Twenty-five years on from the signing of the Kyoto Protocol, the Middle East and North Africa (Mena) region will take leadership of the next two global climate change meetings – COP27 and COP28. This reflects the growing importance of the region in the battle against climate change, and its role in advancing the carbon trading market.
Egypt is set to host COP27 this November in Sharm el-Sheikh, while COP28 will take place in the UAE next year. These events take place against a backdrop of a region that has been long dependent on producing fossil fuels, and is now having to adapt to what is a long-term global trend away from oil-and-gas demand. In addition, businesses in the region are responding to investor pressure for commitments on zero-emission targets.
But it goes beyond that. All countries in the region are experiencing, in varying degrees, the impact of global warming, such as greater water stress, desertification, agricultural losses and damaged ecologies. The spectre of severe social and economic disruption raises the stakes, meaning that a growing number of countries in the region want to participate in carbon markets to meet their climate change goals.
This, in turn, makes the importance of access to verifiable carbon credits and market transparency that much greater.
Saudi Arabia, Oman, the UAE, Qatar, Iraq, Israel and Bahrain have made net-zero commitments for the period between 2030 and 2060. Many countries in the region are already taking action to mitigate the impact of transitioning to net zero. New initiatives include developing green hydrogen, along with carbon capture and storage, for which the local resources and geography are well suited.
Jordan, for example, was the first developing country to build monitoring, reporting and verification (MRV) and greenhouse gas (GHG) registry systems to international standards. Meanwhile, Saudi Arabia’s Public Investment Fund (PIF) and the Saudi Tadawul Group, which owns the Saudi stock exchange, plan to launch the Riyadh Voluntary Exchange Platform for trading verified, approved and high-quality carbon credits.
The need for transparency in pricing and verifiable carbon credits is clear to all. Verification is fundamental to having complete confidence that a carbon credit purchased delivers a genuine emissions offset. But the emergence of new exchanges and a host of over-the-counter carbon credit brokers in recent years has not always been accompanied by new technology and trading practices, which often remain opaque and risk undermining the market’s integrity.
The voluntary carbon market itself is currently very much a supply-driven one, because there is a limited amount of verifiable nature out there that you can genuinely claim is offsetting carbon emissions. This makes for a competitive market. Nevertheless, demand from the voluntary carbon market is set to grow.
The carbon credit market needs an auction system offering 100% verifiable assets located in different parts of the world, such as China, Africa, South America or elsewhere, and of different levels of maturity or vintage. The pricing can then vary by location, age or vintage of the nature-based solution used to offset the emissions.
Looking further east, in March, Climate Impact X (CIX) – a consortium of large corporate investors including the UK’s Standard Chartered, Singapore-headquartered DBS, Temasek Holdings and the Singapore Exchange (SGX) – launched Project Marketplace, a Singapore-based digital platform for businesses and carbon project suppliers to list, discover, compare, buy and retire quality carbon credits. Its aim is to accelerate the corporate sector’s ability to take climate action through the provision of verified carbon projects. NovaFori is involved with the development of CIX’s Project Marketplace.
Verification is carried out by standards companies, of which the world’s largest is US-based Verra, which runs Verified Carbon Standard (VCS) projects; these include forest and wetland conservation and restoration, agricultural land management, and much more. It currently has almost 1,600 registered projects in over 82 countries, which have generated more than 450 million carbon credits, the equivalent of 98 million passenger vehicles being taken off the road for one year.
Verra is integrated with CIX so that its inventory is listed on the CIX Marketplace. Verra works with other third parties too, including in the Middle East, but if a purchase is made via another party, that deal is immediately recorded so that the asset can be removed from the CIX Marketplace. This prevents any asset being sold twice. The verification ultimately comes from Verra, an independent third party.
Once the project, such as a forest, is bought and retired, it is no longer touched – fenced off so no one else can get it. Should stock be bought and held, it can ultimately be sold back into the marketplace and become available to buyers once more. And, in the event of forest fires or other such disasters, insurance is provided by Verra, with the cost of the credits refunded.
Typically, younger, newer trees have a higher value than older ones because the forward curve for carbon prices is rising. At an auction, there are normally a range of offerings, with different vintages and growth cycles, but also specific projects in different parts of the world to meet the growing desire of companies for diversification.
Global carbon markets expanded by 164 per cent in 2021 to $851bn, according to US/UK financial market data provider Refinitiv, an upward trend that is likely to continue as countries and companies in the EU and Middle East look to reduce their emissions by as much as half by 2030. Given the time needed to find a long-term solution in the transition to net-zero, prices are expected to rise for the foreseeable future.
CIX and others, including exchanges in the Middle East, are bringing transparency through verified sources and pricing, which will boost liquidity and confidence in the marketplace. Companies that for years have dealt with brokers for what they think are verifiable carbon credits are now in a position where their CIOs have many more powerful options than they did a few years ago.