMT in Bangladesh, which
can facilitate the country’s achievement of developed country status
by 2041.
10.7.10 Impacts of COVID-19

Tourism is one of the economic sectors that the COVID-19 pandemic has
strongly affected, and it might face a decline of 58%–78% in international
tourist arrivals during 2020, putting 100 million–120 million direct
tourism jobs at risk (UNWTO 2020a). There are many additional impacts
that are still difficult to quantify, such as threats to the conservation of
species and biodiversity, all with a direct link to tourism. Moreover, the
pandemic has hit coastal communities the hardest, with an estimated
$7.4 billion fall in GDP across small island developing states due to the
decline in tourism (Northrop et al. 2020).
Considering the post-COVID-19 situation, people in Bangladesh

are likely to visit its CMT destinations. A good number of people
already started to visit these destinations just after the lifting of
tourism restrictions in some CMT destinations after the first wave of
the COVID-19 pandemic. The government has already decided to open
tourism at the Sundarbans from 1 November 2020. However, currently,
there are restrictions on visits to all these destinations due to the second
wave of the pandemic (until July 2021). According to newspapers, social
media, and personal communications, it is evident that the demand for
these destinations will be high in the coming few months as people will
require refreshment after the long and unprecedented lockdown. This
tourism demand will create numerous benefits along with negative
impacts.
10.8 C
onclusions and Policy Recommendations
The study clearly shows that CMT has immense potential in the blue
economy, which may be one of the biggest sources of revenue (including
foreign exchange) in Bangladesh’s tourism sector. Thus, it may contribute
significantly to improving the sociocultural, economic, environmental,
and institutional dimensions of the concerned areas.
Bangladesh ranked seventh in the top 10 best-value travel
destinations for 2019 according to Lonely Planet, a global leader in
publishing travel guidebooks (Uddin 2019). Therefore, the country is
gradually gaining popularity among international tourists, for whom
CMT occupies a significant position. Therefore, the development and
promotion of CMT warrant a critical analysis to maximize its positive
impacts and to reduce its negative impacts. This study aimed to focus
on determining how sustainable CMT can influence the blue economy,
reduce poverty through new job creation, conserve biodiversity, control
environmental pollution, promote the sustainable use of coastal and
marine natural resources, promote good governance, provide recreation
facilities, and promote responsible (eco-friendly) tourism or ecotourism.
It identified the challenges of CMT development in Bangladesh. It will
be possible to resolve or at least reduce many of these challenges through
the proper and judicious application of existing legal institutions, such
as various national acts and rules, as well as international institutional
arrangements (Figure 10.2) to turn those challenges into CMT potentials.
Tourism and recreation (25%) are the main activity of the current
blue economy of Bangladesh (Patil et al. 2018). CMT can contribute
positively to the sustainable blue economy through the sociocultural,
economic, and environmental development of the country, with
particular reference to sustainable CMT development. However,
special attention is necessary to avoid the negative impacts of CMT

development, which may also lead to the deterioration and pollution
of the coastal and marine environment, including its biodiversity.
The infrastructure development needs to consider the ecosystem and
tourists’ expectations by following the existing national institutional
arrangements. Despite their substantial potential, CMT activities
need to gain greater popularity and undergo promotion in Bangladesh
through the application of various marketing tools (printed and online)
and strategies.
Figure 10.2: Proposed Sustainable Coastal

and Maritime Tourism Framework
Impact insurance option Climate change

adaptation
Infrastructural development
Sustainable blue
economy Coordination among
Strong political concerned ministries
commitment Impacts
Sustainable CMT Human resource

Integrated CMT development
policy/plan
CMT potentials Governance
Existing institutional Marketing

arrangements (national
and international) CMT challenges
CMT = coastal and maritime tourism.
Source: Authors’ depiction.
Considering the nature and characteristics of CMT, it has a complex,

multi-stakeholder, multisectoral, and multilayered structure (Tonazzini
et al. 2019). Tourism businesses are multiscaled, from small enterprises
to multinational companies. Moreover, national, regional, and
international organizations from both government and nongovernment
sectors, as well as private organizations, are involved in the governance
framework of CMT, which requires strong coordination among the
various concerned ministries and stakeholders. Moreover, strong
political commitment and governance are necessary for establishing such
inter- and intra-ministerial as well as multi-stakeholder coordination
through their proactive leadership roles (Figure 10.2), which are also
essential for compliance with the existing institutional arrangements
(both national and international) related to CMT.
Sustainable CMT policies must acknowledge the impacts of tourism
activities on the coastal territories, the vulnerability and complexity of
the coastal and maritime ecosystems, and their interactions with the
different subcomponents of CMT (Tonazzini et al. 2019). Therefore, this
type of tourism should be consistent with the existing tourism-related
institutional arrangements of Bangladesh to ensure its legal basis, as
well as to develop and promote sustainable CMT.
The existing institutional instruments and governance mechanisms
of Bangladesh might be enough to control most of the challenges
that this chapter has mentioned. However, reality indicates that the
enforcement of most of these legal bindings is insufficient to overcome
these challenges, which require stronger political commitments,
massive public participation, regular and integrated monitoring and
performance assessment, and good governance to act inclusively.
Otherwise, the mere formulation of new institutions will not
produce any significant positive change in this regard. Addressing
these challenges and their proper management will likely increase
the untapped potential of CMT significantly and to make the coastal
and marine areas more popular tourism destinations.
Research has analyzed the prospects of CMT in Bangladesh from
various perspectives, including the relationships with the blue economy
and its sustainable development. Moreover, several legal and policy
documents of Bangladesh have recognized the existing contributions and
potential of the tourism service sector. These documents have suggested
that the contributions of tourism and recreation services, ecotourism,
and community-based tourism support CMT. The potentially enormous
impacts of these service industries on CMT are evident from the existing
literature. These services can be good sources of solutions to many
problems in CMT destinations and their surroundings by creating new
job opportunities for local people, including youths, women, tribal, and
other minorities; educational support; education and awareness-building
facilities on the environment, pollution, and other local challenges;
own cultural values and respect; empowerment; better networks; good
governance; and so on. Considering these impacts, policy and decision
makers should prepare an integrated and sustainable CMT policy or plan
for Bangladesh to facilitate the sustainable development of coastal and
marine areas that should address the prospects, challenges, and impacts
of CMT activities on the overall coastal and maritime ecosystems. This
CMT policy or plan should consider the local community and local
government as key stakeholders of such sustainable development,
as Tonazzini et al. (2019) and Bhuiyan, Darda, and Habib (2020) also
indicated. The government should consider the implementation of such
a CMT policy or plan as one of the avenues to promote the blue economy
and facilitate the well-being of both the coastal communities and all
these service industries within the blue economy framework.
The development of a multi-stakeholder participatory approach,
like participatory planning, implementation, monitoring, and evaluation
process and shared governance mechanisms for each of the CMT
destinations, is advisable for their comprehensive management. The
application of various participatory tools (such as citizen science) may
be useful for data collection at a very low cost with the involvement
of various stakeholders, including the local communities, to educate
tourists and influence the value chain (following Tonazzini et al. 2019).
It is evident that climate change and the tourism sector can affect
each other (Simpson et al. 2008; Kaján and Saarinen 2013). Therefore,
climate change adaptation is an important factor for a sustainable
CMT development framework. On the one hand, CMT should restrict
greenhouse gas emissions from its transportation, accommodation, and
recreational activities. On the other, the CMT development plan should
contain climate change mitigation and adaptation strategies to address
various climate change effects, including from disasters such as cyclones,
floods, drought, and infectious diseases like COVID-19. Consequently,
relevant policies, competent human resources, and other supportive
instruments are warranted. Research has suggested a community-based
climate change adaptation strategy through CMT (Hussain, Failler,
and Sarker 2019; Bhuiyan, Darda, and Habib 2020). Therefore, an
integrated and coordinated approach is necessary to integrate a coastal
zone management plan that can attract tourists and consider the fragile
ecosystem of the coastal and marine environment (Marafa 2008).
Consequently, skilled and competent human resource development
needs to be one of the key factors in developing sustainable CMT that
can deal with all these sorts of policy and technical issues.
The Nature Conservancy, in a recent report, suggested that an
impact insurance option could be useful for providing a cost-effective
option to protect and restore mangrove habitat (Beck et al. 2020). In
the context of the Caribbean, the report further highlighted the use of
insurance as one of the best market-based mechanisms to safeguard
assets and infrastructure in the mangroves and along the coastlines.
One recommendation is to follow success stories to improve
practice. Bangladesh can learn lessons from Malaysia, as it is one of
the 12 mega-biodiversity countries in the world that have significantly
progressed in CMT development. There are various specific national
policies, plans, and strategies (e.g., National Biological Diversity Policy
2016–2025, National Ecotourism Plan 2015–2025, and National Physical

Plan for Coastal Zones) to develop and promote CMT in Malaysia. It has
established several marine parks, where the number of tourists and the
amount of earned revenue are increasing. At the same time, Malaysia
expanded its conservation efforts, which are contributing positively
to conserving its marine biodiversity, including reef diversity. It has
also created various recreational and educational services for tourists,
considering safety and security measures (Department of Marine Park
Malaysia 2017).
According to Vision 2041 (GED 2020b), it is possible to promote
CMT through a number of actions, including effective and regular
promotional campaigns for both domestic and international tourists;
coordination for establishing joint CMT initiatives with neighboring
countries (intercountry and interregional partnerships and networks);
all-season tourism boat fleet development; the promotion of tour
packages for watching dolphins, sea whales, and sharks; the provision of
incentives for performance achievers to popularize CMT; the promotion
of ecotourism principles as part of sustainable tourism to implement
CMT to foster the sustainable development of the coastal areas; the
development of capacity-building programs for professional tour guides
and other required personnel, and so on.
The government provides practically no economic support, like
cash incentives, tax holidays, and value-added tax (VAT) exemption on
imports, for the tourism sector of Bangladesh (Uddin 2019). Therefore,
considering the great potential of tourism services, the provision of more
investment and tax incentives for tour operators and facilitators would
help to establish and improve tourism services in Bangladesh (GED
2015, 2020a, 2020b). The tourism sector has received similar types of
tax and fiscal incentives to create more job opportunities and develop
the domestic tourism industry in several developing countries, including
Brazil (Garsous, Corderi, and Velasco 2015), Thailand (Volodarsky 2021),
India (IMRB International 2014), Nepal (Shrestha 2020), and Viet Nam
(Falak 2020). Many developing countries (including Bangladesh) have
also announced some economic incentives for the tourism sector as a
recovery strategy from the ongoing COVID-19 pandemic. However,
currently, more economic support from governments is warranted for
the tourism sector to manage the post-pandemic crisis.
Moreover, undertaking the following tasks (also considered
as future research directions) might promote CMT in Bangladesh:
fixing environmental taxes (for entering and staying overnight in
ecologically critical areas) to protect coastal biodiversity and generate
revenues; emphasizing coastal and maritime tourism in various tourism
initiatives of Bangladesh where appropriate, including promotional
and communication campaigns; dialogue between Bangladesh and

other governments (India, Maldives, Myanmar, Sri Lanka, Singapore,
Malaysia, Indonesia, Thailand, etc.), international cruise operators,
ports, and other CMT stakeholders to promote CMT; encouraging
innovative management schemes through the application of information
and communication technology and other technologies; developing
preventive strategies to control various forms of environmental
pollution to promote sustainable CMT; diversifying and integrating
CMT and inland tourism attractions, such as natural, cultural, religious,
and archaeological routes; establishing the required tourism and other
coastal infrastructure considering the sensitive ecosystems and sea-level
rise; learning various lessons from successful CMT in other countries;
studying the behavior of tourists and host communities; and conducting
various studies on CMT development and promotion, particularly
focusing on new CMT products and service interventions to improve
remote destinations’ connectivity and innovative designs for tourism
strategies. To recover the seasonality of visits to coastal destinations,
there should be innovative and attractive offers for potential tourists
that may entice them to visit these destinations during the low season to
make the business sustainable.
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Appendix A10
Table A10.1: Related Supporting Institutions (National) to Develop
and Promote Coastal and Maritime Tourism in Bangladesh
Sl. # Title Brief Description
A. Constitution
1. Bangladesh’s • Section 15(c) recognized the right to have reasonable rest,
Constitution, 1972a recreation, and leisure as basic necessities of the citizens.
• As per 18A [amended as Constitution (Fifteenth Amendment)
Act, 2011], the State will be responsible for protecting and
improving the environment and for preserving and safeguarding
natural resources, biodiversity, wetlands, forests, and wildlife for
the present and future citizens.
B. Policies
2. National Tourism • Overall guidelines for tourism development and promotion in
Policy, 2010b various destinations, including coastal and marine destinations,
• Recommended various forms of tourism, including coastal and
maritime tourism (CMT),
• Especially recognized coastal destinations as ideal holiday-
making destinations through the development of various eco-
friendly and nature-based tourism facilities,
• Emphasized the Sundarbans and other mangrove/coastal
forests for developing ecotourism,
• Highlighted the need for interministerial coordination to
develop various tourism facilities,
3. National Environment • Suggested ecotourism in the popular coastal and marine
Policy, 2018c ecosystem-based tourism destinations through the
development of the Conservation Management Plan,
• Conservation of coastal and marine biodiversity in pursuit of
ecotourism development considering the carrying capacity for
a specific destination,
• Restricted harmful activities on sea beaches to ensure
biodiversity conservation,
• Emphasized the conservation and development of coastal
and marine ecosystems (including mangrove forests,
World Heritage sites, and other tourism destinations) using
ecosystem-based approaches through the Integrated Coastal
Zone Management Plan, selecting ecotourism as a tool in this
regard,
• Protection from various ongoing threats, both natural and
anthropogenic,
• Highlighted the need to ensure more education, research,
and development related to coastal and marine ecosystem
conservation and development,
• Advocated the introduction of microfinance incentives for
poor people living in the coastal zone to protect the overall
environment; encouraged the involvement of the local
community in ecotourism.
4. National Coastal Zone • Recognized the use of the coastal zone for the development of
Policy, 2005d the tourism industry and its link to poverty alleviation,
• Defined some coastal zones/islands/forests as a “Special Zone
for Tourism,” encouraging private investment,
Table A10.1 continued
5. National Water Policy, • Recognized and allowed tourism development in various
1999e water bodies, including coastal and marine destinations, for
recreational purposes.
• Development of various environment-friendly tourism facilities.
7. National Industrial • Recognized tourism as a service-oriented prioritized industry.
Policy, 2016g • Tourism has gained widespread recognition as a “thrust sector.”
• Identified various industries related to tourism.
• Recognized CMT-related industries.
8. National Land Use • Provisions for land use in alignment with other policies, like the
Policy, 2001h Forest Policy and Environment Policy, to improve the forest and
environmental condition.
9. National Shipping • Environmental conservation through the control of pollution.
Policy, 2000i
C. Acts/Orders
10. Bangladesh Maritime • Control measures for the pollution of the coastal environment
Zones Act, 2019j through tourism.
11. Bangladesh Parjatan • The Bangladesh Tourism Board is responsible for the overall
Board Act, 2010k development, creation, and promotion of the tourism industry
and services in Bangladesh.
• Responsible for facilitating responsible tourism, including in
coastal areas.
• Coordination among different national and international
stakeholders to achieve the above points.
• National tourism organization.
12. The Bangladesh • The pioneer in developing and promoting tourism as an
Parjatan Corporation industry and market in Bangladesh.
Order, 1972l • Responsible for the creation and operation of various tourism
facilities.
• Developing a trained tourism workforce through capacity-
building programs.
13. Bangladesh Tourist • Declaration of reserved special zones for overall development,
Reservation Area and improvement, and management of the tourism industry and
Special Tourism Zone services in Bangladesh.
Act, 2010m • In this regard, it controls and restricts unplanned activities and
infrastructural constructions at potential tourism destinations.
14. Bangladesh Economic • Encourages the establishment of an economic zone in
Zones Act, 2010n underdeveloped areas to improve the socioeconomic status of
that local area as well as the nation.
• Based on the public–private partnership (PPP) approach with
the involvement of national and international donors.
15. Wildlife (Conservation • Recognized ecotourism or nature tourism in natural areas.
and Security) Act, 2012o • Stated the conservation of these natural areas (including
biodiversity), the preservation of cultural heritage, and the
enhancement of the socioeconomic well-being of local people.
16. The Bangladesh • Regulations of industry establishment and other development
Environment activities for the conservation of the environment.
Conservation • Determined the standards of air, water, sound, soil, and other
(Amendment) Act, components of the environment.
2010p • Defined the procedures for the protection of the environment
and ecosystem along with measures against environmental
degradation or pollution.
• Declaration of ecologically critical areas and their regulations.
17. The Environment Court • Established for the trial of offences relating to environmental
Act, 2000q pollution.
18. Mobile Court Act • Established for the enforcement of the concerned act/law/
(Amendment), 2009r rule.
19. Bangladesh Biodiversity • Addressed the Convention on Biological Diversity (CBD) as
Act, 2017s one of the reflections of its enactment.
• Ensured overall guidelines for the sustainable use,
management, and conservation of biodiversity.
• Provided a framework for interministerial and inter-
administrative-level coordination to conserve biodiversity.
20. Bangladesh Tour • Designed mandatory registration rules for tour operators and
Operators and Tour tour guides for their tourism operation.
Guides (Registration • Prepared to bring tour operators and tour guides into a legal
and Operation) Act, framework to ensure the desired services.
2021 (Draft)t • Aimed to boost the tourism sector.
D. Rules
21. Protected Area • Addressed sustainable nature tourism in protected areas
Management Rules, and their adjacent areas with the help of comanagement
2017u organizations.
• Recognized revenue generation from ecotourism to promote
biodiversity conservation and to improve the health of
protected areas and the socioeconomic well-being of local
people living in and around these areas.
22. Environmental • Details about the guidelines related to ecologically critical
Conservation Rules, areas.
1997v
23. Ecologically Critical • Linked to the Bangladesh Environment Conservation
Areas Management (Amendment) Act 2010 to protect ecologically critical areas.
Rules, 2016w • Prescribed guidelines for different committees for different
levels of administration from the village to the national level.
E. Visions/Plans
24. Tourism Vision 2020x • Promoted coastal tourism.
• Spelled out the overall target and expectations for tourism
development (in terms of inbound and domestic tourism) in
Bangladesh by 2020.
• Worked toward achieving Vision 2020 for different tourism
products and services by identifying various steps, plans, and
programs.
• Forecast 0.9 million international visitors in 2020, an increase
from 0.24 million in 2003.
• Recognized the importance of domestic tourism and targeted a
4%–5% contribution to the gross domestic product (GDP).
25. Perspective Plan of • Recognized tourism as a potential sector for developing the
Bangladesh 2010–2021 nation.
(Vision 2021)y • Aimed to make Bangladesh an ecologically attractive exotic
tourism destination in Asia.
• Promotion of environment-friendly tourism.
• Planned to increase tourism’s contribution to the GDP to 5%
by 2021.
26. Perspective Plan of • Increased service exports from the tourism sector.
Bangladesh 2021–2041 • Emphasized interregional river connectivity to facilitate
(Vision 2041)z tourism.
• Aimed to promote coastal tourism through a number of
actions.
• Recognized the multiplier effects of tourism on GDP growth
and employment.
• Recognized ecotourism as one of the main instruments for
boosting private financing for the environment.
F. Plans
27. Tourism Master Plan • The government’s plan for tourism development for the next
(2021–2041)aa 20 years.
• Targeted the travel and leisure sector as the third-largest
economic engine of Bangladesh after garments and
remittances.
• Targeted a distinctive brand image for Bangladesh as a popular
tourist destination in the world to achieve the Vision 2041 of
Bangladesh and to become a developed nation.
• The plan framed short-term (3 years), midterm (5 years), and
long-term (15 years) initiatives.
28. Bangladesh Delta Plan • Exploring the blue economy through different forms of coastal
2100bb tourism.
• Recommended forest-based, wetland-based, charland-based,
and riverine ecotourism.
• Tourism as a tool for alternative income generation
(livelihoods), biodiversity conservation, and ecosystem
services.
• Use of multipurpose land and water bodies through tourism.
29. The Seventh Five Year • Chose the creation of competitive tourism industry, including
Plan (7FYP)cc ecotourism and marine cruises, as one of 12 activities to create
and maintain a prosperous and sustainable blue economy.
• Selected tourism as one of the non-factor service export
industries.
• Encouraged ecotourism and community-based tourism as a
means of income generation for local people.
• PPP arrangements for tourism development.
30. The Eighth Five Year • Emphasized coastal tourism under the blue economy.
Plan (8FYP)dd • Development of eco-nature integrated resorts near the
Sundarbans and the Riviera strait linking Teknaf to the
Sundarbans.
• Massive tourism marketing strategy and capacity building in the
tourism sector.
• Involved local government institutions in tourism interventions.
• Addressed the impacts of coronavirus disease 2019
(COVID-19) on the recreation and tourism sector.
• Recognized the large potential of tourism services for exports,
multiplier effects, and forward and backward linkages and as a
major source of growth and employment.
• Massive infrastructure developments, including increasing
national and international airport facilities.
• Identification of potential tourism destinations and the
development of various tourism facilities.
G. Strategy and Action Plans
31. National Biodiversity • Necessity of integrating the tourism plan with the conservation
Strategy and Action and sustainable use of biodiversity.
Plan of Bangladesh, • A guiding document for ensuring the conservation and
2016–2021ee sustainable use of biodiversity.
• Developed in the light of CBD strategic planning, 2011–2020
(Aichi Biodiversity Targets).
32. Investment and • Identified tourism development as a subsector with potential
Financing Strategy for generating employment and income as well as foreign
for Coastal Zone exchange.
Development in • Private sector investment in tourism must align with regulatory
Bangladeshff measures of environment and forest conservation issues with
reference to the coastal and marine environment.
• Suggested ecotourism for coastal sites.
• The government has a major role in supporting private sector
investment in coastal tourism.
• Integration of terrestrial and marine environments considering
ecosystems, landscapes, human activities, and their interaction.
33. Coastal Development • Recognized tourism as one of the opportunities for the coastal
Strategy, 2006gg zone.
• Highlighted tourism as a priority area for the improvement of
livelihoods and poverty reduction.
• Various capacity-building initiatives.
• Regional tourism infrastructure development in cooperation
with Myanmar at Teknaf, offering day trips to Myanmar.
• Proposed island tourism and ecotourism.
34. Teknaf Peninsula • Developed a detailed Ecotourism Management Plan was for
Community-Based the Teknaf Peninsula.
Ecotourism Strategyhh • Developed an action plan.
35. Bangladesh National • Key government document for the guideline for conserving its
Conservation Strategy, natural resources.
2013ii • Focus on maintaining resource utilization and economic
development by ensuring the conservation objective.

36. National 3R Strategy for • Developed a national waste management strategy through
Waste Management, reduce, reuse, and recycle (3R) to lessen the negative impacts
2010jj of environmental pollution.
• Aimed to facilitate a clean and green environment.
37. Blue economy • Economic development through coastal tourism.
activities, resource • Short- and medium-term strategies to develop and promote
extraction from the CMT.
sea, and related short-, • Distributed responsibilities among various concerned ministries
medium-, and long- and departments.
term strategic planning
(Ministry of Shipping)kk
H. Programs/Schemes
38. Blue economy • Recognized CMT as a potential contributor to the blue
development of economy.
sea resources for
Bangladesh (Ministry
of Foreign Affairs)ll
39. Bangladesh National • Recognized the great potentials of CMT in Bangladesh.
Programme of Action • Recognized coastal tourism as one of the major sources of
for Protection of coastal and marine pollution.
the Coastal and
Marine Environment
from Land-Based
Activitiesmm
40. Voluntary National • Recognized CMT, particularly ecotourism (an indication
Reviewnn of Bangladesh’s intention to achieve the Sustainable
Development Goals).
• Proposed CMT is one of the key issues to consider when
formulating marine policy, laws, and regulations.
Notes: a Government of Bangladesh (1972b); b Ministry of Civil Aviation and Tourism (MoCAT) (2010c);
c
Government of Bangladesh (2018); d Ministry of Water Resources (2005b); e Ministry of Water Resources
(1999); f Bangladesh Forest Department (2016); g Ministry of Industry (2016); h Ministry of Land (2001);
i
Ministry of Shipping (2000); j Ministry of Foreign Affairs (MoFA) (2019); k MoCAT (2010a); l Government
of Bangladesh (1972a); m MoCAT (2010b); n Government of Bangladesh (2010a); o Government of
Bangladesh (2012); p Government of Bangladesh (2010b); q Government of Bangladesh (2010c);
r
Government of Bangladesh (2009); s Government of Bangladesh (2017); t Government of Bangladesh
(2021); u Ministry of Environment and Forest (MoEF) (2017); v MoEF (1997); w Government of Bangladesh
(2016); x Morshed (2004); y General Economics Division (GED) (2012); z GED (2020b); aa Hoque (2020);
bb
GED (2017); cc GED (2015); dd GED (2020a); ee Department of Environment (DoE) (2016); ff Rahman
and Chowdhury (2005); gg Water Resources Planning Organization (2006); hh EplerWood International
(2009); ii Government of Bangladesh (2013); jj DoE (2010b); kk Ministry of Shipping (n.d.); ll MoFA (2020);
mm
DoE (2006); nn Tonazzini et al. (2019).
Source: Authors’ compilation.
PART IV
Interdisciplinary
Methodology
11
Building Back Better in Small
Island Developing States in
the Pacific: Initial Insights
from the Binary Constrained
Disaster Model of Disaster Risk
Management Policy Options in Fiji
Nepomuk Dunz, Hajime Tanaka, Nagisa Shiiba,
Junko Mochizuki, and Asjad Naqvi*
11.1 Introduction
Small island developing states (SIDS) in Asia and the Pacific face
regular exposure to severe cyclones and flooding. The average annual
disaster impact on gross domestic product (GDP) is around 8% for
SIDS and around 0.1% globally, indicating the high vulnerability of
SIDS to climate change and ocean risk (CRED 2020). As a small island
country in the Asia and Pacific region, Fiji is prone to hazards, including
cyclones, heavy rain, and flooding, which occur almost annually. Most of
the population and infrastructure are located in the ocean’s proximity.
Combined with socioeconomic vulnerability, these disasters result in
severe damage to people in Fiji (UNDRR 2019). According to the World
Bank (2016), Fiji’s coastal protection spending will account for about
* The following projects partially supported this study: Structuralist

Macroeconomic Modeling of Disaster Risk and Sustainable Development Goals
(Jubiläumsfondsprojekt Nr. 17390), and Distributional Implications of Climate-
Related Disasters—A Macroeconomic Assessment (DIoD) (Jubiläumsfondsprojekt
Nr. 18654).
291
1%–3% of its projected GDP every year by 2040. Fiji is most likely to
have severe difficulties in funding all its climate-related activities in
the future. Tropical cyclone (TC) Harold, a category 4 cyclone (5 bring
the most dangerous), hit Fiji on 8 and 9 April 2020, directly affecting
more than 182,500 people (or around 20% of the population).
Due to the compound disaster of tropical cyclones and pandemics,
2020 was a catastrophic year for Fiji’s socioeconomic status. On
15 April 2020, the Prime Minister declared a “state of natural disaster”
in response to the coronavirus disease 2019 (COVID-19) pandemic,
which commenced only 3 days after the declaration of a separate state
of natural disaster due to TC Harold on 12 April. The global pandemic
and the disaster’s external shocks exposed the structural problems that
Fiji’s economy is facing. Fiji recorded 63 positive cases of COVID-19
in total, 55 of which resulted in a full recovery (Ministry of Health
and Medical Services, as of 5 March 2020). The United Nations report
Socio-Economic Impact Assessment of COVID-19 in Fiji concluded that
Fiji’s economic recession in 2019 was the largest in the last decade
(UNDP 2020). Following the identification of the first confirmed case of
COVID-19 in the country on 19 March 2020, the Government of Fiji took
preventative measures, including lockdown, travel restrictions, border
restrictions, and contact tracing. Although Fiji recorded a small number
of cases of COVID-19 compared with other countries in the region, it
has hit the country’s industries hard, especially tourism. The forecasted
annual GDP growth rate from 2019 was around –20% in 2020 (ADB
2020).
COVID-19 and its interaction with disasters are the focus of recent
scientific and policy discourse, with various studies evaluating, for
example, how countries have adopted national disaster risk management
(DRM) systems to cope with the emerging pandemic (GFDRR and
World Bank 2020) or how they can effectively address pandemic risk
in emergency response operations (Baidya, Maitra, and Bhattacharjee
2020; Ishiwatari et al. 2020). Other studies have examined further
pathways to stronger inclusion of civil society during compound crises
(Majumdar and DasGupta 2020). At the same time, extensive research
on the macroeconomic impacts of COVID-19 and their countermeasures
has taken place (Bashir, Benjiang, and Shahzad 2020; Brodeur et al.
2020; Nicola et al. 2020). There are also emergent strands of literature
exploring the linkages between COVID-19 recovery stimulus policy and
broader climate and sustainable development objectives (Engström et al.
2020; Fargher and Hallegatte 2020; Hepburn et al. 2020; Dunz et al. 2021;
Mahul, Monasterolo, and Ranger 2021). However, research analyzing the
performance of alternative DRM policy decisions intending to aid the
recovery from disasters resulting from natural hazards in terms of their
Building Back Better in Small Island Developing States in the Pacific: Initial Insights from the Binary
Constrained Disaster Model of Disaster Risk Management Policy Options in Fiji 293
macroeconomic outlook amid COVID-19 remains limited. For instance,

Burns, Jooste, and Schwerhoff (2021) compared the performance of
four alternative DRM strategies for hurricane damage in Jamaica,
specifically adaptation investment, insurance, contingency funds, and
debt reduction, assessing the accompanying trade-offs of each policy.
Marto, Papageorgiou, and Klyuev (2018) applied a dynamic general
equilibrium model to the case of Cyclone Pam in Vanuatu, comparing
different financing channels and pre-disaster adaptation measures with
post-disaster growth and debt trajectories. Their findings suggested that
ex ante resilience policies can reduce debt distress and recovery costs
in the aftermath of a disaster. The recent literature on the economics
of disasters has increasingly emphasized the need to tailor DRM and
adaptation policy options to the specific and timely contexts of each
country while also evaluating key synergies and trade-offs (Hallegatte,
Rentschler, and Rozenberg 2020; Yokomatsu et al. 2020).
To fill this important knowledge gap, we adopt and apply the
binary constrained disaster (BinD) model, which the International
Institute for Applied Systems Analysis developed, to an analysis of the
combined impact of cyclones and COVID-19 in Fiji. The BinD model is
a demand-driven macroeconomic model that aims to assess the fiscal
and macroeconomic implications of disasters in financially constrained
SIDS. Building on the three-gap models of Taylor (1991, 1994) and others,
the BinD model describes public sector, private sector, and foreign
sector saving constraints, which interact dynamically in an integrated
modeling framework. Both aggregate demand and aggregate supply
play a fundamental role in the BinD model, depending on which of the
two is the constraining factor: limited private and public consumption
not allowing profitable use of machinery or limited financial means to
purchase machinery to satisfy the foreign and domestic demand (hence,
as the name suggests, it indicates the “binary constraints” of supply
and demand). The model extends the original gap approach through a
dynamic macroeconomic model using parsimonious sets of adjustment
mechanisms, and it allows for the combined evaluation of DRM policy
and macroeconomic recovery trajectories under alternative demand
and supply shock scenarios.
We adopted a simplified version of the BinD model for Fiji to
highlight the initial insights into supply- and demand-side DRM policy
responses under alternative macroeconomic conditions. Our results
indicate that a targeted increase in government spending in times of
crisis could be beneficial for the economic recovery of Fiji. However,
short-term trade-offs emerged with respect to financing options. Debt-
financed recovery allows faster and less painful recovery but requires
quick and preferential access to foreign borrowing. Tax-financed
recovery can compensate for short-term foreign borrowing needs but

comes at the cost of more detrimental short-term impacts on GDP and
private sector consumption.
11.2 Fiji in Context

Fiji is an island nation in the Melanesian region (although the
classification of some areas is Polynesian), with an area of about
18,333 square kilometers and a population of approximately 890,000
(ADB 2019a; see Table 11.1 for details). Fiji has a smaller economy than
the upper-middle-income countries in the region, such as Niue, Palau,
and the Cook Islands. However, it is a relatively resource-rich country
with a large economy and significant political influence in the region.
The three primary industries in Fiji are tourism, sugar, and clothing.
Fiji’s economy has been growing since 2009 with a per capita gross
national income of $5,890 and a real GDP growth rate of 3.5%, and the
average economic growth rate has been relatively stable at 4% since
2011 (IMF 2019). Suva, the capital city, serves as the administrative and
cultural center and as a hub for the Asia and Pacific region.
Figures 11.1 and 11.2 show the breakdown of imports and exports
in Fiji. The major exports include food and live animals, beverages, and
crude materials. The export destinations are the United States (US),
Australia, Japan, New Zealand, and Tonga. The major imports include
machinery and transportation equipment, industrial products, foodstuffs,
miscellaneous goods, minerals and fuel, and chemicals from France,
Singapore, the People’s Republic of China, Australia, New Zealand,
and the United States. The primary sources of foreign currency are the
tourism, sugar, and gold industries. Fiji’s tourism industry has developed
remarkably in recent years. In the 1960s, the colonial government
imposed a limit on the amount of foreign currency that the country could
Table 11.1: Basic Socioeconomic Characteristics of Fiji, 2019
Category Value Source

Population 889,953 World Bank (2020b)
Gross domestic product per capita $6,176 World Bank (2020b)
Poverty headcount 34% World Bank (2020b)
Human Development Index 0.743 (ranks 93 UNDP (2020)
out of 189)
Note: All the values are for 2019 except for poverty headcount, using national poverty lines, for which the
latest available estimate is for 2013.
Figure 11.1: Exports and Imports, 2019

Ratio of Item of Exports
Aluminum ores (bauxite)
Bricks, blocks, and tiles
Sail boats
Pebbles, gravel, broken, or crushed stone
Electric accumulators (batteries)
Coconut oil
Skincare products
Cement
Paints and varnishes
Insulated wire, cable, and other insulated electric conductors
Cartons, boxes, cases, bags, and other packing materials
Wood and articles of wood
Other domestic exports
Live animals: animal products
Textiles and textile articles
Precious or semi-precious stones
Vegetable products
Prepared foodstuffs, beverages, spirits, and tobacco
0% 10% 20% 30% 40% 50%
Ratio of Item of Imports
Jewelry and parts thereof

Medical instruments and appliances
Wood and articles of wood
Printed books and similar materials
Animal and vegetable fats and oils
Paper and paperboard
Textiles and textile articles
Plastic, rubber, and articles thereof
Live animals: animal products
Prepared foodstuffs, beverages, spirits, and tobacco
Chemicals and allied products
Base metals and articles thereof
Other imports
Vegetable products
Machinery, mechanical, and electrical appliances
Mineral products
Vehicles, aircraft, vessels and associated transport equipment
0% 10% 20% 30%
Source: Fiji Bureau of Statistics (2020).

Figure 11.2: Share of Trade by Destination, 2020

60%
50%
40%
30%
20%
10%
0%
Australia
PRC
Taipei,China
Cook Islands
France
French Polynesia
Germany
Hong Kong, China
India
Indonesia
Japan
Kiribati
Korea, Republic of
Malaysia
New Caledonia
New Zealand
Papua New Guinea
Samoa
Singapore
Solomon Islands
Spain
Thailand
Tonga
Tuvalu
United Kingdom
United States
Vanuatu
Viet Nam
Wallis and Futuna
Others
Exports Imports
PRC = People’s Republic of China.
Source: Fiji Bureau of Statistics (2020).
earn through sugar exports and fostered the tourism industry. Tourism
reached its first peak in Fiji in the early 1970s, followed by a temporary
decline due to the oil crisis. To date, it has experienced stable growth and
is arguably the most rapidly growing industry in the country.
In the 1960s, the country focused on import-substituting
industrialization, which proved to be ineffective. Its industrial policy
has thus shifted toward exports, including the development of the
garment industry through the bonded system. Further, it has diversified
its primary industries. Nevertheless, Fiji has a long-standing current
account deficit (UNCTAD 2018), partly due to steady growth in re-
exports as the processing industry is a key part of Fiji’s economy. The
country also has ample foreign exchange reserves of $1.04 billion
(IMF 2019), which have more than doubled over the past 10 years,
while remittance inflows (e.g., remittances from overseas) also play a
significant role. The government debt constituted 48% of the country’s
GDP (ADB 2018), and the external debt equaled 19% of GDP in 2018
(World Bank 2020c).
Fiji faces the typical development challenges of small island
countries, including small domestic markets, geographic remoteness
from international markets, and dependence on primary commodities,
though Fiji has fared better than its regional peers. Due to these structural
challenges and underdeveloped domestic labor markets, many of the

countries of Polynesia and Micronesia have a national economy—the so-
called MIRAB economy—which relies on foreign aid for state finances and
remittances from overseas migrants. In contrast, Fiji is less dependent on
foreign aid than its regional peers (Dornan and Pryke 2017).1 The World
Bank’s data show Fiji’s low dependence on net official development aid
of gross national income (2.76%) and relatively high GDP per capita
($6,175) (World Bank 2020c). This could be partly due not only to Fiji’s
predominant economic status in the region but also to its political
situation. Traditional donors refrained from providing development
assistance after the 2006 coup, but they have been likely to improve the
relationship with Fiji since the 2014 election (Schmaljohann and Prizzon
2014). Nonetheless, Fiji’s aid dependence remains low. At the same time,
there is considerable concern that climate change in the coming years
could reverse the development gains that it has made in recent decades.
11.3 Fiji’s Climate and Disaster Risk Management

Hydrometeorological hazards have frequently occurred in Fiji in recent
years. According to the EM-DAT database, between 2000 and 2020, Fiji
experienced 18 cyclones, with the total estimated economic damage
being approximately $800 million (Table 11.2). The largest damage
and losses often result from the destruction of the built environment,
including residential, transport, and other infrastructural assets. While
considerable uncertainly exists, the recent climate change assessment
projected that the cyclone risk in Fiji is increasing due to climate
change—estimations have indicated that losses associated with 1-in-50-
year cyclones, for example, will increase by nearly 30% by the end of the
century in the worst-case scenario (PCRAFI 2013).
At the same time, Fiji has made significant progress on climate
change and DRM strategies in recent decades. Fiji has adopted its
National Disaster Management Plan (1995) and National Disaster
Management Act (1998) and is a signatory to the Hyogo Framework
for Action (2005–2015) and the subsequent Sendai Framework for
Disaster Risk Reduction (2015–2030). It has also adopted the National
Climate Change Policy (2012) and conducted a climate vulnerability
assessment in 2017, identifying priority investment areas. Currently,
Fiji is implementing climate and DRM policies within its overall
1
The major donors are Australia, New Zealand, Japan, the Republic of Korea,
Germany, and the United States. Due to pressure from Australia and New Zealand’s
repeated interference in its internal affairs, Fiji’s government has strengthened its
relationship with the People’s Republic of China in recent years.
Table 11.2: Past Hydrometeorological Disasters
Year Hazard Event Name Total Damage ($ ’000)

2003 Tropical cyclone Ami 30,000
2004 Tropical cyclone NA 4,000
2006 Riverine flood NA 500
2007 Riverine flood NA 30,000
2007 Flash flood NA 7,000
2007 Tropical cyclone Daman 652
2008 Tropical cyclone Gene 30,000
2009 Tropical cyclone Mick 13,300
2010 Tropical cyclone Tomas 39,427
2012 Tropical cyclone Evan 8,400
2016 Tropical cyclone Winston 600,000
2018 Tropical cyclone Josie 10,000
2018 Tropical cyclone Keni 50,000
2020 Tropical cyclone Yasa 1,120
2020 Tropical cyclone Harold 13,000
NA = not available.
Source: CRED (2020).
development strategy, the 5-Year and 20-Year National Development

Plan, which it released in November 2017 and which sets several
economic targets for the next 20 years, including increasing GDP per
capita fourfold, reducing government debt by 35% of GDP, decreasing
unemployment by 4%, and providing universal access to essential social
services, including adequate housing, clean and safe water and sanitation,
electricity, education, and health care (Ministry of Economy 2017).
11.4 F
iji’s Vulnerability to Multiple
External Shocks
Despite progress in DRM, Fiji remains vulnerable to combined external
shocks with disaster and non-disaster causes: the global financial crisis
and Cyclone Mick in 2009 caused a sharp increase in unemployment
(Reserve Bank of Fiji 2019), and the COVID-19 pandemic in early 2020
took a heavy toll on the economy. The Reserve Bank of Fiji predicted
a contraction in tourism revenue of more than 20% in 2020, expecting
it to spur unemployment. In addition, repeated incidents of political
instability in the country have caused a rapid decline in foreign private
investment, as in 2006.2 Such governance risks could amplify Fiji’s
economic vulnerability in the face of disaster shocks.
Fiji’s efforts to build climate and disaster resilience over the next
decades therefore hinge on both internal and external circumstances:
internally, Fiji must evaluate carefully how alternative disaster and
climate policy will fare under its structural rigidity—including the
capital import dependence of its major industries, remoteness (i.e., the
difficulty of access, especially in rural areas, which hampers poverty and
inequity reduction), and less diversified export options, which render it
susceptible to external shocks. The external factors that affect Fiji may
include climate- and non-climate-related shocks, some of which are
likely to worsen in the coming decades (World Economic Forum 2021).
The paragraphs below summarize Fiji’s structural challenges,
which are especially notable in the light of increasing disaster risk.
11.4.1 I ndustrial Structure, Including Import

and Export Rigidities
As with many small island states, Fiji’s less diversified and externally
dependent industrial structure is vulnerable to numerous external
shocks, with disaster and non-disaster causes. As mentioned,
Fiji’s economy is highly dependent on capital goods imports (e.g.,
manufactured goods, machinery, and transport equipment) and
petroleum products. These render the economy vulnerable in the case
of extended supply and price shocks of these goods in the global market.
Regarding exports, Fiji is strongly dependent on tourism. Fiji’s
tourism receipt as a share of its total exports reached approximately
50.9% in 2019 (World Tourism Organization 2019). However, the tourism
2
The prolonged political instability resulting from a series of coups has indeed led
Fiji onto a lower growth path, and the accumulated effect is increasing (Fletcher and
Morakabati 2008).

Alley (2001) analyzed the coup of 2000 and determined that it caused severe
economic damage to Fiji compared with the coup of 1987. It produced not only
economic shocks, such as a loss of existing trade concessions and disruptions to
trade and services, but also political shocks, including the diplomatic isolation of Fiji.
In addition, Fiji, as a hub of intergovernmental activity, risked the loss of generous
sugar, tuna, and garment export subsidies and benefits in the European Union
market. Exports of garment manufacturing, tourism, and aviation faced longer-term
damage due to the coup of 2000.
sector is prone to extensive volatility, as the COVID-19 pandemic has

recently demonstrated. Further, its exports are predominantly unrefined
commodities, such as sugar, gold, and timber, for which it loses ground
in market shares.
For instance, Fiji’s traditional sugar industry’s performance has
deteriorated for decades due to the challenges of economic, political,
and disaster-related shocks. Fiji’s traditional sugar industry is lacking
in modernization, which is gradually eroding its international
competitiveness as problems such as aging machinery are beginning
to emerge (Reddy 2003). The Fiji government has tried to rescue
the Fijian Sugar Corporation, the biggest public sugar company in
Fiji, by supporting the purchase of new farming machine; however,
its performance has hardly recovered because of its vulnerability to
domestic and external shocks (Sami 2020). Guaranteeing the sugar
industry’s borrowing from domestic and foreign resources would
be expensive and would face impediments. The installation of more
modern machines to overcome such modernization issues would be
more costly and impractical, especially when a disaster occurs, due to
the limited foreign exchange and a lack of domestic demand. We explore
these aspects in more detail in the following section.
11.4.2 T
he Lack of Redundancy in Critical Infrastructure,
Financial Preparedness, and Technical Capacities
The lack of redundancy of critical infrastructure and facilities—most

of which are, for convenience and strategic reasons, located along the
coasts—renders SIDS especially vulnerable to the physical disruption of
coastal hazards, and Fiji is no exception. The occurrence of hazards such
as coastal storm surge, which climate change exacerbates, may destroy
critical port and airport infrastructure and disrupt trade. At the same
time, hazards may directly damage the local production of critical goods,
hampering the country’s ability to substitute these goods domestically.
When one road is damaged, for example, the lack of redundancy
means that taking an alternative route is not an option, leading to
significant disruption of the transportation of goods and services
and even reducing the productivity of other assets, such as factories
(Hallegatte, Rentschler, and Rozenberg 2019). Fiji conducted a recent
transport sector criticality analysis evaluating aspects such as road
traffic, the level of redundancy, and hazard exposure, which identified,
for instance, areas for priority investment. In Vanua Levu, the analysis
indicated that the most critical roads are the Natewa west coast road
and the Bucalevu, Nabouwalu Batiri Village, and Navolu roads. In Viti
Levu, the report showed that King’s Road and Queen’s Road are critical.
Regarding bridges and culverts, important nodes include King’s Road

(including the Vunato and Laqere bridges, the Thomson Nabukalou
bridge, the Sawani bridge, the Draiba bridge, and the Laqere crossing)
in Viti Levu and Savudrodro Road, Nayarabale Road, and Bucalevu Road
in Vanua Levu (Government of Fiji 2017). The destruction of any of
these choke points could have significant implications for the country’s
economic activities and emergency response logistics.
The general lack of redundancy in small island economies applies
not only to infrastructure but also to the necessary financial and
technical capacities to manage complex reconstruction projects and
to repair and maintain specialized facilities. According to the recent
study that the International Bank for Reconstruction and Development
conducted, $1.6 million of the national budget is available for disaster
risk financing and insurance instruments in Fiji as of 2015 (World Bank
2015). However, probabilistic assessment of these financing resources
vis-à-vis the reconstruction financing needs of major hazards shows that
the response, recovery, and reconstruction needs are likely to exceed
Fiji’s resource availability in any given year with a 60% probability
(PCRAFI 2015).3 The planning and execution of reconstruction projects
will involve complex handling of multi-currency grants and loans.
Furthermore, the rebuilding of specialized facilities (port infrastructure,
etc.) requires skills that may not be readily available. These additional
operational bottlenecks are likely to delay the implementation of
recovery and reconstruction projects, leading to increased adverse
impacts on the economy.
11.4.3 S
ocial Vulnerability, Including Poverty
and Inequity
According to UNDP (2020), 24.2% of the population in Fiji still lived

below the national poverty line of F$7.1 per day before COVID-19, of
which more than 60% lived in rural areas. Relative to its regional peers,
Fiji’s residential building stocks are relatively resilient to disasters,
but some disparity remains: nationally, approximately 40% of houses
are made of concrete or masonry, while 58% are timber framed with
wood, tin, or cladding. Local bure housing is evident in areas such as
the Northern Division (10%) and Eastern Division (7%). Among the
areas of informal settlements, 10% of housing is made of concrete, the
remainder consisting of timber, tin or iron, and other recycled materials
3
See, for example, Mochizuki, Hallwright, and Handmer (2019) for a discussion on
implementation constraints in post-disaster operation.
(Government of Fiji 2017). Providing safe housing and adequate

preparedness, including access to warnings and evacuation shelters in
these areas of heightened vulnerability, remains a policy priority for Fiji.
The recent microeconomic analysis showed that natural hazards
place a significant burden on households: cyclones and floods on
average push 25,700 people into poverty each year, while 100-year
cyclone, fluvial, and pluvial flood events may force approximately 5.7%,
12.5%, and 7.8% of the total population into poverty, respectively. These
figures are likely to increase (100-year cyclone: 5.7% in 2050, 5.7% in
2100; fluvial floods: 14.8% in 2050, 15.7% in 2100; and pluvial floods:
10.5% and 12.8%) (Government of Fiji 2017). To provide adequate social
protection, especially for the vulnerable population, the Government
of Fiji has been strengthening its social protection schemes: the social
protection budget of the Ministry of Women, Children, and Poverty
Alleviation has increased to $23 million, and it needs an estimated
additional $1.96 million annually to scale up social protection under
climate change (Government of Fiji 2017).
As we will describe below, Fiji faces a number of competing DRM
policy needs, including the need for timely recovery of its critical
infrastructure bottlenecks, the need to include resilience building
(e.g., enhancing the structural safety of the built environment) in post-
disaster reconstruction operations, and the provision of sufficient
livelihood support for those susceptible to poverty, to name a few. All of
these DRM policy options must receive financing within the structural
rigidity of Fiji’s economy, as we will discuss. As observations in the past
few years have indicated, the rebuilding of Fiji’s fiscal space remains a
major policy priority as the country faces the deterioration of its current
account deficit due to rising imports, appreciation of the real exchange
rate, and expansionary spending following an election year (IMF 2020a).
11.5 Methodology
This section investigates how these DRM policy options interact in the
face of the acute demand-side constraints resulting from the additional
external shock of COVID-19. To provide initial insights, we adopted the
simplified version of the BinD model to conduct an analysis of Fiji’s
disaster response scenario.4
4
While distributional aspects are important structural characteristics of Fiji’s
economy, as section 11.4 reviewed, the simplified version of the BinD model primarily
incorporates rigidities of import and export dependency, the lack of redundant
production capacity, and general discussions of the trade-off between consumption
and investment spending. The DIoD Project, with funding from the Austrian National
Bank, is currently studying the incorporation of distributional aspects.
11.5.1 BinD Model Structure
The BinD model5 builds on the three-gap model approach (Bacha 1990;
Taylor 1991, 1994), which analyzes the interactive economic constraints
of fiscal, private, and foreign savings. The BinD model addresses the
shortcomings of the original general three-gap model by capturing
the dynamic change of macroeconomic indicators and considering
additional supply-side constraints. Figure 11.3 shows the flows within
the BinD model.
Figure 11.3: BinD Model Flow Framework
Interest on Foreign Loans

Intermediate Imports
Firms
Consumptions
Exports
Income
Capital Imports
Investment
Foreign
Capital RoW
Public Savings Inflows Foreign
Private Savings Capital
Inflows
Public
Expenditures
Households Government
Taxes
Interest on Foreign Loans

Consumption Good Imports
BinD = binary constrained disaster, RoW = rest of the world.
Source: Dunz, Naqvi, and Mochizuki (2020).
Investment and Capacity Utilization

In line with the three-gap model of Taylor (1991, 1994), the BinD model
assumes that Fiji’s economy is demand driven—that is, it operates below
its full capacity in normal times. Foreign demand in the form of exports,
investment, and public and private consumption drive the formation of
the output and GDP. In normal times, firms invest to satisfy the demand
and expand the physical capital stock of the economy. The available
5
A full description of the model is available from the IIASA research group on request.
financial means, however, constrain the capital formation since access of

SIDS to capital markets is often limited. The BinD model hence assumes
that it is possible to determine an economy’s actual output in one of two
possible ways: (i) the aggregate demand (i.e., specified endogenously by
simultaneously solving government, private consumption, investment,
and import functions),6 representing a demand-side constraint; and
(ii) the employed capacity (which the level of capital and the fixed
capital to output ratio indicate), representing a supply-side constraint.
The economy’s production capacity (i.e., supply-side constraint)
updates dynamically based on the level of actual investment (i.e., the
level of realized investment in each time step)7 considering both the
target investment and the available savings.8
Fiscal, Foreign, and Savings Constraints

Building on the original three-gap model logic, the assumption is that
an economy faces savings, foreign, and fiscal gaps (or constraints).
First, we assumed that Fiji’s economy confronts a savings gap—i.e.,
the government, private, and foreign savings determine the economy’s
available savings in each period. An excess (or shortfall) of private
spending (i.e., private consumption and private investment) over
private income (total real output plus foreign private transfer minus tax)
establishes private (dis)savings.
Second, we assumed that an economy faces a foreign exchange
gap—Fiji’s economy may not sustain a high level of balance of payment
deficit. The current account balance in each period determines foreign
(dis)savings. Based on the key structural features of Fiji’s economy, as
the previous sections discussed, we assumed that capital imports are
an important structural element of a productive economy. In normal
times, for each additional unit of productive capital, a fixed share of
capital imports (calibrated for the base year) is necessary. In disaster
terms, a country needs additional capital imports to implement the
reconstruction of built environments, such as houses, infrastructure,
and production facilities. Given the constraints on foreign exchange, an
economy faces a trade-off between consumption imports, which raise
the effective demand, or capital imports, which raise the supply capacity.
Third, we assumed that an economy faces a fiscal gap—the Fiji
government may not sustain a high level of fiscal deficit. It is possible
6
This version of the model assumes that exports are exogenous.
7
This version of the model simulates the economy’s growth path monthly.
8
Note that the model currently only captures human-made capital stock and respective
investment. Natural capital is, however, an important source of revenue and wealth
in many small island states (Lange, Wodon, and Carey 2018), which future versions
of the BinD model could include.
to calculate government (dis)savings as an excess (or shortfall) of

government spending (e.g., government consumption and public
investment) over government revenue (including direct taxes). We
assumed that public investment crowds in private investment and hence
plays a significant role in enhancing the production capacity. However,
given the presence of a fiscal gap, public investment also competes
with government consumption, having demand-side implications. In
summary, these interrelated demand- and supply-side factors jointly
determine the Fiji economy’s pre- and post-disaster growth trajectories.
The model consists of two kinds of path-dependent stocks,
domestically produced and imported capital stock as well as foreign debt.
Further, the model introduces supply-side constraints into a demand-
driven model, a methodological and conceptual avenue that has been
receiving increasing attention in the structuralist literature but is still
relatively unexplored. The aggregate demand drives the output. Since
there is restricted access to capital markets, however, the supply side can
also constrain the output due to a lack of available savings for sufficient
capital formation. Thereby, we incorporate the original three-gap
features of necessary capital goods and intermediate goods imports for
production capacity buildup and output formation, respectively, while
public infrastructure investment is a necessary condition for mobilizing
private investment. As such, the model highlights the trade-offs and the
underlying allocative choice problem for constrained financial means
that become prevalent in the case of an extreme weather shock. The
dynamic setup with a private sector, government, and foreign account
allows us to identify the interacting feedback effects of the distinct
constraining factors in a post-disaster situation.
11.5.2 Calibration and Scenario Development
Calibration
We calibrated the above conceptual model to Fiji’s macroeconomic data
with a base year of 2017. We took the data from the Fiji Bureau of Statistics
(2020), the Reserve Bank of Fiji (Reserve Bank of Fiji 2017), the IMF
article VI consultation reports (IMF 2020b), the World Development
Indicators and other databanks available from the World Bank (World
Bank 2020d), and the Penn World Table (PWT 2020).
Simulating Disasters and Disaster Risk Management Policies

Disasters may affect an economy through several channels, including the
physical destruction of infrastructure, productive capital, and outputs; a
reduction in sales revenue due to destruction, facility closure, temporary
absence of labor or a decline in customer demands; and increased
government spending on response, recovery, and reconstruction efforts.
Those channels may also have implications for the country’s trade
balances and so on. For example, the post-disaster needs assessment
of Cyclone Winston in 2016 revealed strong macroeconomic and fiscal
impacts (Government of Fiji 2016), such as:
• a reduction in economic growth to 1.3% in 2016 compared with
the projected 3.8% in the pre-cyclone time;
• the inter-industry impacts noted include lower sugar
production, affecting the manufacturing subsector, and water
and electricity supply disruption, affecting manufacturing and
commerce activities;
• a decline of 1.2% in the total exports in 2016 compared with the
pre-cyclone projection of over 17% growth (primarily a decline
in commodity outputs, with minimal effects on the tourism
sector);
• higher imports (10% as opposed to the projected 7% pre-
cyclone) with an inflow of capital for reconstruction (primarily
in the housing, telecommunication, and transport sectors), and
increased food imports to offset local production losses; and
• budget reallocation to finance disaster relief and early
recovery activities, while projections indicate that collection
of value-added tax is likely to decline by approximately
$30.3 million.
Policy and Shock Scenarios

To prepare for these potential shocks, the Fiji government has invested in
a DRM policy, as section 11.3 reviewed. Fiji’s current resource availability
to respond to and recover from disasters includes (ADB 2019b):
• a contingency budget fund;
• line agency budgets for the Ministry of Disaster Management
and Meteorology Services;
• post-event budget reallocation; and
• international external assistance, including official donor
assistance and remittances.
Fiji is also a member of the Pacific Catastrophe Risk Insurance

Company, and discussions are currently taking place to increase the
access to financing through instruments such as the World Bank
Catastrophe Deferred Draw Down Option, or CATDDO.9
The BinD model could assess many of these disaster impact
transmission channels and policy options, and this is the subject of
9
For details, see World Bank (2020a).
ongoing research. Here, we will focus on a selected set of disaster shocks

for this initial assessment and respective government disaster recovery
policies.10
We designed three scenarios to allow us to compare the effectiveness
of government response measures given different financing options
with a situation of no-policy response (SC1) and no shock (business as
usual) (Table 11.3). First, we simulated a strong cyclone that destroys
10% of Fiji’s productive capital stock. Second, we simulated a (moderate)
impact of COVID-19 with a drop in exports of 15% (Economist
Table 11.3: Cyclone Shock and Response Policy Simulation Scenarios
Scenario Cyclone Only Cyclone Plus COVID-19

BAU • No disaster shock and no policy implemented (representing the
benchmark)
SC1: shock only • A cyclone destroys 10% of • A cyclone destroys 10% of
capital stock capital stock
• No-policy response • A 15% export shock (e.g.,
tourism) due to COVID-19
• Access to foreign capital
markets but no-policy response
SC2: a debt- • A cyclone destroys 10% of • A cyclone destroys 10% of
financed capital stock capital stock
increase • The government reacts by • A 15% export shock (e.g.,
in public increasing public investment tourism) due to COVID-19
investment expenditures, which it finances • The government reacts by
through foreign debt increasing public investment
expenditures, which it finances
through foreign debt
SC3: a tax- • A cyclone destroys 10% of • A cyclone destroys 10% of
financed capital stock capital stock
increase • The government reacts by • A 15% export shock (e.g.,
in public increasing public investment tourism) due to COVID-19
investment expenditures, which it finances • The government reacts by
through tax increasing public investment
expenditures, which it finances
through tax
BAU = business as usual, COVID-19 = coronavirus disease 2019, SC = scenario.
Source: Authors’ estimates.
10
Note that the current model version does not distinguish between different types of
capital stock that could be, for instance, more or less resilient to extreme weather
events. As such, we assessed post-disaster recovery policies only with respect to the
overall economic and financial position recovery, leaving increasing resilience to
future events as an avenue for further research and model development.
Intelligence Unit 2021). To stimulate the recovery, the government

increases public investment by 20% in both policy scenarios (SC2 and
SC3). In SC1 and SC2, we assumed fast access to international capital
markets and multilateral lending to finance additional public investment
expenditures. In SC3, we assumed that the government will increase
income taxes by 4 percentage points to finance the additional public
investment expenditures. We designed all the scenarios to be budget
and debt neutral in the long run, when Fiji’s economy returns to its
steady state.
11.6 Results
Figure 11.4 presents the dynamics of Fiji’s real GDP under alternative
simulation scenarios. The same cyclone shock hits all the scenarios,
with or without an additional pandemic-related shock to exports. The
destruction of capital stock leads to an initial drop in the real GDP of
approximately 5.4% in the case of a cyclone shock only. The destroyed
production capacity impedes firms’ ability to meet the aggregate demand
in the immediate aftermath, reducing the output, private consumption,
and GDP. The destruction of capital stock plus an export shock due to
COVID-19 reduce the real GDP by approximately 10% initially. The shock
in exports dampens the aggregate demand, delaying firms’ rebuilding
efforts (Figure 11.5.b). For both scenarios, with and without an additional
COVID-19 shock, the debt-financed increase in government investment
reduces the immediate shocks in terms of GDP and achieves a faster
recovery. The tax-financed increase in public investment leads to an
initial worsening of the GDP trajectory, followed by a lagged increase in
output that is apparent 2 years after the initial shock.
A reduction in private consumption due to higher tax payments
may explain part of this time lag in the GDP recovery with a tax finance
increase in government investment (Figure 11.5). Further, decreased
public spending lowers the aggregate demand. While the government
increases public investment by the same level as in the debt-financed
scenario, it has to cut general public expenditures and reduce its
budget deficit. The reasons are twofold. First, the government cannot
access foreign borrowing, which would otherwise allow it to bridge
financing gaps in the short run. Second, the negative impact on GDP
further reduces the overall tax base, which a higher tax rate cannot fully
compensate for in the immediate aftermath of a disaster shock. Reduced
private consumption and public spending both dampen the aggregate
demand and thus lead to a subsequent decline in demand-driven private
capital investment (Figure 11.6) in SC3. The debt-financed increase
in government investment, on the other hand, requires a temporary
increase in foreign lending (Figure 11.7), and the government needs

to run a higher government budget deficit (Figure 11.8) but achieves a
faster recovery of capital stock without dampening private consumption
(Figure 11.6).
Figure 11.4: Real GDP Recovery Trends

a. Cyclone Shock Only b. Cyclone and COVID-19
100 100
Index (BAU = 100)
Index (BAU = 100)

98
95
96
90
94
92 85
2020 2022 2024 2026 2020 2022 2024 2026
Years Years
BAU BAU
Cyclone only Cyclone & COVID-19
Cyclone - Gov Inv Increase - Debt Financed Cyclone & COVID-19 - Gov Inv Increase - Debt Financed
Cyclone - Gov Inv Increase - Tax Increase Cyclone & COVID-19 - Gov Inv Increase - Tax Increase
BAU = business as usual, COVID-19 = coronavirus disease 2019, GDP = gross domestic product,
Gov Inv = government investment.
Source: Authors.
Figure 11.5: Private Consumption Recovery Trend

100 100
Index (BAU = 100)
98
Index (BAU = 100)
95
96
94 90
92
85
2020 2022 2024 2026 2020 2022 2024 2026
Years Years
BAU BAU
BAU = business as usual, COVID-19 = coronavirus disease 2019, Gov Inv = government investment.
Source: Authors.
Figure 11.6: Capital Stock Recovery Trend

100 100
Index (BAU = 100)
Index (BAU = 100)

95
95
90
90
85
2020 2022 2024 2026 2020 2022 2024 2026
Years Years
BAU BAU
Source: Authors.
As we have outlined, Fiji is a small island economy that shows a high

propensity to import goods. To rebuild its infrastructure and production
capacity, Fiji must import large amounts of machinery and similar capital
goods, which increase the current account deficit. The current account
deficit as well as the emerging gap between domestic savings and
investment needs lead to a large increase in foreign debt in the no-policy
scenario (Figure 11.7). The additional public investment in the debt-
financed scenarios (SC1 and SC2) further drive up the foreign debt levels
Figure 11.7: Foreign Debt Trajectory

35 30
28
30
26
%
24
25
22
20 20
2020 2022 2024 2026 2020 2022 2024 2026
Years Years
BAU BAU
Source: Authors.
Figure 11.8: Budget Deficit to GDP Trend

12
10
8 10
%
%
6 8
4 6
2020 2022 2024 2026 2020 2022 2024 2026
Years Years
BAU BAU
BAU = business as usual, COVID-19 = coronavirus disease 2019, GDP = gross domestic product, Gov
Inv = government investment..
Source: Authors.
Figure 11.9: Public Spending Trajectory

105 110
Index (BAU = 100)
Index (BAU = 100)
105
100
100
95
95
90
90
2020 2022 2024 2026 2020 2022 2024 2026
Years Years
BAU BAU
Source: Authors.
before returning to the same steady-state levels for all the scenarios in
the long run. In contrast, increasing tax-financed investment (SC3) and
reducing the budget deficit (Figure 11.9) only result in a marginal increase
in foreign debt. When COVID-19 additionally hits Fiji’s economy, the
ratio of foreign debt to GDP initially increases due to the denominator
effect, producing a lower GDP. When exports and aggregate demand
recover, rebuilding efforts start, driving up foreign debt, as we explained
earlier, except in the tax-financed policy scenario (Figure 11.7.b). The

government’s additional public investment expenditures (SC2) promote
faster private capacity employment (Figure 11.6.b), thereby stimulating
the GDP and lowering the foreign debt requirements.
The public spending trajectory (Figure 11.9) provides an explanation
for the long-run adjustment path back to the steady state for all the
scenarios. In the case of no-policy measures (SC1), the reduced tax base
from the lower GDP and interest payments for the additional foreign
debt necessary to close the saving and investment gap reduce public
spending until the government has repaid all the foreign debt. When
debt finances additional public investment, the government spending
increase outweighs the tax base effect, stimulating the recovery
(Figures 11.4 and 11.6). Over time, the government phases out the public
investment stimulus and the interest payments for the additional
foreign debt lower public spending for a while. The recovery allows the
country to spread the financial burden of the disaster over a longer time
span, then returning to the steady-state foreign debt and GDP levels.
The tax-financed public investment stimulus (SC3) shows a diverging
trajectory. Initially, the lower tax base and accompanying lower
government spending outweigh the investment stimulus, leading to the
most detrimental GDP and capacity impacts. In the medium run after
the disaster, when the economy begins to recover, the higher tax rate
and the missing interest payments for foreign debt generate larger fiscal
space, driving up public spending. This explains the catch-up effect in
the medium run for the GDP and capital stock recovery. Since higher
GDP and income also drive consumption, intermediate and capital
imports and the counterbalancing GDP increase, and all the scenarios
return to their long-run steady-state values.
Our results indicate that a targeted increase of government
spending in times of crisis could be beneficial for the economic recovery
of Fiji, especially when foreign debt finances it instead of tax increases.
This solution, however, involves important trade-offs. Fiji is a small
island economy that must import 70% of investment goods, such as
machines, from abroad. Efforts to speed up the reconstruction of the
destroyed capital stock would therefore require large capital goods
imports, leading to an increased current account deficit. This needs
financing either via foreign borrowing or via domestic tax increases in
our model simulations. Debt-financed recovery with targeted public
investment allows faster and less painful recovery but requires quick
and preferential access to foreign borrowing. Tax-financed recovery
can satisfy short-term foreign borrowing needs but comes at the cost of
more detrimental impacts on the GDP and private sector consumption
in the direct aftermath of a disaster.
11.7 Conclusion
To build economic resilience against disasters, one must address
appropriately the trade-offs associated with alternative recovery
policy options for a small island economy such as Fiji. Reviewing the
hazard profile, climate, and DRM policy frameworks and the structural
vulnerabilities associated with Fiji’s economy, such as trade dependency
and access to foreign borrowing, we developed and calibrated a BinD
model, incorporating the three gaps of fiscal, foreign, and savings
constraints. The BinD model assessed post-disaster response and
recovery options against cyclone and COVID-19 impacts under
alternative financing options of debt- and tax-financed increases in
government investment.
As our analysis has demonstrated, efforts to restore disaster-
affected infrastructure, buildings, and livelihoods as swiftly as possible
may in fact compete with other development objectives, such as quickly
restoring an adequate level of consumption, especially for the most
vulnerable population. The simulation results indicated that a cyclone-
only shock (resulting in 10% destruction of capital stock) leads to an
initial drop in the real GDP of approximately 5.4%, while the same
magnitude of destruction of capital stock under an additional export
shock of COVID-19 reduces the real GDP by approximately 10%. A
debt-financed increase in government investment requires a temporary
higher foreign lending and government budget deficit while achieving a
faster recovery of capital stock without dampening private consumption.
A tax-financed increase in government investment, conversely, will
hamper the aggregate demand. Thus, capital investment and the overall
macroeconomic recovery, as the GDP trajectory indicated, will perform
poorly compared with the no-policy and debt-financed scenarios. This
highlights the crucial role that domestic demand plays in facilitating
a swift economic recovery, especially with significant curtailment of
foreign demand, such as in the case of COVID-19.
Our initial assessment indicated the importance of quick and
preferential access to foreign borrowing in line with the Fiji government’s
current engagement to access donor financing, for instance, through a
contingent credit arrangement. At the same time, the government must
design credible recovery and debt repayment plans to allow for long-
run sustainability of debt in the country. While our analysis provided
initial insights into the potential trade-offs associated with post-disaster
recovery policies under demand-side constraints, additional knowledge
gaps remain. They have the impact of alternative recovery-financing
options and their distributional implications and the performance
of debt- and tax-financed recovery options in comparison with other
financing options, such as sovereign insurance and reserve funds.

Further, it is necessary to explore an evaluation of ex post versus ex ante
policy options, including adaptation policy. Finally, the analysis of long-
run impacts of disasters, that is, how persistent changes in economic
and financing conditions may drive long-run growth trajectories, is
highly relevant, especially with the increased frequency and intensity of
disaster occurrence due to climate change.
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12
Are Coastal Protective Hard
Structures Still Applicable
with Respect to Shoreline
Changes in Sri Lanka?
L.C.K. Abeykoon, E.P.D.N. Thilakarathne,
A.P. Abeygunawardana, T.W.S. Warnasuriya,
and K.P.U.T. Egodauyana
12.1 Introduction
Sorenson and McCreary (cited in Clark 1995) defined a coastal zone, or
a coastal area, as the transition or interface region where “part of the
land is affected by its proximity to the sea and where part of the ocean
is affected by its proximity to the land.” The Coast Conservation Act of
1981 defined the coastal zone of Sri Lanka as follows:
… the area lying within a limit of 300m landward of the mean

high-water level and a limit of 2 km seaward of the mean low
water level. In the case of rivers, streams, lagoons, or any
other body of water connected to the sea either permanently
or periodically the landward boundary extends to a limit
of 2 km measured perpendicular to the straight base line
drawn between the natural entrance points thereof and shall
include the waters of such rivers, streams, and lagoons or any
other body of water so connected to the sea.
It is a complex series of interlinked physical systems that involve

both offshore and onshore processes (Prasad and Kumar 2014).
In fact, coastal zones are very important due to their abundant natural
resources and wide variety of interconnected ecosystems, such as coral
320
Are Coastal Protective Hard Structures Still Applicable
reefs, seagrass beds, mangroves, sand dunes, coastal vegetation, lagoons,

estuaries, and coastal wetlands (Clark 1995; Alesheikh, Ghorbanali,
and Nouri 2007). As Sri Lanka is a small island, the coastal zone is a
remarkable landscape that plays a vital role in the country’s economy.
The development activities covering the fisheries sector, tourism and
transport, and logistic development provide unlimited benefits to the
coastal dwellers over a wide area. Therefore, most countries distinguish
their coastal zone as a key element of their economy and culture (Clark
1995; Beatley, Brower, and Schwab 2002).
Research has identified coastal erosion and temporal shoreline
changes as a major national-level problem in this developing country
since the early 1980s (Perera 1990; Godage 1992). The temporal shoreline
changes resulting from natural phenomena like coastal floods, storm
surges, hurricanes, tsunamis, sea-level rises, and tidal variations could
cause coastal erosion (Zhang, Douglas, and Leatherman 2004; Prasetya
2007; Nayak 2017). Research has found that coastal longshore currents,
coastal rip currents, waves, and wind activities, transporting sand from
the shore and depositing it somewhere else, are influential factors
for coastal erosion (Senevirathna et al. 2018). In addition, amplified
anthropogenic activities, such as disturbing coral reefs, sand mining,
deforesting coastal vegetation, and artificial alteration through dredging,
filling, and construction, are leading issues that produce coastal erosion
(Clark 1995; Van Rijn 2011; Prasad and Kumar 2014). Coastal erosion
directly and indirectly creates environmental issues, reduces economic
growth, and generates social conflicts (Hanson and Lindh 1993; Ndour
et al. 2018; Williams et al. 2018).
Researchers identified coastal erosion as a major problem a long
time ago. The mechanisms of coastal erosion are not fully understood,
and researchers have not fully investigated the effect of coastal protective
structures. As a developing country, Sri Lanka has implemented various
types of coastal protective methods. The major techniques that it has
used to protect its coastal areas are soft coastal protection techniques
(beach nourishment and dune construction) and hard coastal protection
techniques (revetments, groynes, offshore breakwaters, gabion walls,
coves, and immediate rock beddings), which allow the shore to behave
naturally without any constructive protection method (declared as
a restricted area) (Dias et al. 2003; Iskander 2010; Borsje et al. 2011).
However, a new inclination toward eco-friendly, soft, and state-of-the-art
methods rather than hard constructions is observable (Hegde 2010).
Due to the prevailing economic state, the country has implemented
low-cost coastal protective structures, and research has not yet fully
studied their effectiveness and their negative impacts on the coastal
zone of Sri Lanka.
On the other hand, the monitoring of coastal zones is a significant

task in sustainable development and environmental protection due to
their highly dynamic nature; they are continually changing due to the
interaction between the oceans and the land (Harley et al. 2011; Łabuz
2015) and various anthropogenic impacts (Dias et al. 2013; Pessoa and
Lidon 2013). Therefore, conducting regular monitoring of the coastal
environment is very important to ascertain the environmental, social,
and economic vulnerabilities in the coastal regions.
Furthermore, several major economic activities take place in
the coastal zone, like tourism, fisheries, fishery harbors, commercial
harbors, and development projects, such as for power generation,
and approximately 70% of tourist hotels and nearly 62% of industrial
units contribute to the national gross domestic product, according
to the Revised Coastal Zone Management Plan (Coast Conservation
Department 2004). Furthermore, infrastructure has developed rapidly
with the high densification of inhabitants along the coastal zone in the
past decades (Senevirathna et al. 2018).
Geographic information system (GIS) and remote sensing
technologies are among the dominant tools for quantifying the coastal
zone changes such as shoreline change as they provide information in
digital form (Zuzek, Nairn, and Thieme 2003). In addition, researchers
have identified GIS and remote sensing techniques using high-
resolution satellite images as one of the best solutions to investigate
shoreline changes over a long period as they are efficient and effective
and provide access to temporal data (Warnasuriya, Gunaalan, and
Gunasekara 2018). The high-resolution satellite images from the Google
Earth platform are freely available, so they are cost-effective and can
enable the mapping of changes in a coastal zone after the appropriate
corrections. The major advantages of using such satellite images are
the availability of both medium- and high-resolution images and
the availability of time series data (Malarvizhi, Kumar, and Porchelvan
2016).
Recent studies have revealed that the erosion of the coastal zone of
Sri Lanka is a long-standing problem (Lakmali et al. 2017; Ratnayake et
al. 2018, 2019) but has poor monitoring and documentation. Other than
that, studies on shoreline changes have been very limited in the Western
and North Western provinces.
The Western coastal area (Kalutara, Colombo, and Gampaha
districts) of Sri Lanka, including the capital city of Colombo, has a highly
concentrated population, development activities, and infrastructure
and industries with mass development projects that will increase the
coastal erosion of their particular area. The North Western Province’s
coastal zone includes only Puttalam district, which covers the Wilpattu
National Park. Its status as a restricted area that belongs to the national
park fully inhibits anthropogenic interventions.
The current study selected the Western coastal area (Kalutara,
Colombo, and Gampaha districts)—Zone A—and the North Western
coastal area (Puttalam)—Zone B—to study the temporal shoreline
changes over a 15-year (2005–2019) period. To determine the
effectiveness of the applied coastal protective structures and the effect
of the physical alteration due to anthropogenic interventions and
natural phenomena, it investigated the shoreline changes over the
15-year period by utilizing GIS and remote sensing techniques.
12.2 Materials and Methods

12.2.1 Study Area
The coastlines of three administrative districts, specifically Kalutara
(42.3 kilometers [km]), Colombo (24.3 km), and Gampaha (34.7 km),
belong to the Western Province (Zone A), while only the coastline of
Puttalam district (159 km) belongs to the North Western Province
(Zone B). The study area extends approximately 260 km in the coastal
zone from the Bentota River (Western Province), Kalutara, to the
Modaragam-aru River, Puttalam (North Western Province). This
area lies between the Benthota River, at the southern end of Kalutara
(6.5854° N, 79.9607° E), and the Modaragam-aru River, at the northern
end of Puttalam (8.0408° N, 79.8394° E).
The study area experiences a typical maritime climate with an
average temperature of 27°C on the western and northwestern coasts.
The mean annual rainfall varies from less than 900 millimeters (mm)
in the driest parts (North Western Province) to over 5,000 mm in
the wettest parts (Western Province) (Schott and McCreary 2001;
Tomczak and Godfrey 2013; Department of Meteorology, Sri Lanka
2019). The rainfall pattern varies seasonally with the monsoon system.
The prevailing changes in the weather are due to the southwestern
monsoon (May to September) (Ranathunge, Steudle, and Lafitte 2003).
The changes in the sediment transport flux, river discharge, and wave
climate are totally dependent on the monsoon pattern, and this directly
influences the temporal coastal changes. The area faces numerous natural
hazards, such as coastal erosion, stream flooding, storm and tidal surges,
and active surface faulting. The anthropogenic interventions include
sand mining, coral mining, coastal development, inappropriate removal
of coastal vegetation, and direct pollution as well as temporal coastal
changes. The Wilpattu National Park, a protected area, completely
covers Zone B, which represents the Wilpattu region (from Dutch Bay
to Modaragam-aru, 26 km) and therefore free from interventions from

humans. The topography of the beach area includes rocky cliffs, dunes,
and the main beach area, for which coastal vegetation forms a boundary.
The rocky cliffs, dunes, and coastal vegetation act as barriers as well as
natural protectors of the coast (Tien and Sam 2007).
The categorization of the considered topographical changes includes
temporal shoreline change, applied coastal constructions (protective
barriers and hard protection techniques), and coastal developments
through physical alteration of the shoreline in each district—Kalutara,
Colombo, and Gampaha (Zone A) and Puttalam (Zone B).
12.2.2 Data Collection and Data Processing
The study used high-resolution satellite images to extract shorelines

through the digitization of multi-date satellite images to form the
shape files. It extracted the coastal constructions and alterations (e.g.,
harbors, artificial coastal islands, etc.) and coastal protective structures
(revetments, groynes, breakwaters, and coves) throughout the 15-year
period from 2005 to 2019 by using the Google Earth Pro 7.3 software
package.
The study detected the temporal shoreline positions and physical
alterations, including the coastal constructions and alterations and
coastal protection structures, through both visual interpretation and
manual declination using the Google Earth Pro 7.3 software package.
It incorporated satellite images (for spatial resolution, see Table 12.1),
community-based interviews, previous construction data from the
Coast Conservation and Coastal Resource Management Department
of Sri Lanka (CC and CRMD), and published documents, wherever
necessary for validation.
Table 12.1: Approximate Spatial Resolution of the High-Resolution

Satellite Images from the Google Earth Platform
Date Approximate Spatial Resolution (m)

Dec 2005 0.31–1.84
Dec 2010 0.31–1.84
Nov 2015 0.31–1.84
Dec 2019 0.31–1.84
Note: The study used data sources and visual interpretation of Google Earth images by distinguishing the
minimum possible identifiable objects to determine the approximate spatial resolution.
Source: Authors.
Extraction of the Shoreline

The study considered the borderline between land and water as the
shoreline, referencing the blue margin that splits the land from the water
in satellite images via visual interpretation (Warnasuriya, Gunaalan,
and Gunasekara 2018; Warnasuriya et al. 2020). The wave action within
the selected season of the years (October, November, December) was
comparatively low because there was no direct influence of the inter-
monsoon (October–November) and northeastern monsoon (December–
February) on the study area (Schott and McCreary 2001; Gunaratna
et al. 2011; Tomczak and Godfrey 2013; Thevasiyani and Perera 2014;
Bamunawala et al. 2015).
Ground truth investigation obtained ground control points (GCPs)
in places; physical shoreline alteration with protective structures
affected shoreline positions and permanent structures (harbors and
buildings) and adjusted ecosystems (sand dunes and vegetation). The
ground survey obtained GCP locations using the Garmin GPSMAP 64s
Global Positioning System (GPS).
In the shoreline extraction, the tilt of the images of the study area,
the scale, and the eye altitude (300 m) remained similar for each image
throughout the process to remove the errors arising during digitization
due to the zoom level (Warnasuriya et al. 2020). We saved the digitized
shorelines in Keyhole Markup Language (KML) file format and
converted the KML files into “layer files” using the ArcGIS 10.6 software.
They projected all the digitized shorelines to the WGS 1984 UTM 44N
projection system.
Shoreline Rectification
We checked the accuracy of the satellite images using 15 GCPs and
applied geometric corrections to each shoreline before conducting the
analysis process (Figure 12.1). We estimated slight shifts of Google Earth
satellite images due to geo-referencing errors and platform-oriented
errors with reference to the GCPs in the satellite image of 2011, which
was closely related to the ground truth data (Warnasuriya, Gunaalan,
and Gunasekara 2018). We considered permanent structures, such as
the roof tips of square-shaped buildings, as GCPs in all the satellite
images of different years.
Figure 12.1: Selected Ground Control Points from Bentota River,

Kalutara, to Modaragam-aru River, Puttalam
GCP = ground control point.
Sources: Esri, HERE, Garmin, Intermap, increment P Corp., GEBCO, USGS, FAO, NPS, NRCAN,
GeoBase, IGN, Kadaster NL, Ordinance, Survey, Esri Japan, METI, Esri People’s Republic of China
(Hong Kong, China). ©OpenStreetMap contributors and the GIS User Community.
The respective latitudes and longitudes of each of the 15 GCPs are

the following (Table 12.2); we used them to check the accuracy of the
satellite images.
Table 12.2: Coordinates of Ground Control Points

Used in Geometric Corrections
Point/Location Latitude Longitude
1 6°26'33.04"N 79°59'32.28"E
2 6°32'38.23"N 79°58'40.70"E
3 6°36'34.93"N 79°56'56.12"E
4 6°42'2.68"N 79°55'28.96"E
5 6°43'55.76"N 79°53'49.73"E
6 6°48'7.05"N 79°53'27.25"E
7 6°54'34.19"N 79°53'22.62"E
8 7° 3'57.79"N 79°53'37.48"E
9 7°10'41.90"N 79°51'45.31"E
10 7°17'53.77"N 79°50'27.96"E
11 7°20'53.36"N 79°49'53.08"E
12 7°27'4.50"N 79°48'26.48"E
13 7°29'16.45"N 79°48'5.52"E
14 7°34'40.58"N 79°47'42.60"E
15 7°35'7.70"N 79°47'40.50"E
Source: Authors.
Shoreline Data Processing

Our study used the “Append (Data Management)” tool to overlay and
append all the shorelines to input the data sets into an existing target
data set. After appending, we created buffer polygons with 100 meters
(m) width for each shoreline and merged the buffer polygons to create
the baseline. We managed all these activities in a specific personal
geodatabase using the ArcGIS 10.6 software. We created two feature
classes to represent the shoreline and baseline in the same geodatabase and
used the appended shoreline data set to create a shoreline feature class;
we then used the created buffer polygon to create a baseline feature class
with specific attributes.
The study used the standard deviation of the positional shift as
the initial uncertainty (U1) and considered the tidal influence as the
second uncertainty (U2) to detect shoreline changes. The average tidal
variation on the western coast of Sri Lanka is 0.2–0.3 m (Wijeratne
and Pattiaratchi 2006). Then, we calculated the tidal influence on the
shoreline as follows:
Average Tide Variation (M)

TanƟ =
Shoreline Displacement (M)
where Ɵ is the average slope angle (Warnasuriya, Gunaalan, and

Gunasekara 2018). We calculated the cumulative uncertainty for each
shoreline using:
U = U1 + U2
where U is cumulative uncertainty, U1 is uncertainty due to positional

shift (m), and U2 is uncertainty due to tidal influence (m).
We used the DSAS version 5.0 tool in the ArcGIS software to
calculate the shoreline change statistics. The date field and uncertainty
field to each shoreline layer were added and the data entered into the
respective attribute tables (for shoreline rectification). Then, we created
the “transect layer” by casting transects in 5 m intervals along the
baseline, allowing the transects to cross all the shorelines (Figure 12.2).
Figure 12.2: Generated Transect Lines

from Baseline to Shoreline
Legend Legend
Intersects Intersects
Transects Transects
Baseline Baseline
Shorelines Shorelines
Source: Esri, DigitalGlobe, GeoEye, Earthstar, Geographics, CNES/Airbus DS, USDA, USGS,
AeroGRID, IGN, and the GIS User Community.
Extraction of Coastal Protective Structures

First, we adjusted the tilt of the images of the study area using the
Google Earth Pro software to minimize the geometric errors and kept
the scale similar for each image throughout the digitization process.
Then, we delineated the coastal protective structures for the time
period from 2005 to 2019 based on the satellite images from the Google
Earth platform with the same eye altitude of 300 m. We adjusted these
for all the satellite images to avoid errors arising during the digitization
process due to the zoom level in the software itself.
These digitized coastal protective structures were saved in the
KML file format year by year. We measured and recorded the length of
each coastal protective structure separately according to the following
categories:
• breakwaters;
• groynes (fishtail, roundhead, L-shaped, T-shaped);
• revetments (artificial walls); and
• coves.
Extraction of Coastal Developments

We delineated all the coastal developments (harbors and land fillings
and coastal protective structures), making physical alterations to
the shoreline by digitizing the total area of development within the
study area.
12.2.3 Data Analysis
The net shoreline movement (NSM) explained the distance between

the oldest (2005) and the youngest (2019) shoreline (Oyedotun 2014).
The NSM revealed the overall shoreline change based on the shoreline
position during the 15-year period.
We derived the end point rate (EPR) by dividing the distance of
the shoreline movement by the time elapsed between the oldest and
the youngest shoreline position (Oyedotun 2014). They divided the
distance between the oldest (2005) and the youngest (2019) shoreline
by the time of the study. The shoreline change envelope (SCE)
is the measurement of the total change of the shoreline positions with
their distance without specifying the study dates (Oyedotun 2014;
Himmelstoss et al. 2018).
The DSAS v5.0 tool (extension) in the ArcGIS 10.6 software
calculated the shoreline change statistics for NSM, EPR, and SCE to
estimate the shoreline changes. MS Excel and the Minitab 17 software
analyzed the other results (coastal protective structures, coastal

developments, and coastal area). After analyzing the collected data,
we clarified the relationship between the protective hard structures
and the shoreline changes. The study’s overall methodology, from data
collection and data processing to data analysis, is shown in Figure 12.3.
Figure 12.3: Flow Chart Showing the Overall

Methodology the Study Adopted
“High Resolution” Google Earth Literature, Maps,

Ground Data
Satellite Data Community Interviews
Visual Interpretation
Digitizing Hard Shoreline Digitizing

GPS Data (GCP) Tidal Data Beach History
Structures (Manually)
Save in KML Format Shifting Error Tidal Error
Data Convertion
(KML to Layer SD
file in ArcGIS)
Record Lengths and Geometric

Corrections
Count of each (Uncertainty)
Overlay Digitized
Shorelines
Generate the
Baseline and
Transects
Shoreline Change
Analysis Analysis
(EPR, NSM, SCE)
EPR = end point rate, GCP = ground control points, GPS = global positioning system, NSM = net
shoreline movement, SCE = shoreline change envelope, SD = standard deviation.
Source: Authors.
12.3 Results
12.3.1 S
horeline Changes along the Coastal Zone
of the Western and North Western Provinces
The EPR value shows high variation along the shorelines in the
Western and North Western provinces within the respective study
period (Figure 12.4). The shorelines of the total study area record the
distinguished changes in the EPR.
The place with the highest recorded EPR in Kalutara district
is Kaluwamodara-West with 24.47 m yr-1. This area is adjacent to the
Bentota River estuary, where seasonally washed particles from the
upper land form deposits in the estuarine mouth and the adjacent
coastal area. The place with the lowest recorded EPR in Kalutara district
is Kalutara-South (Katukurunda) with –19.06 m yr-1. The place with the
highest recorded EPR in the Colombo district is the Wedikanda-North
region with 4.29 m yr-1. The place with the lowest recorded EPR in the
Colombo district is the middle part of Mount Lavinia coastline, which
recorded –1.93m yr-1.
The place with the highest recorded EPR in Gampaha district is
Daluwakotuwa beach, with a 15.47 m yr-1 rate, and the place with the
lowest recorded EPR in Gampaha district is near Dikowita harbor, with
a –6.03m yr-1 rate. The place with the highest recorded EPR in Puttlam
district is in Kudawa upper division, with 32.3 m yr-1. The place with
the lowest recorded EPR in Puttalam district is Kandakuliya, with
–39.91 m yr-1.
Figure 12.4: End Point Rate of the Kalutara (A),

Colombo (B), Gampaha (C), and Puttalam (D) Districts,
and the Wilpattu Region (E)
A B
Legend Legend
Kaluthara-EPR Colombo
EPR EPR
–19.1 < EPR <= –3.0 (Very High Erosion) –9.1 < EPR <= –3.0 (Very High Erosion)
–3.0 < EPR <= –2.0 (High Erosion) –3.0 < EPR <= –2.0 (High Erosion)
–2.0 < EPR <= –1.0 (Moderate Erosion) –2.0 < EPR <= –1.0 (Moderate Erosion)
–1.0 < EPR <= –0.5 (Low Erosion) –1.0 < EPR <= –0.5 (Low Erosion)
–0.5 < EPR <= 0.5 (Stable) –0.5 < EPR <= 0.5 (Stable)
0.5 < EPR <= 1.0 (Low Accretion) 0.5 < EPR <= 1.0 (Low Accretion)
1.0 < EPR <= 2.0 (Moderate Accretion) 1.0 < EPR <= 2.0 (Moderate Accretion)
2.0 < EPR <= 3.0 (High Accretion) 2.0 < EPR <= 3.0 (High Accretion)
3.0 < EPR <= 24.5 (Very High Accretion) 3.0 < EPR <= 4.0 (Very High Accretion)
C D
Legend Legend
Gampaha PUTTALAM
EPR EPR
–19.4 < EPR <= –3.0 (Very High Erosion) –40.0 < EPR <= –3.0 (Very High Erosion)
–3.0 < EPR <= –2.0 (High Erosion) –3.0 < EPR <= –2.0 (High Erosion)
–2.0 < EPR <= –1.0 (Moderate Erosion) –2.0 < EPR <= –1.0 (Moderate Erosion)
–1.0 < EPR <= –0.5 (Low Erosion) –1.0 < EPR <= –0.5 (Low Erosion)
–0.5 < EPR <= 0.5 (Stable) –0.5 < EPR <= 0.5 (Stable)
0.5 < EPR <= 1.0 (Low Accretion) 0.5 < EPR <= 1.0 (Low Accretion)
1.0 < EPR <= 2.0 (Moderate Accretion) 1.0 < EPR <= 2.0 (Moderate Accretion)
2.0 < EPR <= 3.0 (High Accretion) 2.0 < EPR <= 3.0 (High Accretion)
3.0 < EPR <= 15.5 (Very High Accretion) 3.0 < EPR <= 32.3 (Very High Accretion)

Figure 12.4 continued
Note: The EPR levels exhibit nine color variations according to the differences in erosion and
accretion:
The bright red ( ) represents the area that has experienced a very high erosion rate with
X<EPR≤–3.0, and the different shades of red represent high erosion ( ) with a –3.0<EPR≤–2.0
rate range, moderate erosion ( ) with a –1.0<EPR≤–2.0 rate range, and low erosion ( ) with
a –1.0<EPR≤–0.5 rate range. The yellow ( ) represents the stable condition in the shorelines
with a rate of –0.5<EPR≤0.5. The shades of green represent low accretion ( ) with 0.5<EPR≤1.0,
moderate accretion ( ) with 1.0<EPR≤2.0, high accretion ( ) with 2.0<EPR≤3.0, and very high
accretion ( ) from 3.0<EPR≤X, which the bright green represents.
Source: Esri, DigitalGlobe, GeoEye, Earthstar, Geographics, CNES/Airbus DS, USDA, USGS,
AeroGRID, IGN, and the GIS User Community.
Table 12.3: Regions with the Largest and Smallest End Point Rate
Changes in Each District of the Study Area
Coordinates (Start) Coordinates (End)
District Rate Region Lat. (N) Lon. (E) Lat. (N) Lon. (E)
Kalutara High Kaluwamodara 6°33'50.09" 79°59'14.93" 6°26'7.31" 79°59'27.92"
Low Katukurunda 6°33'53.75" 79°57'39.49" 6°33'51.37" 79°57'41.40"
Colombo High Wedikanda 6°49'58.28" 79°51'40.92" 6°49'50.09" 79°51'42.84"
Low Mount Lavinia 6°50'11.03" 79°51'47.10" 6°50'8.92" 79°51'46.19"
Gampaha High Daluwakotuwa 7°15'24.47" 79°50'30.34" 7°15'13.97" 79°50'27.27"
Low Dikowita 7°0'4.65" 79°52'2.30" 6°59'58.43" 79°52'3.15"
Puttalam High Kudawa 8°20'50.77" 79°46'14.20" 8°19'46.57" 79°45'55.70"
Low Kandakuliya 8°13'6.66" 79°42'57.00" 8°12'52.08" 79°41'56.93"
Source: Authors.
As Table 12.3 shows, the Kudawa upper-division area of Puttalam

district shows the highest EPR due to the highest accretion level in
the total study area of the Western and North Western provinces. The
Kandakuliya area of Kalpitiya peninsula in Puttalam district shows the
lowest EPR due to the highest level of erosion in the total study area
of the Western and North Western provinces. According to Samanmali
and colleagues (2015), the Kudawa area of Kalpitiya peninsula
experienced accretion due to sand deposition from 1973 to 2014, and the
unconsolidated sand materials created a headland, while the shorelines
of adjacent zones moved landward. However, a considerable area of this
peninsular was highly dynamic due to wind, wave, and longshore current
action (Samanmali, Piyadasa, and Wickramasinghe 2015; Senevirathna
et al. 2017). The highest EPR due to erosion observable in this particular
area is erosion of this unstable headland.
Figure 12.5 shows the significant variation in the EPR value due to
the Transact ID during the 15-year period in each study area.
Figure 12.5: Graphical Representation of the End Point

Rate of Each Selected Study Area
EPR - Kaluthara EPR - Colombo
30
2
20 0
–2
EPR (m/yr)
EPR (m/yr)
10
–4
0
–6
–10
–8
–20
–10
1 823 1568 2469 3292 4115 5460 6283 7106 7929 8752 1 382 764 1146 1528 1910 2292 2674 3056 3438 3820
TransactID TransactID
EPR - Gampaha EPR - Puttalam

20 0
10 –10
EPR (m/yr)
EPR (m/yr)
0 –20
–10
–30
–20
–40
1 718 1436 2154 2872 3590 4308 5026 5744 6462
TransactID 13 369 574 847 1052 1257 4196 4576 18488 24870
TransactID
EPR - Modaragam-Aru
10
0
EPR (m/yr)
–5
–10
–15
24 541 1059 1577 2095 2613 3131 3649 4167 4685 5203
TransactID
EPR = end point rate.
Source: Authors.
The coastal area of Wilpattu region, the region between the

Modaragam-aru River and Dutch Bay, has fewer human interventions,
based on the ground truth investigation and secondary data from the
CC and CRMD, than the Kalutara, Gampaha, Colombo, and Puttalam
districts. The output results show that there is a majorly stable and
accreted coastal zone in the Wilpattu region, which belongs to Wilpattu
National Park. Notably, the high loss of the coastal zone has influenced
the Kudiramalei point area of the Wilpattu region (8° 32' 19.37" N, 79°
52' 30.57" E–8° 32' 24.93" N, 79° 52' 27.81" E). Since it is a prominent
headland area consisting of a sandy and gravel shoreline, it undergoes
seasonal changes, including loss and accumulation (Gillie 1997).
Average Rates of Shoreline Change

When considering the total average EPR in each district (Figure 12.6),
the Kalutara district recorded the highest rate of shoreline erosion
(–1.21 ± 0.04 m/yr) and the Wilpattu region recorded the highest rate of
accretion (0.95±0.58 m/yr). Unlike the Kalutara district, the Colombo
and Gampaha districts also recorded changing erosion rates. However,
Puttalam district had a changing accretion rate.
Figure 12.6: Average Rate of the Shoreline

Changes in Each Selected Study Area
1.5
0.95
1.0
0.5 0.26
m/yr
0.0
Kaluthara Colombo Gampaha Puttalam Wilpattu
–0.5
–0.54
–1.0 –0.7
–1.5 –1.21
m/yr = meter per year.
Source: Authors.
Our study compared this result with the average shoreline change
rates in each district before the year 2000, before the tsunami disaster,
according to the statistics that the Ministry of Forestry and Environment
published (Table 12.4). When comparing the present data derived after
the tsunami with those before the tsunami, Kalutara district showed
a slight average accretion rate before 2000. Within the last 15 years,
the average erosion rate has increased enormously. The present study
revealed that the erosion rate in Colombo and Gampaha districts have
also increased compared with the erosion rate before 2000. However,
the study could not identify any prominent change in the average coastal
dynamic rate of Puttalam district.
The increasing coastal erosion rate in Kalutara, Colombo, and
Gampaha after 2000 may have caused the destruction of natural barriers
Table 12.4: Comparison of the Data on Coastal Changes

(Average Values) in Each District by 2000 and 2019
Erosion (-)/ Erosion (-)/

Accretion (+) Rates Accretion (+) Rates
Province District by 2000 (m/yr) by 2019 (m/yr)
Western Kalutara 0.1–0.4 –1.21
Colombo 0.0–0.1 –0.54
Gampaha 0.9–1.0 –0.7
North Western Puttalam 0.2–0.4 0.26
m/yr = meter per year.
Source: Statistical Compendium on Natural Resources Management Sri Lanka 2000, Ministry of Forestry
and the Environment.
(e.g., corals) and protective vegetation (e.g., mangroves) due to the

vast destructive phenomenon of the tsunami (Pattiaratchi 2005; Devi
and Shenoi 2012); and, over time, different development projects have
physically altered of the shoreline within the past 15 years (Figure 12.12).
To conserve the coastal zone, the CC and CRMD of Sri Lanka built
hard protective structures with the collaboration of other reputable
organizations. These structures provided a temporary solution to
coastal erosion by preventing the degradation of the beach (Pranzini
and Williams 2013). According to Silva et al. (2014), hard protection
structures are the main coastal management strategy to mitigate the
effect of coastal erosion in Latin American countries, in European
countries, and on the Caribbean coast of Colombia.
However, this is not a sustainable solution because the structures
tend to move the erosion along the coastal zone due to the effect of
longshore sediment transport (Rangel-Buitrago, Williams, and Anfuso
2018). When considering the Kalutara, Colombo, and Gampaha districts
in the Western Province, Colombo applied more hard techniques along
the coastal zone than the other two districts. Since the majority of the
structures are revetments and breakwaters of the Port City project and
Colombo’s commercial harbor, they may cause an increasing erosion
rate in the other two districts due to the effect of longshore sediment
transportation and seasonal winds.
Furthermore, the application of hard structures has negatively
affected the coastal scenery, and many beaches with high tourism
potential now have little scenic value. The negative visual impacts
are the result of the environmental degradation associated with the
construction of hard protection structures and the collection of coastal
debris (Williams and Micallef 2011; Rangel-Buitrago et al. 2013; Williams

et al. 2018)
Puttalam district (within the Wilpattu region) shows accretion and
few influences of anthropogenic activities, like the Western Province,
and the Wilpattu region behaves naturally, so it tends to maintain a
stable environment rather than suffering from high erosion or accretion.
Percentage of Erosion and Accretion in Each Selected Area

As Figure 12.7 represented, erosion has strongly influenced the highest
percentage (75.55%) of shorelines in the Kalutara district (approximately
three-fourths of the Kalutara coast suffered erosion) and the Wilpattu
region recorded the smallest area of erosion, with a high accretion
percentage (93.46%) of the shoreline. Relative to the above rates of
erosion and accretion (Figure 12.6), these results represent the same
eroded and accreted percentages.
Figure 12.7: Percentage of Erosion and Accretion

in Each Selected Area
100
24.45 32.07
80 33.22
50.29
Percentage (%)
60
93.46
40 75.55 67.93 66.78
49.71
20
0 6.54
Kaluthara Colombo Gampaha Puttalam Wilpattu
District/Study Region
Erosional Accretion
Source: Authors.
Comparing the present data with the data from before the year 2000
revealed that Kalutara and Puttalam were stable, with the same range
of erosion and accretion percentages (Table 12.5). However, Colombo
and Gampaha experienced extraordinary erosion percentages. These
fluctuations could be due to the abovementioned reasons. Simply, if the
rate of shoreline changes increases, so does the percentage of shoreline
changes and vice versa.
Table 12.5: Erosion and Accretion Percentage Data Comparison

in the Years 2000 and 2019
2000 2019
Erosion Accretion Erosion Accretion
Percentage Percentage Percentage Percentage
Province District (%) (%) (%) (%)
Western Kalutara 70–80 20–30 75.55 24.45
Colombo 20–25 n.a. 67.93 32.07
Gampaha 45–50 10–20 66.78 33.22
North Western Puttalam 30–40 30–60 49.71 50.29
n.a. = not available.
Source: Statistical Compendium on Natural Resources Management Sri Lanka, Ministry of Forestry and
Environment.
The comparison of the two districts with the greatest erosional

changes (Kalutara) and the greatest accretion changes (Puttalam), using
the SCE statistical data of Kalutara, showed that the maximum of 368 m
accretion during the period 2010 to 2019 occurred in Kaluwamodara-
West region (6°33'50.09"N, 79°59'14.93 E–6°26'7.31"N, 79°59'27.92"E)
and the least dynamic shoreline, with a minimum of 0.76 m accretion
from 2005 to 2015, was in Pothupitiya-West region (6°38'7.52"N,
79°56'13.17"E–6°37' 55.45"N, 79°56'17.75"E). Kaluwamodara-West
region’s considerably higher accretion level may be due to freshwater
discharging from the Benthota River. The visual observations indicated
that sand and mud particles that washed away from the inner
land formed deposits around this estuary, so the seaward movement of
land is apparent.
The SCE of Puttalam district indicated that the coastal zone of
Puttalam has a stable and accretional beach with a low level of erosion.
The upper part of Kalpitiya peninsula showed a comparatively high
erosion rate and high shoreline movement, including accretion and
erosion. Further, the study identified this area as a critical region based
on the large shoreline movement. According to Samanmali, Piyadasa,
and Wickramasinghe (2015), a 32 m/yr shoreline change occurred
from 1973 to 2014 in the Kandakuliya and Kudawa regions. Further, the
shoreline change varied between 32.3±7.50 m/yr and –39.91±7.50 m/yr
along the Kalpitiya region (Kandakuliya–Kudawa). These two results
coincide and could be due mainly to natural phenomena, the sea-
level rise, and the adverse effects of climatic change. All the aquatic
ecosystems will be susceptible to variation of inundation, and coastal
Figure 12.8: Graphical Representation of the Shoreline Change

Envelope of Kalutara, Colombo, Gampaha, and Puttalam Districts
SCE - Kaluthara SCE - Colombo
400
90
80
300 70
60
SCE (m)
50
SCE (m)
200
40
30
100 20
10
0 0
1 823 1568 2469 3292 4115 5460 6283 7106 7929 8752 157 539 921 1303 1685 2067 2449 2831 3213 3595 3977
SCE - Gampaha SCE- Puttalam

250 225
200
200
175
150 150
SCE (m)
SCE (m)
125
100
100
50 75
50
0
1 718 1436 2154 2872 3590 4308 5026 5744 6462 13 369 574 847 1052 1257 4196 4576 18488 24870
m = meter, SCE = shoreline change envelope
Source: Authors.
erosion and alterations in coastal ecosystems may lead to the sea level
rising (Nianthi and Shaw 2015). The sea-level rise in Sri Lanka was 0.3 m
by 2010, and forecasts indicate that the sea level will rise by 1.0 m by
2070 (NATCOM 2000). It will also lead to increased coastal erosion in
the coastal zone of Sri Lanka (Nianthi and Shaw 2015).
The ground truth investigation reported considerable human
interventions, like fisheries and agriculture, and some agro-economic
activities. Also, according to Samanmali, Piyadasa, and Wickramasinghe
(2015), regarding the “sea level rise and its impacts on Kalpitiya peninsula”
in 2019, the coastal area of Kalpitiya peninsula is prone to many coastal
hazards and sea-level rise, and coastal erosion is related to the natural
process of the climate, such as the wind direction, wind speed, and wave
speed. Furthermore, Senevirathna et al. (2017) mentioned that coastal
changes mainly occur when wind, waves, and longshore currents carry
sand from the shore and deposit it somewhere else.
Shoreline Change Statistics

The study based the overall shoreline change statistics on the four
digitized shorelines under the average NSM, EPR, and SCE with their
standard deviations (SD) and the maximum and minimum values
(Tables 12.6 and 12.7). Here, the Kalutara district represents the highest
erosional conditions with net shoreline erosion of –16.84±3.05 m and
an average erosion rate of –1.21±0.04 m yr-1. However, Puttalam district
represents accretional conditions as opposed to other districts.
Table 12.6: Summary of Shoreline Change Statistics

District NSM±SD EPR±SD SCE±SD
Kalutara –16.84 ± 3.05 –1.21 ± 0.04 30.97± 2.95
Colombo –7.32 ± 1.58 –0.54 ± 0.63 15.67± 1.45
Gampaha –9.82 ± 2.91 –0.7 ± 0.58 22.3 ± 2.46
Puttalam 5.12 ± 4.96 0.26 ± 0.07 38.23 ± 4.57
EPR = end point rate, NSM = net shoreline movement, SCE = shoreline change envelope, SD = standard
deviation.
Source: Authors.
Table 12.7: Maximum and Minimum Shoreline Change

Statistics for Selected Areas
Transect Transect
District SCS Max. ID Region Min. ID Region
Kalutara EPR 24.47 8,291 Kaluwamodara- –19.06 5,071 Kalutara-South
West (Katukurunda)
NSM 341.71 8,291 Kaluwamodara- –266.84 5,071 Kalutara-South
West
SCE 368.79 8,291 Kaluwamodara- 0.76 2,875 Pothupitiya-
West West
(2010–2019) (2005–2015)
Colombo EPR 4.29 2,518 Wedikanda-North –1.93 2,445 Mount Lavinia
NSM 47.89 1,877 Dehiwala North –26.98 2,445 Mount Lavenia
SCE 61.25 3,419 Angulana 1.1 1,862 Dehiwala
(2015–2019)
Gampaha EPR 15.47 570 Daluwakotuwa –6.03 6,571 Near Dikowita
Beach Harbor
NSM 216.62 570 Daluwakotuwa –198.87 6,691 Near Dikowita
Beach Harbor
SCE 244.14 570 Daluwakotuwa 0.76 5,742 Wahatiyagoda
Beach Beach
(2005–2015) (2010–2015)
Puttalam EPR 32.3 1,432 Kudawa –39.91 4,627 Kandakuliya
NSM 199.95 1,418 Kudawa –199.89 424 Kalpitiya
(Upper)
SCE 214.53 17,143 Chilaw 0.59 20,847 Iranawila Beach
(2005–2015) (2015–2019)
EPR = end point rate, NSM = net shoreline movement, SCE = shoreline change envelope, SCS = shoreline change
statistics.
Source: Authors.
The results show that considerably more erosion takes place in

the Kalutara, Colombo, and Gampaha districts’ coastal zones than in
the Puttalam coastal zone. Therefore, these shoreline changes can be
due mainly to the various development activities causing physical
alterations of shorelines, seasonal changes, other anthropogenic
interventions, and the effect of the applied hard coastal protective
structures. The highest erosion rate is apparent around the Kalutara
coast. In the estuary (Kaluganga estuary), the freshwater output of
Kaluganga has washed away all the sandbars and eroded a vast area of
the beach in Kalutara North (Calido beach, Kalutara). According to the
ground truth investigation, this is a result of the rough seas due to the
southwestern monsoon in the last few years.
The study found an unstable coastal zone all along the Colombo
coast, but the Mount Lavenia and Wellawatta beaches showed moderate
erosion. The coast, including Dehiwala, Mount Lavenia, and Wellawatta
beaches, in the Colombo district showed severe seasonal erosion, mainly
during the southwestern monsoon (Lakmali et al. 2017). According to
that study, the erosion along the coast including Dehiwala, Mount
Lavenia, and Wellawatta beach is not a permanent feature. The effect
of erosion varies only seasonally, and accretion occurs with the onset
of the fair-weather northeastern monsoon. Colombo, as the capital of
Sri Lanka, has experienced strong anthropogenic interventions and
alterations of the coastal zone due to the expansion and development
of the city. Port City, combined with the Colombo south harbor project,
was the major development activity causing physical alterations of the
shoreline in Colombo. Within the past few years, it may have caused the
highest erosion and accretion rates around Port City. The coastal area of
Colombo has adopted many hard protection techniques (Table 12.8), so
the observed erosion along most of the Colombo coast is not permanent.
Lakmali et al. (2017) reported that the seasonal changes recover and
accretion occurs after the rough season. Therefore, there is a stable
condition or dynamic equilibrium in the present day and no long-term
erosion is observable.
According to the results represented, there is also a considerably
stable beach all around the Gampaha coast. The past data recorded that
the erosion has affected the Uswatakeiyawa and Negombo coastal areas
of Gampaha district moderately. Even though the areas have already
introduced coastal protection techniques, erosion is still apparent here.
The community in the area and the responsible fishery associations
of Sri Lanka have accused the construction of the Port City project of
causing this aggravated erosion. However, according to the data that
the Marine Environment Protection Authority and the CC and CRMD
collected, there is no scientific proof of the effect of Port City on coastal
erosion (Gunawansa 2018). Nevertheless, according to Beaven et al.

(2018), landfills are a major issue in shoreline management planning,
which aims to manage the risks associated with flooding and coastal
erosion.
In addition, the sediment deposition pattern associated with
breakwaters and groynes in the entire area shows sand transportation
predominantly toward the north. According to Lakmali et al. (2017),
sediment deposition in the northern section characterizes the
southwestern coastal area, whereas erosion characterizes the southern
section, implying predominant sediment transportation toward the
north. Therefore, the southwestern monsoon winds, which power
the northerly-directed longshore transport, predominantly govern
the southwestern coastal belt.
When comparing the topographical characteristics of each
site that recorded the largest erosion changes and largest accretion
changes, it became apparent that most of the sites have a significant
feature that causes their shoreline behavior. The Kaluwamodara
region, which has the highest EPR in the Kalutara district, is adjacent
to the Bentota River estuary. Here, the washed particles from the
inner land can form deposits around the estuary, causing accretion
changes in the area. The Mount Lavinia site in Colombo district and
the Dikowita site in Gampaha, both of which have a low EPR, have
adjoined hard structures. Furthermore, the Dikowita site is very near
the Dikowita harbors. Sandy beaches completely cover the Kudawa
and Kandakuliya sites. Due to the minimum human interventions in
this region, the behavior of wind, waves, and longshore currents tend
to move sand from one place to another. Finally, these areas have faced
instant shoreline changes.
12.3.2 Application of Coastal Protective Constructions
The main hard coastal protective constructions that this study considered
are revetments, breakwaters, coves, and groynes (Figure 12.9).
In the current study, areas have mainly implemented revetments as
a coastal protective structure up to 23,554 m length (9.05%), covering
18,960 m in the Western Province and 4,594 m in the North Western
Province. The revetment is in the land ward margin of the boundary
between the sea and the land, and the parallel structure reduces the wave
action using solid durable structures, such as granite boulders. Areas
have commonly used revetments to protect soft landforms, dunes, and
coastal slopes to provide additional protection to address the erosion
hazards. The protective effect of a revetment depends on the coastal
area that implements it.
Figure 12.9: Categorized Hard Structures in the Study Area
A. Revetments B. Breakwaters
C. Coves D. Groynes
Source: Breakwaters and cove images from Google Earth imagery; revetment and groyne images by
authors.
The extents of the coastal revetment in Kalutara, Colombo,

Gampaha, and Puttalam districts were approximately 7,133 m, 9,432 m,
2,395 m, and 4,594 m, and their coverage percentages of the total
coastal length were 16.85%, 38.81%, 6.90%, and 2.88%, respectively.
The high net erosion rate that the Kalutara district recorded caused the
implementation of a considerable extent of coastal revetments.
The total constructed lengths of breakwaters in the above districts,
respectively, were 1,903 m, 702 m, 2,175 m, and 4,141 m. The total numbers
of groynes in those districts were 19, 2, 29, and 91, respectively. According
to the results, there were three coves in Kalutara, none in Colombo and
Gampaha, and two in Puttalam at the end of 2019 (Table 12.8).
At the end of 2019, Puttalam district, specifically on Kalpitiya
peninsula, applied a vast amount of different hard structures: revetments
Table 12.8: Total Hard Structures in Kalutara, Colombo,

Gampaha, and Puttalam Districts
Kalutara Colombo
BW Rvts BW Rvts
Year (m) (m) Groynes Coves Year (m) (m) Groynes Coves
2005 1,125.4 3,494.5 12 3 2005 1,045.1 8,804.7 1
2009 1,198.1 3,515 10 3 2009 725.4 9,373 3
2014 1,256.9 4,944.1 10 3 2014 493.6 10,401.2 2
2019 1,902.9 7,132.7 19 3 2019 701.9 9,432.3 2
Gampaha Puttalam
BW Rvts BW Rvts
Year (m) (m) Groynes Coves Year (m) (m) Groynes Coves
2005 1,911.3 2,924.4 20 1 2005 463.4 4,517.3 19 2
2009 1,674.6 3,505.6 24 2009 469.8 4,492 19 2
2014 1,784.5 2,921.3 25 2014 2,944.5 4,746.6 36 2
2019 2,175 2,394.5 29 2019 4,151.3 4,593.5 91 2
BW = breakwater, Rvts = revetments.

Source: Authors.
and groynes. The unconsecrated sand layer around Kalpitiya peninsula

has suffered from a high erosion rate.
In 2005, the greatest application of hard structures took place
within Colombo district. However, the Port City development project
caused this application to decrease from 2014 to 2019 because of the
removal of the hard structures around the region that covered Port City
in Colombo and the damage to the revetments in certain places.
Furthermore, other districts have gradually increased the
application of hard structures over time. According to Figure 12.6,
Kalutara and Gampaha have average erosion rates, so they have applied
hard structures as precautions. Puttalam has an average accretion rate,
but the district has implemented a huge number of hard structures
to prevent adverse changes to the shoreline in certain regions. As an
example, the region from Maha-oya estuary, Wennappuwa, Marawila, to
Chilaw (7°16'42.39"N, 79°50'27.75"E–7°3'4.83"N, 79°47'24.85"E) applied
an enormous amount of protective structures with a groyne series
consisting of 38 individual groynes and a series of breakwaters with
revetments (Rathnayakage et al. 2020). When comparing the applied
hard structures in each district, all four districts have used revetments
extensively and coves minimally.
Anon (1997) mentioned the length of the existing effective shoreline

protection works in 1996 for revetments and groynes, as shown in Table
12.9. When comparing this with the data for 2019, there was greater
application of coastal structures in 1996 than in 2019 (revetments). The
reduction of structures may be due to the destruction occurring over
time, removal due to developments, disappearance, or due to the beach
filling following accretion and the tsunami phenomenon in 2004.
Table 12.9: Data Comparison of Applied Hard

Structures in 1996 and 2019
Total Length, 1996 Total Length, 2019

Coastal Region (m) (m)
Revetments 5,633 11,827
West Coast (Gampaha, Colombo)
Groynes 2,135 6,309
West Coast (Gampaha, Colombo)
Source: Anon (1997).
According to the National Action Plan for Protection of Marine and

Coastal Environment from Land-Based Activities (Ministry of Forestry
and the Environment 1999), revetments provide protection to the length
of the coastline that they cover, and their cost-effectiveness is greater
than that of other hard structures.
Figure 12.10 proves that the Western Province has implemented a
larger amount of coastal protection techniques to conserve the coastal
zone than the North Western Province. This conservation method is
based entirely on utilization, human alterations of the shoreline, and the
adverse effects of natural phenomena. The Western Province (Colombo,
Kalutara, and Gampaha) has utilized its coastal zone more to for-
development projects, the tourism industry, residences, infrastructure,
and so on than the North Western Province. To some extent, there has
been minimal human influence along the North Western Province’s
shoreline, so there is a naturally behaving sandy beach up to Kalpitiya
peninsula.
Figure 12.10: Total Hard Structures

in the Western and North Western Provinces
35,000
30,000
Total Length (m) 25,000
20,000
15,000
10,000
5,000
0
2005 2009 2014 2019
Year
Western Province North Western Province
m= meter.
Source: Authors.
Influence of the Protective Structures on the Beach

This section elaborates on the shoreline changes that have occurred in
three different scenarios: within the site close to the structure, adjacent
to the structure to 1 km away, and 5 km away from the structure.
Table 12.10 shows certain shoreline changes in and related
to the randomly selected hard protective structures in the study
area. When considering the shoreline changes within the selected
site, it is possible to categorize them into the rates of low erosion
(–1.0<EPR≤–0.5), stable condition (–0.5<EPR≤0.5), low accretion
(0.5<EPR≤1.0), and occasionally high accretion around the selected hard
structure. The NSM also shows low erosional movements and accretion
movements at the site. The SCE variability represents more accretional
movements than erosional movements. When comparing the shoreline
change rates of groynes, breakwaters, and revetments within the site,
it is apparent that there are only stable and accretion rates around the
breakwaters, and there are accretion shoreline movements other than
around groynes and revetments.
All the EPR changes adjacent to the selected site (1 km) and 5 km
away have low erosion, stable condition, and low accretion rates, with
moderate and high erosion occurring rarely. In addition, it is possible
to identify the NSM of each site as low erosional movements and low
accretional movements. The hard structures such as groynes and
breakwaters are good for the site but not much better for the adjacent
area. The current study does not fully describe the direct relationship
between the coastal protective structures and the shoreline changes,
Table 12.10: Shoreline Changes in the Study Area

with Respect to Applied Hard Structures
Adjacent to the Site Away from the Site

At the Site (1 km Away) (5 km Away)
Structure NSM EPR SCE NSM EPR SCE NSM EPR SCE
G1 20.39 1.46 22.54 31.61 2.26 31.61 0.21 0.02 22.19
G2 –11.47 –0.82 20.73 –1.66 –0.12 10.11 9.29 0.66 9.29
G3 –6.33 –0.45 6.33 –12.62 –0.9 18.64 –3.29 –0.23 14.49
G4 –4.05 0.29 12.13 –34.07 –2.43 34.07 1.79 0.13 8.38
G5 –24.1 –1.72 24.1 –8.43 –0.6 22.55 27.25 1.95 39.48
BW1 15.04 1.07 15.04 –59.55 –4.25 63.12 8.15 0.58 19.94
BW2 90.72 6.48 92.23 –17.28 –1.23 18.28 0.94 0.07 10.93
BW3 19.89 1.42 20.41 4.3 0.31 12.12 6.29 0.45 7.47
BW4 10.11 0.72 10.11 –12.23 –0.87 12.72 –20.11 –1.44 25.53
BW5 –4.84 –0.35 8.41 11.08 0.79 11.08 –46.7 –3.34 47.38
R1 –6.11 –0.44 9.02 –9.53 –0.68 9.53 11 0.79 18.34
R2 9.03 0.64 9.03 –2.78 –0.2 3.38 0.11 0.01 1.92
R3 –8.66 –0.62 12.14 –35.49 –2.53 35.49 –1.67 –0.12 4.08
R4 –11.8 –0.84 11.8 –26.2 –1.87 32.89 –27.42 –1.96 29.59
R5 3.01 0.22 13.66 11.09 0.79 11.27 –26.71 –1.91 35.58
EPR = end point rate, km = kilometer, NSM = net shoreline movement, SCE = shoreline change envelope.
Note: G refers to groynes, BW to breakwaters, and R to revetments.
Source: Authors.
but there is a minimal effect from the hard structures on the shoreline
changes because somewhat controlled changes are apparent to a
certain extent. However, regarding the original purpose of applying
hard structures, they have not achieved the same success as examples
elsewhere in the world (Rangel-Buitrago, Williams, and Anfuso 2018).
12.3.3 Coastal Development through Physical Alteration

of the Shoreline
Figure 12.11 shows the increase in areas of coastal developments from
2000 to 2019. The data in the figure represent areas’ execution of
coastal developments causing physical alteration of the shoreline over
the past 20 years within the Western and North Western provinces.
Five main harbors and a landfilling area developed from altering the
shoreline in the study area. The Colombo harbor, the fishery harbor in
Colombo, and the Beruwala fishery harbors have existed from the early
2000s up to the present in the Western Province. From 2009 to 2011,
a small harbor was located in Pothupitiya, Kalutara. The governing
body selected this area as a suitable coastal stretch, extending over
an area of 72,000 square meters, for siting the temporary quarry
rock loadout point for the transshipment of rock to Colombo. It has
finished the construction of a temporary breakwater extending over
500 m and a seafront wall and has been undertaking the dredging
of the basin since October 2008 (Lee et al. 2010). It established the
Dikowita fishery harbor and Colombo south harbor in 2010 and a huge
area incrementation in Colombo south harbor by 2019 by expanding
the wave breaks to protect the harbor. Furthermore, the mass artificial
landfilling Port City project commenced in 2015 and has now expanded
over 269 hectares as an additional part of Sri Lanka in Colombo district.
Figure 12.11: Coastal Development by Physical Alteration

of the Shoreline, 2000–2019
11.393161
12
10 8.703161
7.405139
8
Area (km2)
6
3.251171 3.251171
4
0
2000 2005 2010 2015 2019
Years
km2 = square kilometer.
Source: Authors.
Finally, this study has helped to prove that all these human
influences or anthropogenic interventions have caused shoreline
changes directly or indirectly in this study area. In addition, there
is an effect of natural phenomena such as tidal variations, sea-level
rises, storm surges, and so on. These two causes are interconnected.
If highly adverse activities occur around the coastal zone, they cause
adverse behaviors of the sea, and the aggravated behaviors of the sea
tend to increase the human influence on the coastal zone. Therefore, it

is important to study the dynamic nature of the shoreline with respect
to wind patterns, current patterns, sea-level rises, and natural barriers,
which help to protect the coastal zone.
12.4 Conclusions
The findings highlighted that the part of the study area experiencing
coastal erosion due to anthropogenic activities may face more drastic
changes in its shoreline and environment than other areas in the
Western and North Western provinces of Sri Lanka. Therefore,
anthropogenic activities are the leading factor in coastal erosion in the
respective study area rather than natural scenarios such as a sea-level
rise, climatic changes, and natural hazards. The application of hard
structures is the solution that is least able to control coastal erosion
in a large area because applying hard structure is good for the site but
not very helpful for other adjacent areas. Therefore, as long as humans
introduce no alterations, the environment will remain under its natural
conditions. If the shoreline is changing naturally, as humans, we have to
adjust rather than alter it. Furthermore, it is important to have proper
identification of the dynamic nature of the shoreline that is occurring
due to the behavior of wave patterns and coastal currents, obligatory
subsidies for the conservation and management of the coastal zone,
buffering capacity from natural coastal ecosystems, and coastal-based
industries. This study may provide information regarding where and
when ad hoc coastal zone development projects and ad hoc soft and
hard coastal conservation programs will work effectively within the
coastal zone.
12.4.1 Limitations of the Study
This study is based on the analysis of GIS and remote sensing data.
The digitization relied on visual interpretations and errors can
occur in the final results if the remote sensing data do not undergo
correct preprocessing. Insufficient previous data and studies
regarding shoreline changes in this area were available to carry out a
comparative study.
12.4.2 Recommendations for Future Research
This research mainly focused on the shoreline changes and the effect of
human influences and natural phenomena on the coasts of the Western
and North Western provinces. Further study could identify the changes
along the whole coastline of Sri Lanka and establish a proper mechanism
to define the predictability and the dynamic nature of the shoreline, as
well as the effect of sea-level rise, current patterns, and wind patterns on
the shoreline. The findings of further studies can assist in revising the
coastal management plan to ensure effective management approaches.
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Blue Economy and Blue Finance: Toward Sustainable Development and Ocean Governance
Billions of people in Asia and the Pacific depend on healthy oceans for their livelihoods, food security,
health, and recreation. However, the impacts of climate change, marine pollution, overfishing, and
unsustainable coastal development are increasingly threatening these ecosystems, jeopardizing the
region’s small island nations and other developing coastal economies.
Blue Economy and Blue Finance: Toward Sustainable Development and Ocean Governance
provides evidence-based approaches for promoting sustainable ocean and coastal development
and management in Asia and the Pacific. It discusses governance, planning, sectoral management,
and risk management imperatives. This includes innovative ocean financing schemes and strategies
for mitigating the effects of climate change and unsustainable practices on ocean and coastal
ecosystem-reliant communities and sectors. The book offers timely insights for policy makers and
scholars seeking to better understand the region’s ocean sustainability challenges and opportunities.
Peter J. Morgan is a senior consulting economist and advisor to the dean,

Asian Development Bank Institute, Japan.
Michael C. Huang is a research fellow at the Ocean Policy Research Institute,
Sasakawa Peace Foundation, Japan.
Michelle Voyer is a senior research fellow at the Australian National Centre for Ocean Resources
and Security, University of Wollongong, Australia.
Dominique Benzaken is a senior consultant at the Australian National Centre for Ocean Resources
and Security, University of Wollongong, Australia.
Atsushi Watanabe is a senior research fellow at the Ocean Policy Research Institute,
Sasakawa Peace Foundation, Japan.
About the Asian Development Bank Institute

The Asian Development Bank Institute (ADBI) is the Tokyo-based think tank of the Asian
Development Bank (ADB). ADBI is focused on delivering demand-driven policy research,
capacity building and training, and outreach to help ADB developing member countries
practically address sustainability challenges and accelerate socioeconomic change. ADBI seeks
to advance timely, innovative evidence-based development solutions that improve the outlook
for growth and prosperity across Asia and the Pacific.
About the Australian National Centre for Ocean Resources and Security
The Australian National Centre for Ocean Resources and Security (ANCORS), University of
Wollongong, is Australia’s only multidisciplinary university-based center dedicated to research,
education, and training on ocean law, maritime security, and natural marine resource management.
It provides policy development advice and other support services to government agencies in
Australia and the wider Asia-Pacific region, as well as to regional and international organizations
and ocean-related industry.
About the Ocean Policy Research Institute
The Ocean Policy Research Institute (OPRI) is a Tokyo-based “think-and-do” tank, which aims
to address the many challenges related to the ocean and thereby achieve the mission of the
Sasakawa Peace Foundation to establish a new system of ocean governance while expanding
research and advocacy activities, disseminating relevant information, facilitating necessary
measures, and promoting networking opportunities.

3-2-5 Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008 Japan
Tel +81 3 3593 5500
www.adbi.org

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BLUE ECONOMY

AND BLUE FINANCE

Edited by Peter J. Morgan, Michael C. Huang,

ASIAN DEVELOPMENT BANK INSTITUTE

ASIAN DEVELOPMENT BANK INSTITUTE

All rights reserved.

ISBN 978-4-89974-251-7 (Print)

By making any designation of or reference to a particular territory or geographic

Note: In this publication, “$” refers to US dollars.

Asian Development Bank Institute

Tables and Figures v

PART I: Blue Finance

PART II: Blue Economy

7 Capitalizing on Co-Benefits and Synergies to Promote

PART III: Blue Economy-Related Industry

PART IV: Interdisciplinary Methodology

4.1 Portfolio Allocation Considering the Blueness Index 83

7.14 Fisheries and Aquaculture in Quezon Province, 2000–2019 174

12.9 Categorized Hard Structures in the Study Area 344

ADB Asian Development Bank

IPO initial public offering

SMEs small and medium-sized enterprises

A.P. Abeygunawardana is a lecturer at the Faculty of Animal Science

L.C.K. Abeykoon is a researcher at the Faculty of Animal Science and

Dominique Benzaken is a senior consultant with the Australian National

Mary Jean A. Camarin is chief tourism operations officer at the

Nepomuk Dunz is a junior professional officer at the World Bank,

K.P.U.T. Egodauyana is a demonstrator at the Faculty of Animal Science

Keita Furukawa is president of the Association for Shore Environment

Yimnang Golbuu is chief executive officer of the Palau International

Cielito F. Habito is a professor emeritus at Ateneo de Manila University,

Michael C. Huang is a research fellow at the Ocean Policy Research

Md Wasiul Islam is a professor at the Forestry and Wood Technology

Masanori Kobayashi is a senior research fellow at the Ocean Policy

Miko Maekawa is a senior research fellow at the Ocean Policy Research

Junko Mochizuki is a disaster risk management specialist at the World

Peter Morgan is a senior consulting economist and advisor to the dean,

Muhammad Zubair Mumtaz is an associate professor of finance at

Asjad Naqvi is a research scholar at the International Institute for

Gopal K. Sarangi is an assistant professor at the TERI School of

Tapan Sarker is a professor at the School of Business of the University

Kevin Roy B. Serrona is a solid waste planner at the Resource Recovery

Nagisa Shiiba is a policy researcher at the Institute for Global

Zachary Alexander Smith is an assistant professor of economics and

Hajime Tanaka is a research fellow at the Ocean Policy Research

E.P.D.N. Thilakarathne is a lecturer at the Faculty of Animal Science

Keshia N. Tingson is an assistant professor at the University of the

Raghu Dharmapuri Tirumala is a senior lecturer at the Faculty of

Piyush Tiwari is a professor of property at the Faculty of Architecture,

John Virdin is director of the Ocean and Coastal Policy Program,

Michelle Voyer is a senior research fellow with the Australian

T.W.S. Warnasuriya is a lecturer at the Faculty of Fisheries and Ocean

Atsushi Watanabe is a senior research fellow at the Ocean Policy

Zhihai Xie is an associate professor at Kyoai Gakuen University, Japan.

Jeongsoo Yu is a professor at the Department of International

Maria Angela G. Zafra is executive director at the Strategia Development

I applaud the Asian Development Bank Institute and the Ocean

The ocean is confronting unprecedented crises, such as overfishing,

implementation. We believe this book’s abundant content will motivate

Working in the environmental financing sector for more than 20 years,

Tables and Figures v

4.1 Portfolio Allocation Considering the Blueness Index 83

7.14 Fisheries and Aquaculture in Quezon Province, 2000–2019 174

12.9 Categorized Hard Structures in the Study Area 344

3.3.2 Tracking International Aid for Ocean Conservation