Saudi projects to take spotlight at 15th Real Estate Development Summit in Spain 

RIYADH: The global carbon credit market could reach $100 billion annually between 2030 and 2035, up from just $2.7 billion last year, thanks to growing interest from corporate buyers, an analysis has shown .

According to US consultancy Oliver Wyman, $32 billion is currently deployed in carbon removal projects, with about $21 billion invested in engineered solutions and $11 billion in nature-based ones.

Of the $32 billion invested in decarbonization projects, $15 billion comes from public spending and $17 billion from private investors, with Oliver Wyman noting the need for demand for decarbonization projects to increase. expand three to five times to match current levels of investment.

A carbon credit, or offsetting credit, allows companies to emit a certain amount of carbon dioxide or other harmful gases – with a credit equivalent to 1 tonne of emissions.

They are seen as instrumental in facilitating a smooth energy transition and helping countries meet their Paris Agreement goals, contributing to global efforts to limit warming to 1.5 degrees Celsius.

“We are seeing a significant increase in attention and investment towards CDR projects, highlighting the growing recognition of their role in the transition,” said James Davis, partner and co-head of Climate and Sustainability, Europe at Oliver Wyman.

He added: “The demand for carbon credits generated by these phase-out projects is not yet sufficient to support even current levels of investment, let alone the level needed to meet climate targets.”

The report noted that achieving significant growth depends on addressing barriers to market expansion, such as the lack of guidance on removing decarbonisation targets and the absence of universally agreed quality standards.

It pointed out that the carbon dioxide removal market will only achieve 10% of its identified potential without specific interventions.

However, countries such as Saudi Arabia are contributing to market growth by launching initiatives such as the Regional Voluntary Carbon Market Co., funded with an initial capital of $133 million in 2022.

Since its establishment, the firm has successfully conducted two auctions in 2023, selling 3.6 million tonnes of carbon credits to domestic companies, including Saudi Aramco, NEOM, SABIC and others.

Last October, RVCMC CEO Riham ElGizy said carbon trading is crucial to mitigating the risks associated with climate change.

“Carbon trading can become a very powerful tool to expand and finance the export of voluntary carbon credits from the Global South to mitigate the impact of climate change globally, while providing the Global South with financial resources to support their development and to address the impact of climate change. change,” she said.

Other companies in the Kingdom are also using this environmental tool, plastic and wax specialists Saudi Top for Trading Co. signing an agreement with the Voluntary Carbon Market – effectively a stock exchange for offset credits – to help expand the system in the middle zone. East.

Untapped potential

A carbon dioxide emission credit means the permanent removal of one tonne of CO2 equivalent from the atmosphere. These credits can be obtained through various removal techniques, usually categorized into nature-based solutions such as afforestation and engineered solutions such as direct air capture.

“Decarbonisation is attracting increasing interest from potential corporate buyers looking for a solution to hard-to-reduce residual greenhouse gas emissions, as well as investors and project developers looking to participate in an emerging industry with a big growth,” said Oliver Wyman. .

“It reflects a growing recognition that carbon removals must expand substantially to limit global warming to tolerable levels,” it added.

The report highlighted key actions to accelerate market growth, including providing guidance to companies on their roles, setting clear monitoring thresholds and supporting the development of the carbon finance market ecosystem.

Oliver Wyman also identified supply-side constraints, such as uncertainty about future demand for carbon credits and unclear public sector policies to scale up these projects.

“There is also ambiguity about the scale of the eliminations in the transition plans and whether high prices will prevent large-scale purchases,” the US consultancy said.

He added that there is currently no clear consensus among climate standard setters on the appropriate balance between carbon removals and emissions reductions needed to reach net zero.

“But there is no doubt that decarbonisation must be part of the equation, all major scenarios that set a path to successfully limiting global temperatures require massive market expansion.”

Carbon elimination insurance

The report highlighted that decarbonisation insurance services are gaining momentum and emerging as important factors for financing projects in the sector.

“Insurance solutions are also emerging to address some of the risks inherent in VCM projects, with policies designed for both investors and credit buyers that cover when projects fail to deliver,” said Oliver Wyman.

The US-based firm also noted that well-designed insurance offerings would be an important factor in increasing investment and purchases.

“Insurers are looking to develop policies around reversal risk, although some fundamental challenges remain given the potentially long time horizons for real permanence, extending to millennia in the case of geological storage,” the report added.

Oliver Wyman noted that dedicated sustainable investment funds have also started to emerge and focus on the carbon market.

“Most have focused on nature-based investments, often combining income from sustainable forestry with income from carbon credits. Other investment strategies give clients access to nature-based carbon project investments in exchange for high-impact carbon credits,” the report said.

In March, another report released by the International Energy Forum echoed similar views, noting that carbon markets are poised to play a key role in meeting climate goals and facilitating the energy transition.

Joseph McMonigle, Secretary General of the IEF, emphasized that the growth of carbon markets will also help finance clean energy projects, crucial for a sustainable future.

The IEF added that the markets can effectively reduce the costs associated with carbon removal by connecting local project owners able to remove carbon, potentially at a lower cost, with international buyers looking to offset their emissions.

“Carbon markets play an important role in aligning resources to achieve our global climate, energy security and affordability goals. Promoting cross-border trading of carbon credits between nations will strengthen net-zero carbon balance sheets, consequently stimulating both supply and demand,” the IEF said at the time.

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