The global economy is facing a difficult balancing act. Maintaining economic growth and energy security, while reducing carbon emissions in line with net-zero targets, is a complex and challenging task. To achieve it requires enormous levels of investment, innovative thinking, and coherent national, regional and global strategies that are supported by robust regulations and policies.
Investment and innovative thinking are the driving forces behind diversification strategies that are rewiring the Gulf economies, widening the range of sectors driving economic growth while reducing reliance on carbon-intensive forms of energy production.
As we approach COP28, the world’s attention is turning to the GCC and assessing the impact that its net-zero initiatives are having on reducing carbon emissions. The recent investment and cooperation between GCC governments and business have shown its potential to establish a global role in voluntary carbon markets.
One area of clear progress is the Gulf’s rapid adoption of voluntary carbon markets – financial markets where buyers can compensate for their hardest-to-abate carbon emissions by purchasing credits tied to projects that remove, reduce or avoid carbon emissions.
Driving progress in voluntary carbon markets
In June, Saudi Arabia’s Public Investment Fund supported the world’s largest sale of voluntary carbon credits in Nairobi, Kenya. The event by the Regional Voluntary Carbon Market Company, an organization set up by PIF and Saudi Tadawul Group, auctioned 2.2 million metric tons of carbon offsets. Over 15 companies and countries purchased credits, including lead buyer Saudi Aramco.
In 2022, the United Arab Emirates launched the world’s first fully regulated carbon trading exchange and carbon clearing house in Abu Dhabi in a partnership between Abu Dhabi Global Market and the Abu Dhabi-based startup AirCarbon Exchange.
The UAE Carbon Alliance was then founded in 2023 by First Abu Dhabi Bank, Mubadala Investment Company, Abu Dhabi National Energy Company and Abu Dhabi Future Energy Company and AirCarbon Exchange.
The alliance will look to establish national cooperation in decarbonization, develop standards and frameworks for constructive carbon financing, increase knowledge and understanding of carbon markets, and support organizations on emission reduction projects.
Few regions of the world are witnessing such significant cooperation and coordination between governments, industry leaders and disruptive startups. In the year of COP28, the GCC can point to voluntary carbon credit markets as proof of impact being delivered through its pragmatic approach.
However, this is just a first step in establishing the Gulf’s leading global role in defining a successful and impactful future for voluntary carbon markets.
Ensuring high integrity
Leading voices on sustainable finance, including the United Nations Development Program, highlight that ensuring high integrity is one of the key challenges facing the successful global adoption of voluntary carbon markets.
This means building trust among global audiences on how companies and governments are using voluntary carbon markets to achieve their net-zero goals. Clear and robust regulation and governance frameworks are required to ensure transparency and confidence in both the supply and demand of activities that underpin voluntary carbon markets.
High-integrity carbon credit supply means stringent standards for projects generating carbon credits. Emissions reduction or sequestration must be clearly measurable and verifiable, and the permanence or durability of the carbon storage mechanism must be provable. Any leakage from a carbon store must be replenished, and any project that results in an increase of emissions elsewhere as a result of the project activities must compensate for this.
Governance measures must be set up to ensure each credit generated can only be used once to prevent double counting. And the carbon crediting project needs to be consistently measured and reported on throughout its lifecycle.
Read more: MENA Climate Week 2023: Prince Abdulaziz bin Salman calls for success of UAE’s COP28
Building trust through ESG standards and reporting
High-integrity projects should adhere to ESG standards, considering local political and social contexts to avoid harming communities or economies. Establishing clear Principal Adverse Impact frameworks helps identify and address potential harms during project development.
Transparency in utilizing carbon credits for net-zero strategies is crucial. Robust reporting, including credit numbers, origins, and verifications, is necessary for engagement in the voluntary carbon market.
Choosing high-integrity carbon credits is vital, as low prices often indicate poor quality and impermanence of carbon capture projects.
Addressing the challenge of high-integrity projects requires increased demand from companies and governments, encouraging a market shift. Collaboration with reputable carbon asset managers like Carbonaires, focusing on due diligence and compliance, will ensure companies can source carbon credit projects that make demonstrable and long-lasting impact.
Aligning with a national vision
 Governments also have a fundamental role to play in creating an environment that is conducive to voluntary carbon markets and enables them to make a real impact on reaching national net-zero targets.
The GCC countries have already made huge strides in delivering on diversification strategies that have net-zero goals at heart. Recent investment and collaboration between the region’s governments and the business ecosystem have demonstrated the global role that the Gulf countries will play in defining the future of voluntary carbon markets.
The focus should now be on establishing policies and regulations that ensure high-integrity voluntary markets can flourish and move the dial on the region’s carbon reduction targets.
This would include advocating for the region’s largest companies to seek out high-quality carbon credits, providing information on the importance of verifiable carbon capture projects and what to look out for when assessing them.
Requiring consistent and transparent reporting on carbon reduction and removal initiatives will build awareness and understanding of the role carbon credits have to play in national net-zero strategies. This will build trust, with both local and global audiences, and ensure the GCC’s voluntary carbon markets can grow in size and scale, attracting local and foreign investment.
In the year of COP28, focus shifts to the GCC and its net-zero initiatives’ demonstrated impact on reducing carbon emissions. Placing greater emphasis on high-integrity voluntary carbon markets will further catalyze regional innovation and sustainable economic growth, and enable the region to establish a tangible and verifiable platform to demonstrate its meaningful progress in achieving its net-zero goals.
Anna-Marie Slot is a global ESG and sustainability lawyer and advisory board member to Carbonaires.
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