How does the voluntary carbon market help us move toward decarbonization?
Purchasers use carbon credits to compensate for greenhouse gas emissions connected to their business activity.
Aramco’s recent purchase of verified carbon credits at the Middle East and North Africa (MENA) region’s first voluntary carbon market aims to support the progression toward our Scope 1 and 2 net zero ambition.
Recognizing both the scale and urgency of the climate challenge, Aramco purchased the credits at two auctions (October 2022, and June 2023) held by the Regional Voluntary Carbon Market Company (RVCMC).
The CORSIA-eligible and Verra-registered carbon credits are intended to be used by carbon dioxide (CO2) avoidance and removal projects (ranging from improved cooking stoves to renewable energy initiatives), mainly in global south countries. CORSIA is the first global market-based measure for any sector, whereas Verra was founded in 2007 by environmental and business leaders who saw the need for greater quality assurance in voluntary carbon markets.
RVCMC, headquartered in Riyadh, was established in October 2022 by Saudi Arabia’s Public Investment Fund and the Saudi Stock Exchange to support a regional contribution toward climate change impact mitigation.
At both auctions, RVCMC collectively sold more than 3.6 million tons of carbon credits.
Navigating the planet
Carbon markets are one of the many decarbonization routes helping to navigate the planet toward its net zero horizon.
The reduction or removal of carbon in one place impacts global atmospheric levels, and this can be sold in the form of offsets or allowances, known as carbon credits. Buyers in carbon markets — trading systems where carbon credits are sold and bought — purchase verified credits representing metric tons of CO2 from sellers whose businesses are removing or reducing greenhouse gas emissions from the planet’s atmosphere.
Purchasers use the carbon credits to compensate for greenhouse gas emissions connected to their business activity — like when an airline passenger pays an additional fee to offset the amount of carbon they put into the air when they travel.
One carbon credit equals one ton of emissions, and when a carbon credit is used to reduce, sequester, or avoid emissions, it becomes an offset, and is no longer tradable.
The voluntary carbon market is different from the regulatory carbon market, which represents mandatory carbon reduction regimes.
Vice president of Energy and Economic Insights, Musaab M. Al Mulla, said, “Voluntary carbon markets enable private investors, governments, non-governmental organizations, and businesses to purchase carbon credits to offset their emissions.
“All voluntary carbon markets are in a relatively premature stage but evolving at a fast rate, and the main issue we see in the market currently is the lack of a clear definition for high quality credits,” he added.
Meaningful emissions reductions
In 2021, Aramco announced its long-term ambition to achieve net zero Scope 1 and 2 greenhouse gas emissions across its wholly-owned operated assets by 2050.
Since then, the company has also announced a set of interim targets aimed at achieving a reduction of 52 million metric tons of CO2 equivalent by 2035.
Al Mulla explained international voluntary carbon markets can potentially be one solution for companies looking for ways to offset their greenhouse gas emissions.
“Aramco signed a memorandum of understanding in 2022 with Saudi Arabia’s Public Investment Fund to support the establishment of a regional voluntary carbon market in Riyadh,” he said.
“Our subsequent participation in its two carbon credit auctions supports the company’s execution of one of the five levers under its decarbonization strategy — namely our offsets lever. Our participation contributes to building a Saudi Arabian-based regional voluntary carbon market, which, in turn, helps to enable a pragmatic and orderly energy transition.”
Voluntary carbon credits can also drive investment into energy transition policies and infrastructure, and are acknowledged by the United Nations.