Translation: Amal Abdel Wahab

Carbon certificates have become an important tool to finance sustainable energy projects and mitigate their impact on climate change, being a powerful mechanism, that countries or companies adopt to reduce carbon emissions, transition into a green economy, and invest in eco-friendly solutions. Unlike stocks and bonds, these certificates are only traded in some countries.

Carbon certificate trading is a system that allows companies to buy and sell carbon credits tied to the volume of their emission. This provides companies with a financial incentive to cut pollution and enables them to issue a specific limit of emissions, represented in the form of credits, each equal to one ton of carbon dioxide (CO2). If a company exceeds its emission limit, it will need to purchase additional credits.

On the other hand, companies that reduce emissions can earn by selling their remaining credits. The price a company has to pay to exceed its emissions cap depends on the market, where supply and demand dynamics determine the price of credits.

Using clean technology that lowers carbon emissions across the real estate sector undoubtedly represents an investment opportunity that should be pursued in the best possible way. Sustainable real estate projects have become a part of the culture of governments and real estate businesses worldwide and carbon pricing will help them adopt state-of-the-art technologies across the construction and project management fields.

Many countries have imposed mechanisms for carbon pricing to encourage companies and sectors to cut emissions. In this feature, Invest Gate aims to spotlight these mechanisms.

China Launches Carbon Market

On July 2021, China officially launched the carbon trading market within its climate plans that aim at cutting emissions and reaching carbon neutrality by 2060 and in the realization of the risks posed by global warming on the environment and society. The giant Asian country, the largest new energy investor, aims to become a global climate leader.

Practically, China’s carbon market will force thousands of corporates there to slash their pollutant emissions to avoid incurring economic losses.

Saudi Arabia Establishes Regional Voluntary Carbon Market Company

Saudi Arabia’s Public Investment Fund (PIF) announced the establishment of a Regional Voluntary Carbon Market Company, where it will hold an 80% stake while the Saudi Tadawul Group will hold the other 20%. The new firm aims to support and empower corporates and sectors across the region to reach net zero and ensure buying carbon credits to reduce emissions across value chains.

The Kingdom’s sovereign wealth fund further unveiled the establishment of a voluntary platform for carbon certificate trading across the MENA region. This platform is an enabler to meet the market mechanism goals to offset and balance greenhouse gases.

The announcement comes in tandem with the Gulf country’s climate ambitions and goals represented in nationally-determined contributions (NDC) that aim at lowering emissions by 278 mn tons of CO2eq (equivalent) annually by 2030, reaching net zero by 2060, and joining the Global Methane Pledge to slash global methane emissions by 30% by 2030.

In this regard, Yasir Al Rumayyan, Governor of the PIF and Chairman of Saudi Aramco, emphasizes, during the Saudi Green Initiative (SGI) Forum taking place at the 2022 United Nations Climate Change Conference (COP27), that the voluntary market initiative for carbon credit trading, the first of a kind in the MENA region, witnessed the world’s largest-ever auction. A total of 1.4 mn tons of carbon credit certificates were sold to 15 Saudi and regional bodies, Al Rumayyan reveals, adding that the PIF is the first-ever sovereign wealth fund to issue such financial instruments and the first-ever 100-year green bond.

The UAE Launches 1st Carbon Credit Trading Exchange

The Abu Dhabi Global Market (ADGM) announced its cooperation with AirCarbon Exchange (ACX) to launch the world’s first carbon credit trading exchange and clearing house. The ADGM is set to become the first jurisdiction globally to regulate carbon credits as commodities and emission offsets and issue licenses for exchanges to operate both spot and derivative markets.

The regulatory framework will allow corporates to trade and finance carbon credits like conventional financial assets, thus increasing participation and investment in global carbon reduction and offset programs.

In this respect, Ahmed Jasim Al Zaabi, Chairman of ADGM, says that the exchange launch is a significant global milestone and another world’s first for Abu Dhabi, adding that this initiative reinforces ADGM’s commitment and ongoing efforts to cement its position as a leading international financial center and world-class global commodities and carbon trading hub. As the first country in the Gulf to commit to net zero by 2050, this new trading platform is a further extension of Abu Dhabi’s drive to support sustainability ambitions and underlines ADGM’s focus on carbon neutrality, Al Zaabi notes.

Egypt Leads African Market for Carbon Certificates

Egypt’s Prime Minister, Mostafa Madbouly, has recently issued a decision incorporating new provisions to the executive regulations of the Capital Market Law. The decision stipulates the establishment of a voluntary market within the Egyptian Exchange (EGX) for the trading of carbon emissions reduction (CERs) certificates. A committee, “The CERs Supervisory and Monitoring Committee”, shall be established by the Financial Regulatory Authority’s (FRA) board of directors in coordination with the Ministry of Environment involving representatives from relevant authorities.

Madbouly reiterated that the launch of the new voluntary market reinforces Egypt’s ability to effectively support fostering the global carbon neutrality goal, adding that the new market comes in line with the Egypt National Climate Change Strategy (NCCS) 2050.

The Economic Affairs Committee of Egypt’s Parliament granted its preliminary approval to the Capital Market Law amendments that permit carbon certificate trading within the EGX. The FRA said that it is working on introducing some amendments to the executive regulations of the Capital Market Law ahead of the EGX launch of Africa’s first voluntary carbon market in mid-2023.

In this regard, Tarek El Gamal, Chairman of REDCON Construction Company, says that this decision will achieve a giant leap in encouraging corporates and the private sector to achieve sustainability and cut carbon emissions across all projects and sectors. Trading these certificates will contribute to boosting green investments and diversifying their options by providing new financing tools that help businesses implement their expansion plans for more sustainable projects, given the great success this solution had achieved in Europe and the volume of investments realized.

El Gamal points out that Egypt has become Africa’s leading country in terms of its adoption of sustainability support efforts and aiding economic entities cut harmful carbon emissions.

Following Egypt’s hosting of a landmark COP27, which achieved unprecedented positive results, many economic corporates and institutions as well as individuals became more aware than before of the environmental challenges, how to face them, and how to mitigate their negative impacts. This affirms that the carbon certificate trading decision will significantly reflect on the Egyptian economy, El Gamal highlights.

For his part, Osama Saad El-Din, the CEO of the Real Estate Development Chamber (REDC), commends the Prime Minister’s decision, noting that it will encourage companies to adopt sustainable solutions and lower carbon emissions. In addition, Al-Din states that these certificates will offer attractive opportunities to international funds interested in green economy investment, revealing that countries’ responses to climate changes are no longer a welfare but a necessity to protect all mankind against the adverse impacts of global warming.

Saad El-Din further stresses that this decision represents a step forward as part of the relentless and continuous efforts to push forward climate action for sustainable real estate projects and implement necessary changes to guarantee the continuous growth of buildings and cities.

Moreover, Saad El-Din notes that the Egyptian government is aware of the importance of cooperation between the public and private sectors to achieve the desired goals and further grow the real estate sector.