As the world grapples with the growing pressure to combat climate change, the Middle East, a region long associated with its oil wealth, is taking significant steps to drive economic and sustainable growth. The shift towards greener economies has become imperative for the region heavily dependent on oil and gas. Countries like the UAE and Saudi Arabia are taking bold steps toward a low-carbon future, and carbon trading is playing a pivotal role in this transition.

Carbon trading: An overview

Carbon trading, otherwise referred to as emission trading, enables firms to sell or purchase permits for emissions. The concept is rooted in the establishment of an upper limit on the total carbon dioxide to be released, with the assumption that some companies will decrease their carbon output and others will buy permits to emit more than their allowance. This not only relieves pollution in and around the source, but also very importantly provides an economic incentive to go green, since demand for such instruments will drive investment in green technologies.

The roadmap for climate change in the Middle East: A region’s focus

The Middle East has predominantly been associated with the production of fossil fuels. However, with a growing push towards sustainability, countries are rethinking their economic models. In this context, carbon trading is regarded as a strategic tool and a way to balance economic growth with environmental sustainability.

The region is undergoing a green transition and two of its biggest economies, UAE and Saudi Arabia, stand at the cusp of this transition. Their green aspirations in renewables, carbon reduction, and sustainability projects highlight the hope and potential for carbon trading to become an engine for green growth.

UAE: A trailblazer in carbon trading 

The UAE has taken massive strides in becoming a leader in sustainability. The UAE was the first country in the Middle East and Northern Africa (MENA) region to commit to its ‘Net Zero by 2050′ plans. Abu Dhabi Global Market (ADGM), the emirate’s financial free zone, launched the first voluntary carbon trading exchange in the Middle East in collaboration with AirCarbon Exchange (ACX). The platform has made the UAE a hub for global carbon markets, with seamless trading of carbon credits.

Recently, UAE’s Ministry of Climate Change and Environment (MOCCAE) announced a comprehensive roadmap to achieve 40 percent emission reduction by 2030. Another testament to the UAE’s green aspirations is Masdar City, the carbon neutral Abu Dhabi port city. The UAE is not only reducing its emissions but also developing a thriving market for carbon credit.

Saudi Arabia: Bold moves towards carbon neutrality

Saudi Arabia is also striving towards sustainability through its Vision 2030 framework. Recently, the Kingdom’s leadership made an announcement that it intends to be net-zero by 2060, a dramatic pledge for one of the largest oil producers in the world. 

In 2021, Saudi Arabia announced its Saudi Green Initiative, the focus of which is to cut carbon emissions by 2030 by 278 million tonnes. Additionally, Saudi Arabia's Public Investment Fund (PIF), through the Riyadh-based Middle East Green Initiative (MGI), is also making efforts to establish a carbon trading market. In October 2023, the Kingdom gave a green light to the first regional voluntary carbon market, registering carbon credit sales of more than 1.4 million, thereby attaining a key milestone in the energy transition of the region.

It is pertinent to mention that the largest hydrocarbon company (Saudi Aramco) is also in the plans of setting up a carbon capture, utilisation, and storage (CCUS) hub. This facility will harness the greenhouse gases emitted during various industrial activities and convert them into sellable carbon credits that can be traded in the carbon market. 

Job creation and economic diversification

As Middle Eastern economies gradually become less energy dependent and more carbon reliant, the need for expertise in carbon management, renewable energy and sustainability is on the rise.

Clean energy industries in the UAE have begun to create many jobs in developing solar power, electric vehicle support systems, and efficiency measures. For example, the Mohammed bin Rashid Al Maktoum Solar Park, situated in Dubai and rated as one of the biggest in the world, continues to expand and create jobs. Saudi Arabia’s NEOM city, a $500 billion futuristic development powered entirely by renewable energy, is expected to create thousands of jobs in green technologies.

In conclusion, Carbon trading is emerging as a crucial tool for the Middle East's transition to a greener economy. With countries like the UAE and Saudi Arabia leading the charge, the region is demonstrating its commitment to addressing climate change while seizing the economic opportunities it presents. By embracing carbon markets, these nations are not only reducing their carbon footprints but also fostering job creation and economic diversification. As the world shifts toward more sustainable practices, the Middle East's role in global carbon trading could prove to be a game-changer, accelerating its path toward a low-carbon future.

Dr. Nasir Al Lagtah, Associate Professor in Chemical Engineering, School of Engineering and Physical Sciences, Heriot-Watt University Dubai