Despite the buzz around carbon markets, the Mena region has been a wary laggard in setting up its own emission trading systems (ETS).

 

However, things have started to heat up in the last 12 months, with growing interest in voluntary carbon markets (VCM), led by institutional investors brandishing them as lucrative asset classes, supported by the region’s aspiration to achieve its net-zero targets.

 

This was one of the many points discussed at a roundtable of sustainability experts, who gathered in Bahrain to explore the role of carbon markets in accelerating Mena’s decarbonisation.

 

Riham AlGizy, CEO of the PIF-backed Regional Voluntary Carbon Market Company (RVCMC), said there was a growing awareness about carbon markets and a growing need in the region that needs to be fulfilled. 

 

The RVCMC’s auction last year of 1.4 million tons of carbon credits at the Middle East’s first—and the world’s largest—carbon offset auction in Saudi Arabia is likely to have provided impetus to the market’s growth. “This month (June) PIF is taking 20 Saudi companies to Nairobi, Kenya, to buy African credits,” AlGizy said.

 

Abdulrahim Ahmed, Senior Representative, Sustainability Committee, National Bank of Bahrain, agreed that things had improved from until a few years ago, when people from across sectors either didn't know about ESG or weren’t interested. Today he finds the market engaged.

 

Essam Albakr, CEO of Riyadh-based Ejada Capital, however, found it hard to advertise carbon markets to investors because of the opacity surrounding the market.

 

Adding to that, Venetia Bell, Group Chief Sustainability Officer at Gulf International Bank, said; “The price variation on the global carbon markets is huge, ranging from a few cents to $100 per ton, depending on the type of credit—whether it's an avoidance or reduction, or whether it's nature or technology based, 

 

AlGizy, however, said it’s impossible to assign the same value to all carbon credits because, for example, "the renewable energy credits are very different than direct capture credits in terms of value". 

 

“So it's not price conversion but rather price discovery, and the transparency around the price that we're seeking. And that's why we're setting up an exchange,” she said.

 

Nevertheless, there are challenges around integrity, transparency, and accountability over the credits, they all said.

 

Highlighting the role of banks, Bell said they could contribute to the development of carbon markets in three ways: Origination, trading and risk management, and post trade advisory activity. Banks could also help clients take out derivatives or hedge their carbon related risk.

 

From a more local angle, Albakr said for carbon credits to work in Saudi Arabia, institutional investors like the PIF should anchor the (carbon) funds.

 

With regard to Bahrain’s challenges, Layla Sabeel from the Supreme Council for Environment, said her country wouldn’t be able to generate enough credits to meet demand because of its lack of space for as many projects.

 

She pointed out that Bahrain is also home majorly to some hard to abate sectors, like oil and gas and aluminum, and decarbonisation was a challenge there as well.

 

Okan Ugurlu, Climate Change Expert from Türkiye’s the Ministry of Environment, Urbanisation and Climate Change, expressed a similar opinion. “The conditions countries face could be different from one another. There are some issues that stem from energy security and some from strategic sectors. So you need to balance between economic development and the climate change agenda.”

 

He said Turkey would have an ETS (compliance market) in two years. His country is also the third biggest supplier to the global VCM after China and India.

 

All speakers did unquestionably believe there is a future in carbon markets.

 

Bell said: “We think they will grow, they're important, and we think they will play a role (in decarbonisation).”

 

But she added the focus needs to be on absolute emissions reductions.

 

At the onset, Jessica Robinson, Mena sustainable Finance Leader, EY-Parthenon and the roundtable moderator, set the tone by explaining the two types of carbon markets. “The compliance market is where basically the government will put a cap on emissions and allocate allowances and these are traded. So it's essentially a permit to pollute. But there's also the voluntary market, where companies and individuals purchase offsets and credits to compensate for their own emissions as well.” --OGN