Kickstarting the creation of a carbon market is a must-have to enable the UAE and others across the Middle East and North Africa to reach Net Zero by 2050. Our collective management of the world’s carbon budget is wildly off course. How to tackle this major and complex task will be under the spotlight at COP28, the world’s biggest annual climate gathering in Dubai this November.
That our daily news headlines are filled with climate disasters reflects the severity of the global environmental crisis and reaffirms that carbon trading is a cornerstone of supporting the three Ps: people, planet and profit.
The good news is that rising prices in the carbon market reflect stakeholders’ growing confidence in such mechanisms and ultimately make it far more environmentally effective. This year, the price of carbon permits on the EU Emissions Trading Scheme (ETS), the world’s oldest such cap-and-trade market, reached a record high of $106.57 per ton – making it more expensive than ever to pollute.
Plus, 4,200 companies worldwide have science-based targets, marking an astonishing 36x growth rate from 2007-2022, according to Refinitiv. The need to meet these targets again helps underpin the necessity of carbon markets in the Middle East and beyond.
Yet, despite these clear drivers, overall progress is not fast enough. This year, 73 carbon pricing initiatives worldwide cover 11.66 GtCO2e – representing 23% of global greenhouse gas (GHG) emissions, reported the World Bank. This data means 77% of GHG emissions are uncovered. For example, there is only one such initiative in the Middle East; a carbon tax in Israel, which is under consideration. We need to all work together to start plugging these gaps on the world map as fast as possible.
Stepping in
The Middle East is ready to ask and hopefully answer some of the tough questions surrounding carbon markets. The UAE and Saudi Arabia are largely driving the conversation on the ins and outs, with pressing questions coming to the fore.
What does it involve and who participates? What price level is both viable and effective? How will this progress interlace with other countries’ developments, notably our partners and competitors? How does carbon pricing weave into our existing and bold climate targets and multi-billion dollar green projects?
The questions go on, for creating a national carbon market is not a quick journey. The market itself is always maturing, so stakeholders across the Middle East need to both keep abreast of their own plans and consider how they slot into the global picture.
Blueprints to reality
In response to our fast changing world, a new coalition of UAE companies has been established to develop and grow a carbon market across the nation. The UAE Carbon Alliance will help support the transition of companies to a green economy in support of the country’s goal to reach Net Zero by 2050 – the first country in the region to commit to this ambitious target.
Plus, The Abu Dhabi Global Market, the UAE capital's financial free zone, announced plans last year to team up with AirCarbon Exchange (ACX) to create the “world’s first fully regulated” carbon trading exchange and clearing house in the emirate.
The UAE, OPEC’s third largest producer, has also signed a memorandum of understanding (MoU) with Zambia to develop forestry-based carbon removal projects to generate carbon credits. In another illustration of global cooperation, the UAE recently became the 26th country worldwide to agree to a bilateral carbon trading framework with Japan under the Joint Crediting Mechanism (JCM).
To the west, Saudi Arabia’s Public Investment Fund (PIF) announced the establishment of the Regional Voluntary Carbon Market Company (RVCMC) last October, with Saudi Tadawul Group Holding Company. Shortly after, PIF auctioned off 1.4mn tons of carbon credits, followed by 2.2mn tons of carbon credits in June this year – the largest ever voluntary carbon credit auction, RVCMC said. Plus, the Dammam-based investment fund APICORP issued a $75mn funding facility for voluntary carbon offset projects last November.
Avoiding analysis paralysis
It has never been easier to participate in carbon markets, no matter the sector nor size of a business. The option of Emissions Trading Schemes (ETS), carbon taxes, carbon fees, voluntary carbon markets (VCM), shades of internal carbon pricing (ICP) and others are all on the table.
Amid this vast potential, some stakeholders are still getting used to how the concept of carbon markets differs from other, more established market. A barrel of oil is a globally understood visual representation of the oil market, for example. In carbon markets, we cannot see what is being traded and there are many routes to market and variations of what a carbon credit means to an individual or a company.
This nuanced situation means there is no single blueprint for companies looking to enter and operate in a carbon market in the Middle East. But it also means that companies can finetune their needs to embrace carbon trading in a way which best suits them. Such choice should serve as a positive rallying cry to achieve real action up to COP28 and beyond.
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