Dubai Financial Market to launch pilot carbon credits programme at COP28

Dubai Financial Market (DFM) is set to introduce a pilot programme for trading carbon credits at COP28.

The integrated platform will explore the trading and use of carbon credits, offering a “mechanism to help companies manage unavoidable and residual carbon emissions while pursuing direct decarbonisation strategies”, DFM said.

Each carbon credit marks a tangible reduction in carbon emissions, with one credit offsetting one tonne of CO2 equivalent emissions.

According to the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), the demand for carbon credits could multiply by a factor of 15 or more by 2030 and up to 100 by 2050. In aggregate, the carbon credit market is projected to surpass $50bn in value by 2030.

DFM pilot programme to involve 17 UAE companies

DFM will commence the pilot programme for institutional investors who can buy and sell with trading starting from December 4 to December 8, with the offsetting period ending on January 10, 2024.

The programme will see the active participation of more than 17 UAE companies, including Dubai Electricity and Water Authority (DEWA), DP World, Dubai Municipality, Dubai International Financial Centre (DIFC), Emirates NBD, Majid Al Futtaim, SHUUA Capital, Al Ansari Financial Services, Emaar, Salik, SEE Holding, FIVE Holdings, Gulf Cryo and Tabreed among others.

The exchange has worked closely with Dubai Future Foundation as a partner for the pilot.

The transactions will be executed through five DFM brokers, namely Al Ramz Capital, Arqaam Securities, BHM Capital, EFG Hermes and Emirates NBD Securities.

Clearing and settlement processes will be handled in US dollars by Dubai Clear and the Dubai Central Securities Depository (DCSD), with global daily price reference provided by leading pricing agencies such as OPIS, a Dow Jones company.

The carbon credits traded on DFM will be supplied from DEWA and MyCarbon, coming from internationally certified carbon projects around the world that include carbon avoidance, reduction and removal initiatives.

All projects have been verified by widely recognised standard setters such as VERRA or the UN’s Clean Development Mechanism.

DFM will bring quality carbon credits from local DEWA projects for admission to the pilot.

Bringing together key stakeholders

Saeed Mohammed Al Tayer, MD and CEO of DEWA, said: “DEWA is leading in this aspect, and we’re delighted to play a pivotal role in DFM’s pioneering carbon pilot initiative, set to launch during COP28.

‘This collaborative effort led by DFM not only brings together issuers and key market participants but also offers a strategic exploration of the effectiveness of carbon credit trading and its catalytic contribution to the UAE’s prosperous green future.”

Hamed Ali, CEO of DFM and Nasdaq Dubai, said: “Capital markets play a pivotal role in driving the development of a low carbon economy by facilitating project capital raising, enhancing price discovery and transparency, and centralising liquidity. The launch of carbon credit trading represents a logical progression for DFM as a platform for ESG-focused themes and building on our existing track record.

“As the global economy accelerates its decarbonisation, the demand for carbon project financing is poised to surge and the necessity to trade credits will grow in tandem.  We invite other Dubai businesses and project developers to join us in this pilot endeavour.”

In recent news, ACX (AirCarbon Exchange) announced that ACX Abu Dhabi, its exchange and clearing house in Abu Dhabi Global Market (ADGM), was live. ACX established its regional base in ADGM in August 2021 with the support of Hub71, Abu Dhabi’s global tech ecosystem.

ADGM became the first jurisdiction to regulate voluntary carbon credits as financial instruments through the introduction of an ‘environmental instrument’ classification, a regulatory framework to license exchanges and clearing houses for both spot and derivatives markets for these products.