About 16 firms — including Aramco, Saudi Airlines, Saudi Electricity Company and giga-project NEOM subsidiary ENOWA — bought more than 2.2 million tons of carbon credits in Nairobi on Wednesday in a historic first, according to the organizer, RVCMC. The firms spent $6.27 per metric ton of carbon credits, adding up to an estimated total of $14.74 million.

RVCMC, founded by the Saudi Public Investment Fund and holding company Saudi Tadawul Group in October 2022, held its first auction of 1.4 million tons of carbon credits in Riyadh at the time of its founding.

The company said it will launch a full-time carbon credit exchange in Riyadh within the first half of 2024. An exchange is a marketplace where carbon credits, each equating to 1 ton of carbon dioxide or another greenhouse gas, can be bought or sold to be used by the receiving party. Entities selling the credits are usually ones that are not utilizing their carbon allowances.

Gilles Dufrasne, policy and global market lead at Brussels-based Carbon Market Watch, said it is of increasing interest for large polluters, such as oil and gas companies, to create market exchanges with little contribution to climate action.

“It’s commonplace for energy companies to try to market themselves as greener than they actually are. And the carbon market offers a great way of doing that,” he told Al-Monitor, estimating the existence of about 10 exchanges of its kind globally. He added that the $2 billion carbon credit market is extremely small compared to other markets.

Saudi Arabia is the 8th largest emitter of greenhouse gasses in the world, with 672.38 metric tons of CO2 emissions (MtC02e) in 2021, according to Climate Watch data. China and the United States led with 11472.37 MtC02e and 5007.34 MtC02e respectively that year.

“It’s a way of saying … we’re participating in this green economy, and we are playing our part in financing climate action without actually addressing the elephant in the room, which is the continued exploration and extraction of fossil fuels,” he noted.

The $2 billion carbon credit market is extremely small compared to other markets, explained Dufrasne, yet the motivation to create an exchange is likely to cover their carbon footprints and portray participation in the global movement against the climate crisis.

What defines a voluntary carbon market are allowance caps set by private companies or governments, as opposed to binding emission reduction targets in compliance carbon markets, with corporate sustainability goals and actors aiming to trade credits at a higher price to make a profit, according to the United Nations.

These are tools among others in offsetting global warming and reaching targets set by the 2015 Paris Agreement, which stipulates that greenhouse gas emissions must be reduced by 43% by 2030 — a target the world is far from hitting, according to the UN.

Andrea Zanon, founder of Washington-based Empower Capital and Confidente, has helped design decarbonization and mitigation strategies for over 11 countries in the Middle East and North Africa since 2007.

He said voluntary carbon credit markets are an interim method for oil-and-gas-reliant countries to contribute to climate action by essentially taxing themselves.

“Let’s take Saudi Aramco that cannot reduce its pollution — it’s buying its reduction,” he said.

“So you have two options. The government can tell you that you have to shut down operations, but then you’re not going to be able to make essential cement or build cities. Or you have to pay for your pollution,” Zanon told Al-Monitor, with the latter serving as the more realistic option until it is feasible to rely on cleaner energy.

“It’s the right move at the right time,” he added about Saudi Arabia, a country that relies on oil for about 40% of its gross domestic product, nearly 70% of its fiscal revenues and close to 80% of its exports, according to the International Monetary Fund.

The benefit of creating a voluntary carbon credit exchange today is that when there is a compulsory requirement in the future for companies to submit carbon emission numbers, a country like Saudi Arabia will already have the historical data to provide that information, explained Zanon.

“You will have a standardized methodology already in place when the time comes,” he told Al-Monitor.

“The more (carbon credit) exchanges come to market, the more the prices are going to go up,” he said, as carbon credits become more of a commodity in the global market. In effect, it will make it more expensive for companies to pollute and encourage the collective reduction of greenhouse gas emissions globally.