RIYADH: Carbon markets are set to play a pivotal role in achieving climate goals, with efforts from Saudi Arabia and the UAE, paving the way for a smooth energy transition. According to a new report from the International Energy Forum, carbon markets are capable of effectively lowering the costs associated with greenhouse gas removal by connecting local project owners with international buyers eager to offset their emissions. “The promotion of cross-border trade in carbon credits between nations will bolster net-zero carbon balances, consequently boosting both supply and demand,” stated the report. The IEF, comprising energy ministers from 73 countries, including both producers and consumers, represents the world’s largest gathering of energy ministers and accounts for over 90 percent of global oil and gas supply and demand. The forum lauded Saudi Arabia’s transition efforts, highlighting the establishment of the Regional Voluntary Carbon Market Co. by the Kingdom’s Public Investment Fund in collaboration with the Tadawul Group. The primary objective of this company is to incentivize projects addressing climate issues, thus expediting efforts to achieve mitigation outcomes. According to the IEF report, this firm has successfully conducted two auctions, selling 3.6 million tonnes of carbon credits to domestic companies such as Saudi Aramco, NEOM, SABIC, and others. Similarly, the UAE launched an entity named Carbon Alliance in mid-2023, with the initiative aiming to develop the carbon market ecosystem within the country. This alliance in the Emirates comprises numerous domestic and international member entities, including the UAE Independent Climate Change Accelerator, AirCarbon Exchange, First Abu Dhabi Bank, and Mubadala Investment Co. “The collaborative endeavors of these institutions in the UAE underscore the significance of carbon markets in achieving net-zero goals. The alliance aims to strengthen the interconnected efforts between the private and public sectors, simultaneously contributing to the formulation of government strategies for greenhouse gas emission reduction,” added the report. The IEF report titled “The Role of Carbon Markets in Transitions” focuses on the potential of such initiatives to achieve net-zero carbon emissions and ensure universal access to affordable and reliable energy under the Paris Agreement. Speaking during the launch of the report, Joseph McMonigle, secretary-general of the IEF, said that the growth of carbon markets will also help raise money for clean energy projects. He said: “Carbon markets play an important role in aligning resources to achieve our global climate, energy security and affordability goals.” McMonigle added: “But they are at an inflection point. With stronger international collaboration and smart regulation, they can raise billions of dollars for clean energy projects, especially in the developing world, that would otherwise not get off the ground.” Game changer for climate action The energy think tank highlighted that carbon markets could facilitate cost reduction and promote the alignment of regulatory frameworks, resulting in more cohesive and predictable climate and energy policies across regions. The report further pointed out that voluntary carbon markets represent an initial step in addressing both national and international climate challenges. “The VCM has the potential to strengthen global energy and climate policy coherence. Through participation in voluntary markets, the country gains insights into best practices. Management and designated staff will become more attuned to the strengths and weaknesses of these markets in different contexts,” stated the IEF report. It added: “Countries and businesses may transition into compliance markets or use VCMs for equivalent effect depending on performance and circumstances.” The IEF also emphasized the significant potential for carbon markets to generate investment in carbon capture, utilization, and storage technologies. Currently, CCUS projects largely remain outside the scope of carbon market incentives, despite their capacity to significantly reduce CO2 emissions and generate a substantial supply of reliable carbon credits. “The incentives provided by carbon markets for CCUS are expected to facilitate the broader deployment of this technology and a further reduction in associated costs,” the report noted. The inter-governmental organization also emphasized that the exchange of carbon credits can reduce dependence on national public support schemes for industries to reduce emissions, ensuring the economic viability of sustainability projects. Moreover, revenues generated from such markets will deliver co-benefits in addressing sustainable development goals, bridging global divides, and transcending the scope of climate-related objectives alone. The IEF also underscored the importance of digitalization in ensuring better carbon market transparency. “Digitalization is crucial for ensuring robust accounting of carbon dioxide emissions. Digitalization can help to better quantify, measure, report and verify carbon market data and boost investor confidence,” the report added. Win-win situation In the report, the IEF urged governments to shape carbon markets into a win-win scenario for both consumers and producers. The non-profit organization also emphasized that market fragmentation and carbon credit risk can be addressed by fostering cohesive policy approaches, standardization, transparency, knowledge sharing across borders, and digitization. “Given the recent growth of carbon markets in many countries and the absence of specific guidelines, currently, it is imperative for governments to ensure that targeted emission reductions do not lead to undue social and economic harms,” said the report. McMonigle also urged governments to finalize the agreement on Article 6 of the Paris Agreement, which provides a framework for countries to trade carbon credits internationally. This agreement is considered critical to meeting national emissions targets. “Agreement on Article 6 is key to unlocking the potential of international carbon markets and we hope to see more progress at COP29 in Azerbaijan,” he said. In another report in March, the IEF stated that Saudi Arabia has the potential to become a leader in the CCUS technology sector with the opening of the world’s largest carbon capture hub on the east coast of the Kingdom in Jubail. The project is a joint initiative of Saudi Aramco and the Kingdom’s Ministry of Energy, with a planned storage capacity of up to 9 million tonnes of carbon dioxide per year by 2027. “These endeavors form part of Saudi Arabia’s broader efforts to reduce greenhouse gas emissions and address climate change challenges,” noted the IEF.