What’s holding back America’s blue economy?

Daria Solovieva | September 27, 2021 | Fortune

This story is part of The Path to Zero, a series of special reports on how business can lead the fight against climate change. This quarter’s stories explore new markets emerging in the sustainability space.

The blue economy is simultaneously one of the oldest and newest markets on earth.

Throughout history, great powers have used the oceans to extract natural resources, conquer new lands, and trade goods. The oceans have also played a critical role in cooling the planet, making it habitable despite the accelerating pace of global carbon emissions: Oceans produce over half the oxygen we breathe, according to the National Oceanic and Atmospheric Administration (NOAA), and absorb 50 times as much carbon dioxide as the atmosphere.

According to a recent report, the oceans represent our “first line of defense against runaway global climate change” as they regulate heat around the globe and control our weather patterns; provide a primary source of protein for over a billion people; and serve as a highway that carries more than 90% of the goods and materials that move internationally. Despite the oceans’ climatic significance, the world’s biggest economies have not historically allocated large portions of their budgets to cultivate ocean-related industries or make carbon-intensive traditional maritime industries more sustainable.

“We have largely forgotten the ocean,” says Michael Jones, president of the Maritime Alliance in San Diego, an oceanic-research advocacy nonprofit that has been around for 14 years. “Recently, people have begun to re-appreciate the ocean.”

New sensor and robotic technology along with growing climate change awareness have enabled an increasing number of startup accelerators and impact investors globally to dip their toes into ocean-related innovations—from sustainable aquaculture to eco-conscious offshore energy and maritime transportation operations—in order to meet the growing demand for food and reduce ocean-related industries’ environmental footprint. There are now blue tech accelerators in virtually every major coastal city in the United States.

Yet despite unprecedented momentum, there are massive challenges. The lack of regulatory support, investor appetite, and ocean-related data means the future of the blue economy is largely led by a fragmented legion of nonprofits and evangelists committed to seeing their vision come to life despite myriad obstacles.

The American ‘Blue Economy’ Dream

The U.S. lags behind other advanced economies, many of which were earlier to adopt blue economy markets. According to the World Bank’s latest data, 90% of global marine fish stocks are fully exploited or overfished, further signaling the need for regulatory scrutiny and sustainable aquaculture. In the U.S., over 70% of seafood is imported.

Nearly a decade ago, Leonard Aube stood before a series of warehouses at the Port of Los Angeles, the nation’s busiest, and had an ambitious vision: He wanted to create one of the largest research hubs on the planet to study the ocean and accelerate the development of sustainable solutions to help solve the climate crisis.

Aube passed away in 2015, yet the idea he shared with his colleagues at the Annenberg Foundation evolved into AltaSea, a nonprofit spanning 35 acres in the Port of Los Angeles harbor that hosts two startup accelerators, 26 university partnerships, and a handful of companies that use the area as a testing site.

“He thought this would be the property that could move the needle in developing technologies that could mitigate climate change,” recalls Jenny Krusoe, executive director of AltaSea, noting she couldn’t even use the words climate change at the time as they were deemed too political.

Fast-forward to 2021. The Port of Los Angeles, like many organizations across the world, is facing its biggest challenges yet, with supply-chain–related delays and increased carbon emissions putting further strain on the port’s overall sustainability targets. And the need to curb climate change, prompting record sea level rise and increased carbon emissions, is becoming more urgent than ever.

AltaSea is among a growing number of organizations across the U.S. and globally that are looking to accelerate the development and commercialization of ocean-derived technologies.

Even after raising a total of $78 million in both public and private funding, in many ways AltaSea is just getting started. The organization signed its lease years ago, but only moved into its offices in May of this year. And the entire seaport complex of research labs and education facilities is scheduled to be completed in 2027.

“We’re activating this very 20th-century property into 21st-century solutions and bringing back the underwater robotics of the 21st century,” Krusoe explains.

AltaSea’s tenants and testing site users include nonprofit organization Ocean Exploration Trust, which uses unmanned underwater vehicles to map the ocean; Blue Robotics, which develops remotely operated underwater vehicles; and seed-stage startup Aquaai that provides tools and data for blue economy industries. AltaSea also hosts USC’s seaweed aquaculture lab and an offshore mussel farm.

“Eight years ago, there wasn’t this blue tech surge going on, and there were very few models to look at,” Krusoe says, noting a shift in the pipeline and mentality of entrepreneurs. “I don’t know if it’s the chicken or the egg, but both the entrepreneurs and the researchers are motivated to understand that there are these new markets, and we have to have sustainable solutions—or it won’t matter.”

The overarching ideas driving a lot of this new innovation are aimed at mitigating climate change; exploring the 90% of the ocean that we still don’t know a lot about; and addressing the shortage of seafood that is sustainably farmed.

The opportunity is vast. An OECD report from 2016 titled The Ocean Economy in 2030 valued the global ocean economy in 2010 at $1.5 trillion, estimating it would double by 2030. Other studies have proved still more ambitious in their forecasts.

Prior to the pandemic, the blue economy made up only 1.9% of the country’s gross domestic product in 2019, according to data from the U.S. Bureau of Economic Analysis’s Marine Economy Satellite Account. NOAA unveiled a strategic road map at the start of 2021 to develop the industry further, projecting the blue economy could double in size and reach $3 trillion over the next decade.

“Nobody really knows how big the blue economy is,” says Jones of the Maritime Alliance.

International organizations have helped raise awareness in recent years, with initiatives like the UN’s Decade of Ocean Science for Sustainable Development, the World Economic Forum’s Friends of Ocean Action coalition, and the UN’s Sustainable Development Goal 14, which is dedicated to conserving ocean resources.

The pandemic and new research on the pace of climate change have also exposed the vulnerabilities of global trade and supply-chain issues.

“Over these last five years, there’s been so much more awareness about climate change, the sea level rise, and the importance of the ocean. There are huge initiatives around mapping the ocean, an understanding of global trade,” says Ann Carpenter, CEO of Braid Theory, an accelerator based at AltaSea that works with entrepreneurs to help them find markets for their technologies. “Entrepreneurs are problem-solvers, so once they’re aware of these challenges and solutions—then you start seeing the startups coming along.

“ When we started in 2016, there were a handful of organizations that supported entrepreneurs, and now there are maybe over 100 incubators, accelerators, cluster organizations that will use the terms ‘blue tech’ or ‘blue economy’ and so on around the world,” Carpenter says.

Gunter Pauli, an economist, entrepreneur, and government consultant who published the first edition of his book on the blue economy in 2009, flies around the world, advising governments on how they can take advantage of these new business models.

Pauli’s book was originally a “summary of what kind of business models will crack totally different new markets,” projecting 100 million jobs would be created in this new blue economy over a period of 10 years.

“I’m not there yet. I’m behind,” he says of these projections, noting the urgency and demand for cleaner jobs is greater than ever. “We are in dire need of generating jobs with value added to products that earth is producing—because that’s where the value added is.”

‘The Market Is There’

While some accelerators may be beginning to see a more robust pipeline of blue tech startups, the lack of committed long-term investors is another obstacle.

“Sometimes it’s not clear who that customer is, so that makes it not always so investable from a venture capital standpoint,” Carpenter acknowledges. “What we’re now seeing is the role of folks like impact investors: from being purely philanthropic, ‘save the ocean’ advocacy to being more interested in putting funding towards solutions—all of these things are coming together.”

How soon all these factors come together, in addition to education and comprehensive regulations, will determine how soon a viable blue economy will take off in the U.S.

“We’re working very closely with the regulators. We talk to them constantly to make sure that they know what we’re doing, and that we’re doing the right thing,” says John Molina, a private equity investor at Pacific6, which operates a number of aquaculture companies, including AltaSea-based Pacific Mariculture. It was the first to acquire a permit in North America to operate an offshore mussel farm in federally regulated waters.

“Once we get a successful farm going, the investment will come, the demand is so great,” Molina says. “We have to show investors the market is there, and there’s a way to access the market. The money will follow.”

A more robust regulatory framework could encourage more investors to enter this space.

“The regulatory scheme has not been developed, so we have to deal with five different government agencies,” Molina notes.

In an interview with Fortune, NOAA, one of the federal agencies monitoring the use of seafood resources across the U.S., acknowledged that the country’s aquaculture development is “nowhere near the capability and nowhere near the level of demand” for seafood products.

Terry Tamminen, a former secretary of the California EPA who is currently advising AltaSea, says there is a need for legislation that defines key concepts to streamline introduction of blue technology and “creates at least one lead agency that is allowed to make sure it’s safe, environmentally protective, as opposed to all these multiple agencies.”

“Given all the changes that we’re seeing in our environment, climate change, and as just an overriding consideration—it is making everybody worry about the future of food production, and one of the best opportunities to produce food with a lower carbon footprint, with lower environmental impact, is to grow food in the ocean,” says Paul Doremus, a deputy assistant administrator for operations at NOAA Fisheries, in an interview.

“We think there’s an enormous opportunity to provide more local choices to U.S. seafood consumers and to do that in a way that essentially mirrors the very high sustainability standards that we set for how we manage wild capture fisheries,” he notes.

Currently NOAA is working with other government agencies such as the USDA’s Agricultural Research Service to put a road map in place “to increase the nation’s seafood supply, create jobs in coastal communities, enhance important commercial and recreational fisheries, and improve federal regulatory efficiency.”

And that’s just aquaculture—one of more than a half-dozen markets under the blue economy umbrella.

Not all companies that claim to be a part of the blue economy are embraced by the blue economy advocates or environmentalists. Take extracting precious metals from seabeds. Environmental advocates like author Helen Scales believe all seabed mining should be put on hold until guidelines are finalized and there’s more scientific research on the environmental impact of these new underwater extractions.

“What we don’t know is the environmental impact this [seabed mining] is going to have, and we certainly have no way at the moment of meaningfully comparing that to the impacts of mining on land,” Scales explains. “There is a need to create a set of rules, which will eventually determine how and if mining can go ahead. There’s a rule book that is currently in progress, and it’s not yet ready.”

In the absence of clear international regulations that govern seabed mining, there are legal loopholes that allow private companies to operate their scoping and extraction missions.

Agreeing on what constitutes a sustainable, blue economy, and the ongoing global quest to accelerate development of ocean-inspired tech, will be an increasingly urgent agenda for generations to come.

Robin Aube, the widow of AltaSea’s first director, says she often thought how happy her husband would be to see the organization’s growth amid the Port of Los Angeles and an increasing number of partners and startups from around the world.

“It would have driven him nuts that it has taken as long as it has, but it just takes time to build something like this,” she says, noting a part of AltaSea’s mission is to educate and inspire a new generation of entrepreneurs and enthusiasts. “Someone needs to take over this wonderful blue ocean economy that we’re building.”

For advocates like Pauli, the key to establishing a profitable ocean-inspired economy is creating an interconnected model—similar to what AltaSea is trying to do by hosting research labs alongside early-stage startups, as well as firms with more established technologies that fall under regulatory constraints.

“A blue economy approach advocates a portfolio-based approach to competition: multiple, interconnected revenue streams are established, such that the basis for competition is at the system level, rather than at the level of the individual product or service,” he writes in the latest edition of The Blue Economy.

Most investors, entrepreneurs, and government officials agree that, unlike the green economy, which presents more clear-cut solutions and markets on land, the blue economy is more challenging because it requires more cooperation and more stakeholders.

“You can’t be in this blue economy area without having a bigger vision,” says Braid Theory’s Carpenter. “It’s really important to look at this in a collaborative way, because there isn’t any one entity that’s going to be able to solve this alone. All the challenges that we’re facing are related to the ocean—they all require multiple stakeholders.”

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