Saudi carbon credit firm to invest in Middle East and Africa

RVCMC

• RVCMC investing in carbon abatement
• Targeting Middle East, Southeast Asia and Africa
• Sold 2.2m tonnes of carbon credits in June

Saudi Arabia’s Regional Voluntary Carbon Market Co plans to invest in carbon abatement projects in the Middle East, Africa and Southeast Asia, the CEO of the government-backed startup has told AGBI.

Saudi’s Public Investment Fund (PIF) and Saudi Tadawul Group, owner of the kingdom’s stock market, last October launched RVCMC. PIF holds an 80 percent stake in the company and Tadawul the remainder.

RVCMC has three main business units: advisory, investment and its in-development carbon credit trading exchange.

The exchange will launch in early 2024 and provide both spot and over-the-counter trading.

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RVCMC will invest in carbon abatement projects in Saudi Arabia, the wider Middle East, Africa and Southeast Asia, said chief executive Riham ElGizy.

“We want to invest in projects to accelerate climate action and scale supply [of carbon credits] in our region and many regions,” she said. “We want to be one of the top [carbon offset] markets by 2030.”

Ensuring integrity

RVCMC will conduct additional due diligence on projects wishing to list on its carbon credit trading exchange. Most listings will be from project developers or professional brokers.

“Our market will really care about the integrity of the credits being traded. That’s why we will set certain criteria and thresholds of who can join and sell on the market,” said ElGizy.

Project developers are companies that create carbon offset projects that then seek to sell offset credits that they generate.

“These projects would’ve been uneconomic without a carbon credit offset as a revenue stream, which is what we call “additionality”,” ElGizy explained.

For example, a marine kelp farm that absorbs carbon dioxide from the atmosphere and which would be financially unviable without funding from carbon credits, would qualify as providing additionality.

ElGizy said there was sufficient potential demand in the Gulf for it to be home to at least two carbon credit exchanges. Abu Dhabi-based ACX is already operational.

“We need more people to act,” said ElGizy. “We need more investments. So, there is no competition. The barrier that the market really struggles with is price discovery – it’s a fragmented market and the exchanges serve [to provide] price discovery.”

Largest global auction

In June, RVCMC hosted an auction that sold around 2.2 million tonnes of carbon credits in what it claims was the largest of its kind globally.

Staged in Nairobi, the auction sold carbon credits to 16 Saudi companies including Saudi Aramco, Saudi Telecom Co, Saudi Basic Industries Corporation and Saudi Electricity Co.

These were priced at SAR 23.50 per tonne and will fund 18 projects, mostly in Africa, such as renewable energy schemes and initiatives to provide less-polluting cooking stoves.

Based on the price per tonne, the auction raised almost SAR 52 million ($14 million). To ensure the integrity of the carbon credits, RVCMC employed two separate, independent due diligence teams to evaluate the associated projects.

The credits were also compliant with either the Carbon Offsetting and Reduction Scheme for International Aviation, known as Corsia, or Verra, another leading registry.

The PIF held a similar auction last October in Riyadh in which it sold 1.4 million tonnes of carbon credits to many of the same companies that participated in June’s event.

Questions over credits

The price of carbon credits has plunged amid doubts over their effectiveness in reducing emissions. Yet ElGizy remains bullish on their long-term prospects, citing McKinsey research.

In 2021, the consultants forecast demand for such assets would increase 15-fold by 2030 and could be worth up to $50 billion by then. Supply, meanwhile, is growing at a slower pace.

“The market isn’t material yet; it’s growing into maturity, so the more we correct early on, the better,” ElGizy said. “There’s a lot of great things happening in terms of integrity and bringing confidence back to the market. There’s still demand.”

Carbon credit prices also depend on projects underlying them. Avoidance-based credits – whereby the money raised is deployed to prevent deforestation in a particular location, for example – are cheaper.

Projects that remove CO2 are more expensive and are classified into two types: nature-based and technology-based.

Other agreements

In June, RVCMC signed a memorandum of understanding with Nigeria’s Carbon Vista.

Co-owned by a Nigerian government fund and Swiss commodities trading company Vitol, Carbon Vista will supply Nigerian carbon credits to RVCMC. The duo will also co-invest in projects that will generate carbon credits.

RVCMC’s consultancy service is another important part of its offering.

“We work with our buyers on their decarbonisation plans to make sure that they’re avoiding as much as they are offsetting,” added ElGizy. “When we started there was zero supply, zero demand in our region.

“To get companies – specifically on the demand side – to buy and understand how to use carbon credits [as part of their] decarbonisation journey is very important for us.”