Oil Updates – prices climb on summer demand optimism

RIYADH: The global market for carbon credits could reach $100 billion a year between 2030 and 2035, up from just $2.7 billion last year, driven by growing interest from corporate buyers, an analysis has shown.

According to US-based consulting firm Oliver Wyman, $32 billion is currently being spent on carbon dioxide removal projects, with about $21 billion invested in engineering solutions and $11 billion in nature-based solutions.

Of the $32 billion invested in decarbonization projects, $15 billion comes from public spending and $17 billion from private investors, with Oliver Wyman noting that decarbonization project demand needs to increase three to five times to match current levels of investment.

A carbon credit or offset credit allows companies to emit a specific amount of carbon dioxide or other harmful gases – with one credit equaling 1 ton of emissions.

They are seen as a tool to facilitate a smooth energy transition and help countries meet the goals of the Paris Agreement, contributing to the global effort to limit warming to 1.5 degrees Celsius.

“We are seeing a significant increase in attention and investment towards CDR projects, which shows a growing recognition of their role in the transition,” said James Davis, partner and co-head of Climate and Sustainability, Europe at Oliver Wyman.

He added: “The demand for carbon credits generated by these removal projects is not yet sufficient to support even current levels of investment, let alone the level needed to meet climate targets.”

The report says that achieving significant growth depends on removing barriers to market expansion, such as a lack of guidance on decarbonisation targets and the absence of generally agreed quality standards.

She emphasized that the carbon dioxide removal market will only use 10 percent of its identified potential without targeted interventions.

However, countries such as Saudi Arabia are contributing to market growth by launching initiatives such as the Regional Voluntary Carbon Market, funded with an initial capital of US$133 million in 2022.

Since its inception, the company has successfully conducted two auctions in 2023, selling 3.6 million tonnes of carbon credits to domestic companies including Saudi Aramco, NEOM, SABIC and others.

In October last year, Riham ElGizy, CEO of RVCMC, said that carbon trading is key to mitigating the risks of climate change.

“Carbon trading can become a very powerful tool to scale and finance the export of voluntary carbon credits from the Global South to mitigate the effects of climate change worldwide, while providing the Global South with financial resources to support their development and address climate impacts. change,” she said.

Other companies in the kingdom are also using this environmental tool, with plastics and wax specialists Saudi Top for Trading Co. signed an agreement with a voluntary carbon market – essentially an exchange for offset credits – to help expand the system across the Middle. EXIT.

Untapped potential

A carbon dioxide removal credit means permanently removing a ton of CO2 equivalent from the atmosphere. These credits can be obtained through a variety of removal techniques, typically categorized into nature-based solutions such as afforestation and engineered solutions such as direct air capture.

“Decarbonisation is attracting increasing interest from potential corporate buyers looking for a solution to hard-to-reduce residual greenhouse gas emissions, as well as investors and project developers looking to participate in the fast-growing industry,” said Oliver Wyman. .

“It reflects the growing recognition that carbon removal must be substantially increased to limit global warming to tolerable levels,” he added.

The report highlighted key measures to accelerate market growth, including providing guidance to companies on their roles, setting clear monitoring thresholds and supporting the development of a financial market ecosystem for decarbonisation.

Oliver Wyman also identified supply-side constraints, such as uncertainty about future demand for carbon credits and unclear public sector policies for scaling these projects.

“Questions are also unclear about the extent of the drawdown in the transition plans and whether high prices will prevent bulk buying,” the US-based consultancy said.

He added that there is currently no clear consensus among climate standard setters on the appropriate balance between carbon removal and emission reductions needed to achieve net zero.

“There is no doubt that carbon removal must be part of the equation, with all major scenarios that set the path to successfully limiting global temperatures requiring massive market scaling.”

Carbon removal insurance

The report highlighted that insurance services for carbon removal are gaining momentum and emerging as a significant enabler of financing projects in the sector.

“Insurance solutions are also emerging to address some of the risks associated with VCM projects, with policies designed for both investors and loan buyers to cover the event that projects are not delivered,” said Oliver Wyman.

The US-based company further noted that well-designed insurance offerings would significantly increase investment and purchase.

“Insurers are trying to develop a reversal risk policy, although some fundamental challenges remain given the potentially long time horizons for true permanence, extending up to millennia in the case of geological storage,” the report added.

Oliver Wyman noted that specialist sustainable investment funds have also started to emerge and focus on the carbon market.

“Most have focused on nature-based investments, often combining income from sustainable forestry with income from carbon credits. Other investment strategies offer clients access to nature-based carbon project investments in exchange for high-impact carbon credits,” the report said.

In March, another report published by the International Energy Forum echoed similar sentiments, noting that carbon markets are poised to play a key role in meeting climate goals and facilitating the energy transition.

Joseph McMonigle, Secretary General of the IEF, emphasized that the growth of carbon markets will also contribute to the financing of clean energy projects, which are crucial for a sustainable future.

The IEF added that markets can effectively reduce carbon removal costs by connecting local owners of projects capable of removing carbon, potentially at lower costs, with international buyers seeking to offset their emissions.

“Carbon markets play an important role in aligning resources to achieve our global climate, energy security and affordability goals. Promoting the cross-border trade of carbon credits between nations will strengthen the net-zero carbon balance, which in turn will support both supply and demand,” the IEF said at the time.

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