Saudi Arabia’s robust push for carbon credit trading paves the way for climate action

As the global call to combat climate change grows more urgent, nations and corporations are finding innovative solutions to curb their carbon emissions, with one notable idea gaining traction being the concept of carbon credits.

These financial instruments, representing the removal or avoidance of carbon dioxide from the atmosphere, are becoming pivotal in aiding companies to offset their environmental footprint. Pioneers in this realm is a homegrown Saudi Arabian entity, the Regional Voluntary Carbon Market Company (RVCMC), backed by the nation’s Public Investment Fund (PIF).

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Demand for carbon offsets are expected to soar to grow as companies seek to use the credits to help meet net-zero emission goals. Scaling the voluntary carbon market is seen as a crucial part of the world’s response to climate change as it allows companies to offset a portion of their emissions by investing in a diverse range of tech or nature based projects

In an exclusive interview with Al Arabiya English, RVCMC CEO Riham El Gizy, said the company – and carbon credits – are poised to shape the future of sustainable business practices and climate action amid factors like stringent climate policies by various countries, their commitments under the Paris agreement to reduce carbon emissions, and corporate sustainability goals.

Understanding carbon credits

Carbon credits, often referred to as offsets, can be purchased by an individual, companies or coorporations to make up for carbon dioxide emissions that come from industrial production, delivery vehicles or travel.

However, rather than outright claiming the authorized amount, companies can purchase these credits to fund projects that capture, avoid or remove emissions elsewhere.

“The voluntary carbon market is a market like any other, in that it has a supplier and buyer exchange – where the product is carbon credits or offset certificates,” El Gizy said. “Carbon credits represent one tonne of carbon avoided or removed from the atmosphere and a certificate shows how many units of carbon dioxide that has either been removed from the atmosphere or avoided.”

For example – the removal of a tree that is needed for photosynthesis to take in carbon dioxide (CO2) and water (H2O) from the air and soil – a scientific tool can be used to calculate how much CO2 this will cost the atmosphere.”

Carbon credits can be then bought to offset this.

These projects range from nature based afforestation and reforestation to tech based energy efficiency initiatives, each contributing to the net reduction of carbon dioxide in the atmosphere.

El Gizy underscores the significance of climate change.

“Climate change is a very urgent topic to tackle and acting upon it right now is very important. It touches upon all of us globally.”

Saudi Arabia, a nation traditionally heavily dependent on oil for energy, recognizes the urgency to transition to greener practices.

Riham ElGizy, CEO of Regional Voluntary Carbon Market Company (RVCMC), addresses delegates ahead of the voluntary auction of carbon credits, with projects in Kenya, Rwanda, Egypt and South Africa, at the auction in Nairobi, Kenya June 14, 2023. (Reuters)

El Gizy said under Saudi Arabia’s Crown Prince Mohammed bin Salman, the Kingdom is on a trajectory to decarbonize its electricity generation, with an ambitious target of achieving a 50 percent renewable energy mix by 2030, surpassing even the European Union’s goals.

Also, under the Saudi Green Initiative (SGI), the Kingdom plans to plant more than 600 million trees, protect 30 percent of the country’s land and sea from climate change and build the world’s green hydrogen plant.

However, El Gizy said innovation and multiple initiatives are needed to reverse the effects of climate change. This is where the Regional Voluntary Carbon Market Company has a huge role to play.

Powering Kingdom’s green transition

RVCMC, which plans to launch a carbon credit trading platform early next year and is co-owned by the Public Investment Fund and Saudi Tadawul Group, is a driving force in the Kingdom’s green transition. Worth around $2 billion in 2021, according to Ecosystem Marketplace, the annual global market for voluntary carbon credits could hit $50 billion by 2030, consultants at McKinsey have estimated.

Notably, RVCMC conducted the Middle East’s inaugural carbon offset auction last year, leading to the sale of more than 1.4 million tons of carbon credits. A significant portion – around 70 percent – of these carbon credits were designated for climate projects across Africa, spanning countries such as Egypt, Mauritania, South Africa, Uganda and Kenya. This allocation is crucial given that despite Africa being responsible for a mere three percent of global energy-related carbon dioxide emissions, the region is already disproportionately experiencing the impacts of climate change.

Delegates from Aramco Saudi Electricity Company and ENOWA the three companies that purchased the most amount of credits at RVCMCs carbon credit auction event. (Supplied)

The company’s more recent carbon offset auction in Nairobi marked a significant milestone. More than two million tons of carbon credits were sold to 15 buyers, pri-marily from Africa and Saudi Arabia.

These credits are aligned with Corsia, a program overseen by the International Civil Aviation Organisation (ICAO) and officially registered with Verra, the operator of the world’s largest carbon credit registry.

RVCMC’s proactive involvement in such initiatives showcases Saudi Arabia’s commitment to contribute to global climate efforts, said El Gizy.

Companies in Saudi Arabia – as well as global corporations – are already clamouring for carbon credits. One example is Saudia Airlines. “They are committed not to increase their emissions,” she said, adding that the airline also has ambitious growth targets and new flight routes on its radars.

By buying carbon credits, companies can offset their emission, which involves efforts such as planting millions of trees in Africa or mangrove forestation in the King-dom.

Apart from aviation, there are other sectors that are ripe for buying carbon credits, such as construction, shipping and even energy, which traditionally have higher carbon emissions.

Saudi Aramco – the Kingdom’s oil giant – and Saudi Electricity Company were some of the biggest purchasers of the most recent carbon auction.

The power of voluntary carbon markets

Saudi Arabia’s dedication to mitigating climate change extends beyond economic diversification. The nation’s leaders are investing in innovative strategies, including voluntary carbon markets, to drive action.

By creating financial incentives for businesses to adopt sustainable practices, the market ensures that projects that would otherwise be economically unviable gain funding.

Projects such as energy-efficient cookstoves for underserved communities in Africa are funded by carbon credits, thereby reducing carbon emissions and improving quality of life.

El Gizy emphasizes the broader impact here: “The voluntary carbon market is financing those projects that otherwise were uneconomic without the voluntary carbon market.” By channelling funds into climate-focused projects, the market aligns economic goals with environmental responsibility, presenting a paradigm shift in business practices.

A delegate uses his phone as he attends the voluntary auction of carbon credits, with projects in Kenya, Rwanda, Egypt and South Africa, at the auction in Nairobi, Kenya June 14, 2023. (Reuters)

Regulatory framework

Critics have, in the past, cited concerns including poor transparency, a limited supply of credits and questions over the quality of projects.

El Gizy rejected such criticism, saying RVCMC works with two separate, independ-ent teams of experts to vet projects that contribute credits for sale. According to her, the efficacy of carbon markets depends upon a robust regulatory framework and transparency. RVCMC’s involvement in the Islamic finance sector also highlights the potential for broader financial engagement.

El Gizy told Al Arabiya English that as part of RVCMC’s initiative, the first-ever Fatwa issued for carbon credits as an enabling commodity for Islamic finance was issued on the sidelines of the 2022 United Nations Climate Change Conference, commonly known as COP27, held in Sharm El Sheikh, Egypt. It was, she noted, an important milestone in increasing the amount of carbon credit held by Islamic financial institutions, needed to further facilitate trade. Islamic finance principles are compatible with carbon credit trading, allowing the channelling of funds into climate projects, particularly in underserved regions.

Participating in the carbon credit market offers numerous benefits. For businesses, it allows compliance with emission-reduction goals, while also unlocking funding for sustainable projects. Nations, too, benefit from reduced emissions and the creation of new economic opportunities. Saudi Arabia’s green bond issuance, for example, raised $5.5 billion for eco-friendly investments.

The road ahead

Ahead of COP28, hosted by the Kingdom’s neighbour UAE, Saudi Arabia is poised to accelerate the carbon credit market, said El Gizy who envisions a future where the voluntary carbon market will play a pivotal role in addressing climate change.

With a projected growth rate of around 30 percent annually, the market could potentially reach a scale comparable to Germany’s annual emissions.

Saudi Arabia’s unique resources, from its vast desert landscapes to its potential for carbon capture, position it as a key player in this global effort, said El Gizy.

“I truly believe that Saudi Arabia can play a crucial role in climate action,” she added.

The journey toward a sustainable future requires innovative solutions and Saudi Arabia’s role in pioneering carbon credit markets exemplifies the power of private and public collaboration, she said, adding that, through voluntary carbon markets, nations, industries and individuals can take meaningful steps towards mitigating the effects of climate change.

Other countries are already taking note.

Earlier this month, The UAE’s Ministry of Climate Change and Environment inked a preliminary agreement with UAE-based Industrial Innovation Group (IIG) and Venom Foundation to establish a national system for carbon credits, using block-chain technology, which comes ahead of Dubai’s hosting of COP28 this November.

The pact is in line with the UAE’s ambitious goals to slash carbon emissions and help achieve its goal of climate neutrality by 2050, a ministry statement said, adding that the parties will develop a system that will provide the highest levels of “transparency, reliability, efficiency and security” in managing, issuing, transferring, calculating and tracking carbon credits accurately.

Dubai-based company Dake Rechsand, which uses innovative technology to transform sand granules into agriculturally friendly farmland, is one for championing the use of carbon credits.

Chairman and croup CEO Chandra Dake told Al Arabiya English: “The era of climate urgency necessitates actionable measures, not just from governments and corporations, but also from individuals.”

Dake further said that personal carbon credits serve as a tangible representation of our commitment to counteract our carbon footprints. They enable every person to actively combat climate change, encouraging us to make sustainable choices and prompting us to think before we consume.

“The potential of individual actions in this respect, when accumulated, is immense. These personal credits are more than just numbers. They could very well contribute to a nation’s grand vision — for instance, the UAE’s Net Zero by 2050. It’s about synchronizing individual efforts for a larger, collective goal, making each one of us a catalyst of sustainable change,” Dake said.

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