• Carbon is expected to become a trillion-dollar asset class by 2037.
• Countries like Saudi Arabia, the UAE, and Egypt are investing in carbon trading infrastructure.
• Experts emphasize the need for a unified Gulf Cooperation Council (GCC) carbon market to enhance trading efficiency and scalability.

Carbon could become a trillion-dollar asset class by the middle of the next decade, as governments and companies increasingly turn to market mechanisms to control greenhouse gas emissions (GHGs).

The Middle East, which produces some 30 percent of the world’s petroleum, is increasingly taking notice. As carbon becomes an important factor in global trade, the region’s governments and companies are turning to markets to help them meet targets and transform their economies.

Inevitable expansion

Carbon is traded in national or regional ‘compliance’ markets, in which companies must comply with emissions limits by purchasing or trading allowances. There are also ‘voluntary’ markets, operating mostly over the counter, where companies buy credits to offset their emissions. Credits come from carbon avoidance or reduction projects that are verified by a few recognized standards organizations worldwide.

There are 30 ‘compliance’ markets now trading carbon allowance instruments valued at over $800 billion annually, covering approximately one-fifth of global GHG emissions, according to Bloomberg New Energy Finance (BNEF).

The total value of carbon credits produced and sold in voluntary markets is much smaller. Carbon credit prices reached a peak of just over $2 billion in 2022, when the number of credits sold also peaked, according to data from MSCI as reported by Bloomberg News. The market has since declined, largely due to rising concerns over the real worth of carbon credits; whether the projects generating credits actually avoid or remove the amount of emissions they claim (1 metric ton per credit).

Oil companies, airlines, and others that have bought credits for years as part of their emissions reduction strategies have greatly reduced or stopped purchases. Still, the value of traded credits was $723 million last year and carbon credit issuances continue to generate interest worldwide. Companies continue investing in credits sourced from technological, nature-based and community-based projects, but they’re waiting for stronger standards and clearer regulatory regimes.Related: Putin’s Gazprombank Move Creates Ripple in EU-U.S. Sanctions Strategy

The much-needed scrutiny is laying the basis for better markets, which many industry stakeholders are working on now. Important global leadership came in a breakthrough at COP29 last month, when countries agreed on rules for a new global market for carbon credits with strong quality standards. A centralized UN-backed carbon market could begin soon, providing funds for projects to reduce GHGs worldwide.

Although much work remains to be done, the UN standards should help allay concerns about credit quality. The general consensus on carbon markets remains bullish, with many companies continuing to invest in credits and the likelihood of further growth as reforms occur.

Growth estimates vary widely but share a positive outlook. The Boston Consulting Group sees the voluntary market growing to $10 billion or more in 2030, while investment manager Morgan Stanley forecasts it to reach $100 billion in 2030 and approximately $250 billion in 2050. In one scenario, BNEF forecasts a reformed voluntary market to reach nearly $1 trillion in value in 2037.

Middle East exporters need carbon price   

The Middle East, like other exporting regions, is turning to carbon markets in response to an imminent new factor in world trade. The EU’s Carbon Border Adjustment Mechanism (CBAM), which will put a tax on carbon emitted from production of goods imported into the EU, will enter into force in 2026.

The EU’s ETS, the first compliance model to put a price on carbon going back 20 years, has a central place in its effort to achieve carbon neutrality by 2050. The price of emission allowances trading on the ETS has averaged Euro 65 per metric ton in recent weeks. The high carbon prices of recent years have generated significant revenue, up to Euro 37 billion in 2022, providing funding for low carbon energy initiatives in member states.

Now, with CBAM, importers must purchase certificates linked to the weekly average auction price of EU ETS allowances, for carbon-intensive imports including cement, iron and steel, aluminium, fertilizers, electricity and hydrogen. CBAM will increase the cost of heavy goods that countries export to Europe by 10 per cent on average according to estimates. It is possible the tariff will be extended to oil and gas in coming years.

Countries and companies in the Middle East want to avoid these carbon tariffs as they position themselves as suppliers of low-carbon energy and industrial products. Therefore energy exporting countries in the Gulf and the broader Middle East are beginning to embrace carbon pricing mechanisms, to capture and reinvest this carbon revenue themselves.

Creating carbon trade

Saudi Arabia, the United Arab Emirates, Oman and other countries of the Gulf Cooperation Council (GCC), as well as Egypt, are putting the infrastructure in place, setting up regulated voluntary markets for credits to offset emissions. These schemes will lay the basis for future mandatory markets.

In 2022, Saudi Arabia’s Public Investment Fund (PIF) and Tadawul Group, the stock exchange operator, established the Regional Voluntary Carbon Market Company (RVCMC).

Last month, RVCMC announced that it had established an exchange platform for  regular auctions of ‘high quality’ carbon credits. This follows two pilot auctions hosted by RVCMC during 2022-23, with purchasers including Aramco, Saudi Electricity Company and ENOWA (subsidiary of NEOM).

For its part, the UAE’s Federal Decree on climate change, coming into force in May 2025, mandates monitoring and control of GHG emissions across sectors while incentivizing companies to participate in emission trading schemes and carbon credit markets. The Dubai Financial Market is now assessing its carbon credit trading pilot launched late last year.

Meanwhile, some of the UAE’s most high profile companies are making carbon trading a main business strategy. ADNOC is setting up a carbon trading desk. Companies such as the utility Tabreed, airline Etihad, and bank Emirates NBD are showing the breadth of this commitment across sectors.

Egypt this year launched the African Voluntary Carbon Market (AFRICARBONX), making itself a center of carbon credit trading for projects throughout Africa. The new market, supported by the Egyptian Exchange (EGX), provides a central database for carbon reduction projects with a platform for certificate trading.

While voluntary markets are being installed, countries are also introducing carbon compliance regulations for eventual compliance markets.

Saudi Arabia is working on a pilot phase of a national carbon emissions compliance model. The government is currently studying the EU ETS and other compliance regimes as it implements the 2-3 year pilot phase.

For its part, Dubai has established a National Register for Carbon Credits to ensure the trade of high-quality instruments.

“The ongoing pilots and initiatives across the Middle East, especially within the GCC, clearly demonstrate the region’s serious intent to scale carbon markets in the near future,” says Andrew Cullen, Vice President Institutional Sales at AirCarbon Exchange (ACX) in Abu Dhabi.

“The pilots, including those in the UAE, Saudi Arabia, and Oman, are crucial steps toward understanding how carbon markets can be structured, regulated, and scaled,” he says.

ACX, backed by investment from the Abu Dhabi sovereign fund Mubadala, is the world’s first fully-regulated carbon exchange, licensed under the regulatory regime of the Abu Dhabi Global Market. While the lower trading volumes of the past two years has led ACX to concentrate its exchange operations in Singapore, it continues building its business in the Middle East and remains bullish on the region.

“As the region develops its carbon trading infrastructure and compliance schemes, we expect significant opportunities to emerge, not only in the voluntary space but also as mandatory compliance mechanisms come into play,” says Cullen.

From voluntary to compliance

“We need to focus on the structure of voluntary markets and their eventual progression to compliance markets,” says Jan Haizmann, CEO, Zero Emissions Traders Alliance, based in Dubai.

“Only mandatory compliance markets have triggered significant carbon-reducing effects whereas voluntary markets may be seen as a step towards the creation of mandatory ETS schemes.”

For the Middle East, Haizmann emphasizes the importance of regional markets across borders with a carbon trading hub in Saudi Arabia as the largest economy in the region.

“The UAE market, for example, is too small,” he says. “In carbon we need regional, not national concepts.”

“In reality what is needed is a GCC corporation in which the countries work together to establish markets where carbon credits are mutually accepted and tradable across the region,” he says.

Middle Eastern countries are now working on the new fuels, technologies, infrastructure, and efficiency improvements that will be required to achieve an energy transition. But increasingly they are looking to the trade of carbon as an important, indeed indispensable, lever to accelerate it.

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