Saudi PIF’s Regional Voluntary Carbon Market Company Completes “Biggest Ever Auction” of 2.2m Carbon Credits in June 2023 with Growing Islamic Investment Participation

The involvement of the Islamic financial industry in the carbon credit and pricing market continues with Saudi Arabia’s Regional Voluntary Carbon Market Company (RVCMC) emerging as the most proactive by far.

In June 2023, RVCMC completed its second successful auction of more than 2.2 million metric tons of carbon credits in what the company claims was “the biggest-ever voluntary carbon credit auction,” which was held in Nairobi, Kenya. The auction offered high-quality CORSIA-eligible and Verra-registered carbon credits which can enable buyers operating in a range of industries to play their role in reducing greenhouse gas emissions and make a positive impact on the climate.  RVCMC seeks to ensure that voluntary carbon credit purchases go above and beyond meaningful emission reductions in value chains.

Leading from the front is the Public Investment Fund (PIF), the sovereign wealth fund of Saudi Arabia, which together with the Saudi Tadawul Group Holding Company (the operating and holding company of the Saudi Stock Exchange) launched RVCMC in October 2022 with the aim of “supporting businesses and industry in the region as they play their part in the global transition to net zero, ensuring that carbon credit purchases go above and beyond meaningful emission reductions in value chains.” The aim is also “to create a robust and successful market for both the generation and use of voluntary carbon credits in the MENA region and play a meaningful role in assisting the transition to a low carbon global economy.”

PIF, with 80% and the Saudi Tadawul Group with 20% of the equity of RVCMC, maintained that the Nairobi auction “demonstrates the role voluntary carbon markets can play in delivering climate action. The carbon market aligns with PIF and Tadawul’s strategy to develop Saudi Arabia’s green economy in accordance with Vision 2030.”

Voluntary carbon markets allow carbon emitters to offset their emissions by purchasing carbon credits emitted by projects targeted at removing or reducing greenhouse gas from the atmosphere.

In fact, some 16 Saudi regional and international entities took part in the Nairobi auction, with Aramco, Saudi Electricity Company (SEC) and ENOWA (a subsidiary of PIF-owned giga-project NEOM), purchasing the largest number of carbon credits. The other successful bidders at the auction read like a ‘Whose Who’ of the major Saudi corporates. They included Abdul Latif Jameel, Fruiz Marine Corp (Costamare), GOLF SAUDI, Gulf International Bank, International Islamic Trade Finance Corporation (ITFC), Olayan Financing Company, SAUDIA, Saudi Arabian Mining Company (MA’ADEN), Saudi Aramco Base Oil Company (Luberef), Saudi Basic Industries Corporation (SABIC), Saudi National Bank, Saudi Telecommunication Company (STC), and Yanbu Cement Company.

The clearing price was SAR23.50 (US$6.26) per tonne of carbon credits yielding SAR51.7 million (US$13.772 million) from the auction. The projects included a combination of CO2 avoidance and removal, with the majority originating from the Middle East and Africa.

Riham ElGizy, Chief Executive Officer of RVCMC, stressed at the auction: “We need to use every tool at our disposal to tackle the devastating impacts climate change is already having. This auction demonstrates the role voluntary carbon markets can play in driving funding where it is most needed, to deliver climate action and improve livelihoods across the Global South.”

As Saudi Arabia commits to net zero by 2060, she added, RVCMC aligns with PIF’s strategy to contribute to developing the country’s green economy by providing significant investment opportunities for the private sector. This is in accordance with the Saudi Green Initiative and Vision 2030, the nation’s blueprint for economic reform. The success of today’s auction, according to RVCMC, illustrated Saudi Arabia’s commitment to tackle climate change in line with Saudi Green Initiative and Vision 2030.

The basket of credits for the Nairobi includes 18 projects representing a mix of CO2 avoidance and removal, including projects such as improved clean cookstoves and renewable energy projects.  Three quarters of the carbon credits originated from countries across the Middle East, North Africa and Sub-Saharan Africa, including Kenya, Uganda, Burundi, Rwanda, Morocco, Egypt and South Africa.

In addition to the auction, RVCMC also signed two MOUs – one with Eveready East Africa Plc, another with Carbon Vista Nigeria LP, in order to generate high-quality, impactful carbon projects in Kenya, Nigeria and beyond.

According to RVCMC’s Riham ElGizy, the company aims to be one of the largest voluntary carbon markets in the world by 2030, one that enables compensation of hundreds of millions of tonnes of carbon emissions per year and contributes to global Net Zero goals.” Our achievements to date, in such a brief period, demonstrate commitment to long-term success, and ability to deliver on our ambitions,” she added.

This latest auction follows the company’s debut auction of 1.4 million tonnes of carbon credits in Jeddah in October last year, which saw the participation of 15 Saudi and regional entities, with Aramco, Olayan Financing Company and MA’ADEN purchasing the largest number of carbon credits. That auction also offered high-quality, CORSIA-compliant and Verra-registered carbon credits.

A notable feature of both auctions is the participation of two Islamic financial institutions as successful bidders – ITFC, the trade fund of the Islamic Development Bank (IsDB) Group, and Saudi national Bank (SNB). The auctions, according to them, will play an important role in PIF’s wider efforts to drive investment and innovation required to address the impact of climate change and support Saudi Arabia’s efforts to achieve net zero by 2060.

Eng. Hani Salem Sonbol, CEO of ITFC, commented that “this is a remarkable achievement for ITFC towards innovation in green trade financing and development of sustainable trade, as well as supporting OIC members countries efforts in addressing climate change challenges. The credit basket contains units generated by clean and sustainable energy projects in OIC member countries”.

Voluntary carbon markets are particularly relevant to the Middle East and North Africa (MENA) region. On a per capita basis, carbon emissions are substantially higher in MENA compared to peer economies. The region is also one of the most affected by climate change impact according to the United Nations Framework Convention on Climate Change (UNFCC) as it strains its already scarce water and agricultural resources.

The VCM initiative is a continuation of PIF’s efforts to support Saudi Arabia’s green agenda and follows previous announcements by the Fund, including the completion of its US$3 billion inaugural green bond, and the various renewable projects PIF is spearheading as part of its commitment to develop 70% of Saudi Arabia’s renewable energy capacity, in line with Vision 2030. According to Saudi investment sources, a PIF Green Sukuk may also be on the cards.

The VCM market gained further momentum earlier this year when Egypt also launched the first voluntary carbon market (VCM) in Africa to reduce carbon emissions via the issuance of carbon certificates and to achieve carbon neutrality in Egypt and in Africa. Earlier this year, The Arab Petroleum Investments Corporation (APICORP), also arranged the first-of-its-kind US$75 million Syndicated Murabaha facility in the MENA region for Hartree Partners Power and Gas Company (UK) Limited, to fund high-quality voluntary carbon offsets.

According to Osman Büyükmutlu, Director, Strategy, Policy and Research, at the Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the IsDB Group, “Islamic finance is inextricably linked to the growth of the carbon market. The industry is currently estimated to be worth around US$2-3 trillion and is expected to grow to US$4 trillion by 2025; however, only 5% of this amount is allocated to carbon markets and green financing. This provides a good opportunity to use Islamic finance as a key climate action tool.”

Share this post