Net-zero push and regulations set to drive growth of carbon markets in Mena

Saudi Arabia's Regional Voluntary Carbon Market Company plans to start a carbon credit trading exchange in mid-2024

The Rumaila oilfield near Iraq's southern port city of Basra. Reuters

Carbon credit markets are set to rapidly grow in the Mena region as countries set up carbon compliance regulations amid a broader push towards net zero, according to industry experts.

Carbon credits, also known as carbon offsets, are permits that allow companies to emit a certain amount of carbon dioxide or other greenhouse gases. The proceeds from the sale of the credits are used to finance climate action projects that would not otherwise be feasible.

The market for the financial instrument could be worth more than $50 billion by 2030, according to global consultancy McKinsey.

Saudi Arabia's Regional Voluntary Carbon Market Company (RVCMC), which is jointly owned by the Public Investment Fund and Saudi Tadawul Group, auctioned more than 2.2 million tonnes of carbon credits in Kenya in June.

The company, which plans to start a carbon credit trading exchange in 2024, will also launch investment and advisory services, Riham ElGizy, the chief executive of RVCMC, told The National last month.

“We're going to invest millions of dollars in projects that reduce carbon dioxide from the atmosphere, specifically in Saudi Arabia, and our region and in the Global South,” Ms ElGizy said.

The exchange will consist of a stock market and an over-the-counter market, where participants can trade with one another directly, she said.

“The exchange … helps price discovery which is a big issue in the market.”

RVCMC's advisory business will assist companies by offering carbon accounting services and providing credits for hard-to-abate emissions.

An outcome of the Cop26 meeting in Glasgow was the establishment of Article 6, which regulates carbon markets under the UN Framework Convention on Climate Change.

However, there is still no agreement among countries on the technical details for trading in carbon credits.

Talks about the international transfer of carbon offsets from countries that have a surplus will be initiated at Cop28, Ms ElGizy said.

“The other thing that we would love to see in the negotiations as well are conversations about the integrity of the market,” she added.

Although carbon offsets are seen as vital to limiting carbon emissions, it has come under criticism globally for lack of transparency and the poor quality of projects.

Another challenge is the absence of standardised policies across different carbon markets and stock exchanges.

“As we see Mena countries increasingly embrace compliance carbon regimes, that will ensure that the instruments trading is tied into substantive emissions reductions,” Saugata Saha, president, S&P Global Commodity Insights, told The National.

“There are a lot of regional efforts afoot to tie in carbon instruments in the right way to broader commodity trading, both for spot trade and futures. But it is still a little early to see standardisation across Mena,” he said.

The value of the voluntary carbon market is expected to grow fivefold by 2030, from $2 billion in 2021, according to Shell.

Last year, Abu Dhabi Global Market, the UAE capital's financial free zone, teamed up with AirCarbon Exchange to create the “world’s first fully regulated” carbon trading exchange.

ADGM regulates carbon credits and offsets as emission instruments, and issues licences for exchanges to operate both spot and derivative markets.

“[Mena] markets have the potential to grow as carbon markets are likely to play a key role in emission reductions in the future,” Mr Saha said.

“Turkey has been very much at the forefront of developing carbon projects and issuing credits from renewables in recent years, though other countries such as Egypt, Morocco, Mauritania and Senegal have also been seeing carbon credits issued from renewables projects on a smaller scale,” he added.