This week, the Public Investment Fund, in collaboration with the Saudi group Tadawul, announced plans to establish the “Riyadh Voluntary Platform” to trade carbon offsets and carbon credit certificates issued in the region, to become a major destination for regional companies aiming to reduce o contribute to carbon emissions.
This platform is part of the Kingdom’s efforts to support its goals under the Paris Climate Agreement.
But what do we mean by carbon trading? It is a market-based system for reducing greenhouse gas emissions by providing a financial incentive.
There are two types of carbon trading markets: the first is a mandatory market, in carbon certificates are exchanged to comply with a legislative system, such as the one currently in force in the European Union.
This legislative system requires companies that exceed an emission limit set by the legislator to obtain credit certificates for each ton of carbon dioxide equivalent emitted annually.
These companies participating in the scheme can get a certain share of carbon credit certificates for free or enter in an auction to buy them, and then the companies that have been in able to reduce their emissions sell their certificates on the market in surplus and those companies whose emissions exceed the maximum limit available to them purchase these certificates.
This is a compliant carbon market. But there is another carbon market, a voluntary carbon market like the one offered by Saudi Arabia, which is mainly based on carbon offsetting certificates, which any organization or company can purchase to offset its emissions voluntarily and not.
In theory, the buyers in a voluntary carbon market are organizations that have reduced their emissions as much as possible and can move further towards the “zero net “or carbon neutrality by purchasing carbon offsetting certificates through project developers elsewhere who have reduced or avoided emissions through their projects.
Usually, due to the geographical distance between the developer of the compensation project and the buyer of the compensation certificate, an independent body must verify the quality of the certificate, which the seller uses intermediaries to market.
Carbon credit is a tool that represents a ton of carbon dioxide and can be traded and sold, said Leila Benali, chief economist at the International Energy Forum.
He stressed that the Saudi platform is a prelude to the Kingdom of Saudi Arabia’s contribution to the upcoming climate summit and the Saudi Green Initiative in October.
He pointed out that there are more than 64 carbon pricing structures. The first wave is the countries that have tried to define the market structure, such as some European countries, while the second wave of countries, including China, India and Saudi Arabia , wants to take into account their development path.
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