Carbon Markets

and Saudi Arabia

A Review of Options

and Analysis of

Carbon Crediting

Potential

Paul Zakkour, Anwar Gasim, and Mari Luomi

Discussion Paper

February 2025 I Doi: 10.30573/KS--2025-DP06

About KAPSARC

KAPSARC is an advisory think tank within global energy

economics and sustainability providing advisory services to

entities and authorities in the Saudi energy sector to advance

Saudi Arabia’s energy sector and inform global policies through

evidence-based advice and applied research.

This publication is also available in Arabic.

Legal Notice

Center (“KAPSARC”). This Document (and any information, data

or materials contained therein) (the “Document”) shall not be

used without the proper attribution to KAPSARC. The Document

shall not be reproduced, in whole or in part, without the

written permission of KAPSARC. KAPSARC makes no warranty,

representation or undertaking whether expressed or implied,

nor does it assume any legal liability, whether direct or indirect,

or responsibility for the accuracy, completeness, or usefulness

of any information that is contained in the Document. Nothing in

the Document constitutes or shall be implied to constitute advice,

recommendation or option. The views and opinions expressed in

this publication are those of the authors and do not necessarily

reﬂect the ocial views or position of KAPSARC.

3Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Executive Summary

and Key Messages

The Kingdom of Saudi Arabia has been taking steps towards carbon market

development to stimulate domestic and international climate action. In 2022,

the government announced a domestic greenhouse gas (GHG) crediting

mechanism – the Greenhouse Gas Crediting and Osetting Mechanism

(GCOM) – which will be the ﬁrst government-led carbon crediting mechanism

to be set up in the Gulf region. In parallel, Saudi Arabia’s largest sovereign

wealth fund, the Public Investment Fund (PIF), has established the Regional

Voluntary Carbon Market Company (RVCMC) that is providing a marketplace

for internationally traded carbon credits.

In response to this growing interest in carbon markets in

Saudi Arabia, KAPSARC implemented a study to better

characterize and understand the potential for carbon

crediting in the Kingdom. The focus was speciﬁcally

on providing estimates of the potential for supply and

demand of carbon credits, drawing on current voluntary

corporate commitments by domestic ﬁrms and various

assumptions related to the emissions abatement and

carbon removal potential in selected sectors and

activities.

The ﬁrst part of the paper presents a reference guide

to carbon markets, which includes a taxonomy of

instruments covering three broad types – namely, cap-

and-trade emission trading systems (ETSs), output-based

ETSs, and crediting mechanisms in Section 2. This section

also provides an explanation of the functioning of carbon

crediting mechanisms and their setup on the demand

and supply sides. In addition, it discusses future trends in

this space, including linkages between dierent carbon

market instruments, regulation in the voluntary carbon

market, and carbon border adjustments.

The second part of the paper presents the current

landscape of carbon markets in Saudi Arabia and

provides estimates of potential carbon credit supply and

demand (Section 3). These estimates can help inform the

development of voluntary public-private led climate action

in the Kingdom based around carbon credits, which are

taking place under both government-led (GCOM) and

private-sector led (voluntary, ICP-based) markets. The

main ﬁndings from Section 3 include:

• On the demand side, if Saudi corporations maintain

their ambitious net-zero pledges and incorporate

carbon credits into their decarbonization strategies,

carbon credit demand will be sustained and will

increase signiﬁcantly over the coming decades.

• In the low demand scenario, which assumes that

the modelled companies’ carbon credit use rises

gradually up to 5% of their total mitigation eort by

2050, total demand for carbon credits would reach

1.0 MtCO2eq in 2030 and 22.4 MtCO2eq in 2050. In

the high demand scenario, where carbon credit use

rises gradually up to 20% of total mitigation eort

by 2050, the total demand for carbon credits would

reach 4.0 MtCO2eq in 2030 and 89.6 MtCO2eq

by 2050.

4Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

• On the supply side, decisive action to bring

new projects online at scale can ensure that

mitigation beneﬁts delivered through carbon

crediting are kept within the borders of Saudi

Arabia. Such developments can also contribute to

the government’s climate change targets, rather

than the acquisition of credits that originated in

other countries.

• Depending on baseline and additionality choices,

domestic credit supply from renewable energy has

a theoretical potential to supply 2-4 million MtCO2eq

by 2030. This would suce to cover domestic carbon

credit demand in the medium term (assuming the

buyers would be willing to purchase this credit type).

Alongside potentially signiﬁcant levels of CCUS

credits (theoretical potential peaking at 27 MtCO2eq

from the 2030s) and nature-based credits from

mangrove plantations, domestic supply from these

three mitigation activity areas would suce to meet

credit demand in the low-end demand scenario.

However, higher levels of demand would require

credit supply from other domestic sectors and

activities, or international sources.

• Notably, the results of the study should be carefully

considered in the context of the methodological

choices and assumptions used to estimate carbon

credit demand and supply. Updated and more

reﬁned estimates can be made as improved and

more extensive data on Saudi corporate emissions

and their mitigation strategies becomes available.

Further clarity on the rules around the GCOM will also

improve estimates of potential credit supply (e.g., in

terms of project types and baseline choices).

Further formalization of a carbon credit market in the

Kingdom is important for many reasons. These include

providing a powerful entry point through which both

governments and operators can take early steps into

the monitoring and reporting of emissions and the

trading of carbon-based units, thereby helping to

drive technological innovation and supporting socio-

economic development. A more structured market can

also position Saudi Arabia as a progressive regional

leader of climate action, prepare the ground for possible

compliance-based mechanisms in the future, and support

further engagement in international climate action and

markets, such as those emerging from Article 6 of the

Paris Agreement.

5Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

A6.4ER Article 6.4 Emission Reduction under the Paris Agreement Crediting Mechanism

CaT Cap-and-trade emissions trading system

CDM Clean Development Mechanism under the Kyoto Protocol

CER Certiﬁed emission reduction from the Clean Development Mechanism

CORSIA Carbon Osetting and Reduction Scheme for International Aviation

CO2 Carbon dioxide

ETS Emissions trading system

ERU Emission reduction unit from Joint Implementation

GCOM Saudi Arabia’s Greenhouse Gas Crediting & Osetting Mechanism

GHG Greenhouse gas

ICP Independent crediting program

JI Joint Implementation under the Kyoto Protocol

PACM Paris Agreement Crediting Mechanism

QELRO Quantiﬁed emission limitation and reduction obligation under the Kyoto Protocol

RVCMC Saudi Arabia’s Regional Voluntary Carbon Market Company

Acronyms and Abbreviations

6Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

1. Introduction

The entry into operation of the Paris Agreement in 2020 has precipitated

a new wave of public and private sector climate action responses. For

governments taking initial steps towards climate change mitigation, a variety

of policy and regulatory design options are available. Measures include

economic instruments, which can be price-based (e.g., taxes that seek to

promote a demand response by placing a price on emissions) or quantity-

based (e.g., emissions trading systems [ETSs] that place a limit on the volume

or intensity of emissions by covered entities and allow for the trading of units

between them to comply with the cap), regulatory instruments, and other

instruments. The latter include regulatory mandates (e.g., bans, targets or

performance standards for products and/or emissions), voluntary agreements

(e.g., with industry sectors and operators to reduce and/or oset emissions),

information policies (e.g., awareness-raising campaigns, eco-labels) and

government-led programs (e.g., spending and procurement) (Somanathan et

al. 2014; Dubash et al. 2022).

Increasingly, governments around the world are turning

to economic instruments rather than discretionary or

regulatory approaches to develop ﬂexible and cost-

eective responses to climate change mitigation. Market-

based instruments generally allow entities with lower

abatement costs to act ﬁrst and monetize their actions

by selling resulting credits to entities that face higher

abatement costs (e.g., Nordhaus 2013).

At the time of writing, various types of carbon pricing

instruments are being implemented or are under

development around the world, including ETSs, domestic

carbon crediting mechanisms, and hybrid schemes

(Figure 1). The use of these policy instruments, which

can be collectively referred to as “carbon markets,” has

grown substantially over the past few years. According to

the Intergovernmental Panel on Climate Change (IPCC),

carbon pricing and carbon markets are the most prevalent

policy responses to climate mitigation globally today

(Dubash et al. 2022).

The Gulf region is closely tracking this global trend.

Various policies and actions relating to carbon markets

are underway in the region, including the establishment of

independent crediting programs (e.g., the Global Carbon

Council in Qatar) and emergent proposals for ETSs (e.g.,

as has been mooted in the United Arab Emirates).

The Kingdom of Saudi Arabia is also taking signiﬁcant

steps towards carbon market development to stimulate

domestic and international climate action. In 2022, the

Saudi government announced a domestic greenhouse

gas (GHG) crediting mechanism, the Greenhouse Gas

Crediting and Osetting Mechanism (GCOM), which

will be the ﬁrst government-led carbon crediting

mechanism to be set up in the Gulf region. The GCOM

has been tailored to the unique circumstances and

energy transition challenges faced in Saudi Arabia,

while taking into account international best practice. In

parallel, Saudi Arabia’s sovereign wealth fund, the Public

Investment Fund, has established the Regional Voluntary

Carbon Market Company (RVCMC), which is providing

a marketplace for internationally traded carbon credits.

7Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

The RVCMC has so far undertaken two record-breaking

auctions of carbon credits with international credits issued

by the independent crediting program (ICP) administered

by Verra.

In response to the growing interest in carbon markets

in Saudi Arabia, this study aims to better characterize

and understand the potential for carbon crediting in

the Kingdom. The focus was on providing estimates of

the potential for supply and demand of carbon credits,

drawing upon current voluntary corporate commitments

by domestic ﬁrms, and various assumptions related to the

emissions abatement potential in selected sectors. These

estimates can help inform the development of voluntary

public-private led climate action in the Kingdom, based

around trade in carbon credits, taking place both under

government-led (GCOM) and private-led (voluntary, ICP-

based) crediting mechanisms.

This paper is laid out as follows: Section 2 provides

background on carbon markets and considers the latest

developments in various parts of the world. Section 3

presents the landscape of carbon markets in Saudi Arabia

and provides estimates of potential carbon credit supply

and demand. Section 4 draws on these to provide key

ﬁndings and recommendations.

8Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

2. About Carbon

Markets

Carbon pricing systems, including both ETSs and carbon taxes, are currently

estimated to cover 12.8 GtCO2-equivalent (GtCO2e) of anthropogenic GHG

emissions, equal to around 24% of worldwide emissions. Of this, more

than 10 GtCO2e relates to ETSs, which cover around 19% of global GHG

emissions (World Bank 2024). A total of 36 ETSs are in place across various

jurisdictions worldwide, with a further seven under development and 18 under

consideration (Figure 1) (World Bank 2024; ICAP 2024).

A range of international, domestic, and private carbon

crediting programs are also operational worldwide, and

their number and diversity has been growing over recent

years. While the combination of ETSs and crediting

programs both form important constituent parts of carbon

markets, the types of units are dierent: ETSs involve the

issuance of emission allowances to operators of emitting

activities, while crediting programs issue carbon credits to

developers of emission reduction and removal projects. In

some situations, the two may be fungible.

The following sections provide an overview of the

various types of carbon market instruments, including

their key features, dierences, scope of system linkage,

and evolution.

9Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Source: Alarfaj (2024), based on World Bank (2024).

Figure 1. Carbon pricing instruments around the world, 2024 (implemented and under development).

Compliance Crediting mechanisms Both

2.1 Emissions

Trading Systems

2.1.1 Cap-and-Trade ETS

Traditional carbon market design has been based on

the cap-and-trade concept. A cap-and-trade ETS is a

quantity-based mechanism under which regulators set

an absolute, jurisdiction-wide, quantiﬁed “cap” on direct

emissions from large stationary point source emissions

(e.g., fossil thermal electricity generating facilities and

other large industrial facilities, such as reﬁneries, cement

kilns, and steel plants). More recently, cap-and-trade

systems have been expanded to cover mobile emission

sources (e.g., aviation, maritime, and road transport) and

buildings, albeit mainly applied at the point of fuel sale

rather than on dispersed individual emitters. The New

Zealand ETS is alone globally in including large forestry

within the scope of a cap-and-trade system.

The system “cap” is determined in advance (ex ante),

denominated in 1 ton emissions units (1 tCO2e), with the

units allocated to individual covered operators through

either free allocation, auctioning, or a combination

thereof. The emissions units, which are often referred

to as “allowances,” act as a “right to emit GHGs by the

holder.” Operators of ETS-covered facilities must monitor

their emissions over a set period (generally a calendar

year), report them to the ETS regulator, and subsequently

surrender allowances equal to their reported emissions in

order to discharge their obligations under the system.

Operators can buy units in order to meet their compliance

position (e.g., when they emit more than the units they

were allocated or acquired through auctions) and sell

units when they emit less than the units they are holding.

This type of unit trading sets the basis for an ETS carbon

market. Examples of cap-and-trade ETSs include the

Kyoto Protocol (Box 1), the EU ETS, the California cap-and-

trade Program (CaT), and the UK ETS.

10Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

In principle, cap-and-trade ETSs oer the most certainty

over the environmental outcome because the quantity

of allowable emissions is explicitly controlled through

the cap ex ante. Over time, the cap, and therefore the

allowances in circulation, can be ratcheted downwards in

line with increasing climate ambition.

Box 1. The Kyoto Protocol and the First International

Carbon Market

The Kyoto Protocol, through setting country-level targets and its three ﬂexibility mechanisms, established the

world’s ﬁrst substantial international cap-and-trade based carbon market.

The Protocol established emission reduction targets for Annex I Parties to the UNFCCC – i.e., developed country

parties – known as “quantiﬁed emission limitation and reduction obligations” (QELROs). Each Annex I country’s

QELRO was deﬁned in terms of a percentage annual emission limitation/reduction target for a basket of six

GHGs over the periods 2008-2012 and 2013-2020 relative to emissions in a base year, most typically 1990. The

QELROs were converted into country level emissions caps and substantiated through the allocation of emissions

budgets to each Annex I Party. The budgets were denominated in 1tCO2e Assigned Amount Units (AAUs). Each

Party received its AAU allocation in its Kyoto Protocol registry account for each of the Kyoto Protocol commitment

periods (the ﬁrst being 2008-2012 and the second being the period 2013-2020). In aggregate, the allocations of

AAUs made up the Kyoto Protocol “cap.”

The Kyoto Protocol also introduced three ﬂexibility mechanisms by which Annex I Parties could comply with their

QELRO. First, under international emissions trading, Parties could trade AAUs among themselves. Second, Parties

could acquire oset credits that originated from mitigation projects located in either Annex I countries (Joint

Implementation; JI) or non-Annex I countries (the Clean Development Mechanism; CDM). Any AAUs, JI emission

reduction units (ERUs), and CDM certiﬁed emission reductions (CERs) can be counted towards compliance with

a Party’s QELRO within the relevant Kyoto Protocol commitment period. For an ERU trade, a corresponding AAU

had to be canceled in the registry of the originating (host) country Party in order to avoid double counting and to

maintain the environmental integrity of the Kyoto Protocol “cap.” In the case of CERs, since they originated from

non-Annex I countries that did not have QELROs, no AAU adjustment was required.

In some situations, Annex I governments bought CERs and ERUs directly (bilaterally) from other parties, often

through intermediaries such as the World Bank. In other approaches, some Annex I governments also devolved

the acquisition of CERs and ERUs to the private sector (e.g., by linking the credits to domestic ETSs). For example,

the European Union allowed companies covered by the EU ETS to use CERs and ERUs as compliance units in its

ETS Phases I and II (2005-2007 and 2008-2012), which, upon surrender to the EU member state, were available

to be counted towards their QELRO. Japan similarly introduced a private sector acquisition program that was

used by the government to acquire CERs and ERUs that could be counted towards its QELRO.

11Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

2.1.2 Output-Based or

Intensity-Based ETS

While traditional models of cap-and-trade ETSs continue

to be adopted by new jurisdictions in both the developed

and developing world, recent years have also seen

the implementation of intensity-based or output-based

ETSs. This type of system establishes an emissions “cap”

according to the monitored and reported output and

direct emissions for covered activities over a calendar

year (ex post). Therefore, unlike a cap-and-trade ETS,

the operators receive their allocation of units after the

event, according to their level of output (e.g., megawatt-

hours [MWh] of electricity) and the benchmark for their

given activity or product (e.g., a tCO2 per megawatt-hour

of electricity supplied to a grid, i.e., 0.35 tCO2/MWh, or

an emission rate of 0.85 tCO2e per ton of cement clinker)

over the compliance period (e.g., a calendar year). If their

emissions exceed the allocation, they must acquire more

units, or where they fall under it, they may sell the surplus,

thus setting the basis for a carbon market.1 Examples of

current output-based ETSs include Canada’s Federal

Output-Based Pricing System and its various Provincial

ETSs, the Australian Safeguard Mechanism, Indonesia’s

ETS, and China’s national and various subnational ETSs.

An output-/intensity-based ETS oers a somewhat more

ﬂexible carbon pricing model than cap-and-trade because

the cap adjusts annually according to ﬂuctuations in

levels of output and therefore automatically responds to

increases or decreases in economic activity. An output-/

intensity-based ETS can be better suited to jurisdictions

with more volatile or growing economies, often based on

primary or secondary industries. Over time, the allocation

benchmark can be reduced to drive greater eciency in

the covered activities.

2.1.3 Additional Flexibility

Mechanisms Within ETSs

Both cap-and-trade or output-based ETSs may include

additional ﬂexibility mechanisms by which to comply that

can lessen the economic impact on covered entities.

These can include a buy-out price in an ETS (that allows

covered entities to pay their way out of the obligation), the

ability to bank or borrow allowances across compliance

periods, and/or the integration of carbon credits for

meeting part or all of covered entities’ compliance

obligations. In the latter case, covered operators can

use carbon credits as supplemental fungible equivalents

to the units/allowances employed within the ETS.

Investments into carbon credits will be attractive when

the internal cost of compliance for entities covered by the

ETS is higher than the market price for credits.

To avoid the double counting of emission reduction or

removals as both reductions inside the ETS and credits

from outside, carbon credits used for ETS compliance

should originate from sectors or entities not covered by

the ETS – either from activities in non-ETS sectors in the

same jurisdiction, or from other jurisdictions not subject

to, or linked with, the ETS in question. In other words, an

activity implemented by a compliance entity to reduce its

own emissions under an ETS cannot also be registered

as an activity that generates oset credits for use by the

operator or other entities covered by the ETS – to do so

would result in the emission reduction eect of the activity

being counted twice within the ETS.

According to the World Bank (2024), around 40% of

carbon pricing schemes worldwide – both ETSs and taxes

– allow for the use of carbon credits, covering 23 ETSs

and 7 carbon taxes. The degree to which such ﬂexibility

may be used varies from system to system. For example,

at the time of writing, both Indonesia’s and Kazakhstan’s

ETSs allow for 100% eligible credits to be used for system

compliance, while the Korean ETS allows for up to 5%,

and the California CaT currently allows up to 4%, which

will increase to 6% from 2026. Several national carbon tax

policies allow for the use of selected carbon credits (e.g.,

in South Africa and Colombia – see below).

12Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

2.2 Crediting

Mechanisms

In recent years, there has been a signiﬁcant expansion

in carbon crediting systems worldwide. The World

Bank (2024) characterizes the carbon credit market

as consisting of four dierent market buyer segments:

international compliance, domestic compliance,

voluntary, and results-based ﬁnance, which draw from

three main sources of supply – international, domestic,

and independent crediting mechanisms. These are

summarized below (Figure 2), and are considered in

greater detail in the following sections.

Source: Authors, based on World Bank (2024).

Figure 2. Types of carbon crediting mechanisms and market segments.

Public

Credit supply Credit demand

International compliance

markets

Domestic compliance

markets Results-based finance Voluntary carbon market

Contribute to the achievement

of nationally determined

contributions, or other

compliance purposes, e.g.,

CORSIA

Contribute to compliance with

obligations under emissions

trading schemes

or carbon taxes

Serve as a public

policy tool for

incentivizing mitigation

Used as claims toward

meeting voluntary (corporate)

targets or commitments

International crediting

mechanisms

Government-regulated

mechanisms

Independent crediting

programs

Include the Kyoto Protocol’s

Clean Development

Mechanism and the Paris

Agreement Crediting

Mechanism

Examples include the Alberta

Emission Offset System,

Australian Carbon Credit Unit

Scheme and the Saudi

Greenhouse Gas Crediting and

Offsetting Mechanism

Major programs include the

Verified Carbon Standard

(Verra) and Gold Standard

2.2.1 Credit Demand

Carbon crediting programs have been primarily

established either to support ﬂexibility mechanisms

in carbon pricing systems and/or to underpin

claims regarding voluntary climate action by private

actors. Both types of use cases can be described

as “osetting,” as entities buy and retire the carbon

credits as a means to balance their own ongoing

GHG emissions.

However, the demands on carbon crediting have

evolved over recent years as buyers have sought to

use them for varying purposes. The dierent demand

sources and use cases are reviewed in more detail in

the following section.

13Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

International Compliance

Markets

As noted in Box 1, the Kyoto Protocol introduced a substantial

international market for carbon credits. The market primarily

operated over the period 2005 to 2012, spanning the time

from when the Kyoto Protocol was ratiﬁed until the end of its

ﬁrst commitment period. Thereafter, CER demand dwindled,

and the JI was dormant until its termination in 2022. In the

absence of signiﬁcant CDM demand post 2012, the UN

introduced a voluntary, unilateral cancellation procedure that

allowed CERs from the CDM to be used within the voluntary

carbon market (VCM) (see the section on the voluntary

carbon market below).

A similar type of international market for emission units

and carbon credits is expected to develop under the

Paris Agreement via Article 6. Thereunder, cooperation

between countries is envisaged through the international

transfer of units – or so-called internationally transferred

mitigation outcomes (ITMOs) – that can be counted by

the buyer country against their national Paris Agreement

climate mitigation pledges (i.e., the nationally determined

contributions or NDCs). Carbon credits, or mitigation

outcomes, traded between countries can ultimately be

consolidated as ITMOs when accounting for progress

against NDCs. However, the nature and style of a country’s

NDC pledges makes the accounting of ITMO transfers

a more complex proposition than the top-down targets

established under the Kyoto Protocol. Hence, work on the

exact rules of Article 6 took nine years to establish, and were

completed at COP29 in Baku in November 2024.

The Carbon Osetting and Reduction Scheme for

International Aviation (CORSIA), implemented by the UN

International Civil Aviation Organization (ICAO), is another

emerging source of international carbon credit demand.

As well as introducing measures for emission reductions

(e.g., sustainable aviation fuel use), CORSIA implements

mandatory osetting using carbon credits. Following a pilot

phase (2021-2023), the ﬁrst phase of CORSIA, which started

in January 2024, requires aviation operators to acquire and

cancel carbon credits against a portion of their reported

emissions for ﬂights between the current 126 participating

states. Demand for credits under CORSIA is anticipated to

grow as both participation and target stringency increase.

Domestic Compliance Markets

Several domestic carbon pricing systems also establish

demand for carbon credits through ﬂexibility mechanisms

(see Section 2.1.3). Domestic crediting systems linked to

ETSs exist in China, Canada, Canadian provinces, California,

Korea, and Kazakhstan, among others, as well as for carbon

taxes in Switzerland, South Africa, Columbia, and Chile. In

the latter cases, credits can be surrendered to the relevant

authorities to oset carbon tax liabilities. In several cases,

the systems make use of existing carbon credit supply

infrastructure, typically tailored to national circumstances

(e.g., the use of domestic CDM projects in the Korean ETS

and China ETS, or privately-run independent crediting

programs in the California CaT – see Section 2.2.2).

Following discussions at the UN Sharm El-Sheikh Climate

Change Conference (COP27), the UN’s carbon crediting

mechanism under Article 6.4 of the Paris Agreement –

now called the “Paris Agreement Crediting Mechanism”

or “PACM” – can also be used to originate carbon credits

for domestic use (UNFCCC 2022). In these circumstances,

credits originated under the PACM (so-called “A6.4ERs”)

would not need to be authorized by the host Party for use

towards another Party’s NDC or for other international

mitigation purposes such as CORSIA, but would instead

be labelled as “mitigation contribution A6.4ERs.” The term

“mitigation contribution” is envisaged as a means to signify

that the mitigation achieved by the relevant PACM activity

is only contributing towards the host country’s NDC and not

another country’s NDC, and therefore cannot be counted

as an ITMO (see also the Results-Based Finance section

below).

Voluntary Carbon Market

Voluntary climate action, where entities seek to make

climate-related claims based on the acquisition and

cancellation of credits, has also expanded over recent years.

These approaches have typically involved corporations

making voluntary climate-related pledges (e.g., emission

reduction and/or climate neutrality) and acquiring and

cancelling carbon credits to oset their reported ongoing

emissions. Such arrangements are widely termed “the VCM.”

Estimates suggest that voluntary demand accounts for

around 90% of the total demand for carbon credits (World

Bank 2024).

14Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Views remain divided, however, on the utility of such

voluntary practices. On the one hand, groups such as

the Science-Based Targets Initiatives (SBTi) suggest that

such claims only count where measurable action is also

being taken by the entity to reduce its own emissions,

and they also suggest that credits might only be used to

counterbalance residual emissions and can only count

towards credible “neutralization” claims when credits

originate from carbon removal activities (SBTi 2024a). Other

observers are also supporting a transition towards claims

based on carbon credits that almost exclusively originated

from carbon removal rather than emission reduction

activities (Allen et al. 2020; Axelsson et al. 2024; ISO 2022).

Nevertheless, there have also been discussions on investing

in emission reduction credits in the near term as a form of

“beyond value chain mitigation,” which describes mitigation

action that goes beyond the direct and indirect emissions of

an entity (Axelsson et al. 2024).

Allen et al. (2020) provided a taxonomy of dierent types

of carbon osets to highlight which types of activities result

in carbon removals as opposed to emission reductions

(Figure 3).

Source: Authors, based on Allen et al. (2020).

Figure 3. Taxonomy of carbon credits.

Public

Emission reduction

Types of carbon credit and carbon storage

Carbon removal

Is carbon stored?

NO YES

How is carbon stored?

YES

Removal with

long-term storage

•Direct air capture

with CCS (DACCS)

•Bioenergy with

CCS (BECCS)

•Mineralization

•Enhanced

weathering

Emission reduction

or avoidance

•Projects with a

counterfactual

baseline (e.g.,

renewable energy,

energy efficiency)

•Projets with clear

historical data

(e.g., methane

reduction)

Emission reduction

short-term storage

•Avoidance

(avoided damage

to ecosystems)

•Changes to

agricultural

practices that

retain carbon

Emission reduction

long-term storage

•Point source CCS

in industrial

facilities or

electricity-

generating plants

Removal with

short-term storage

•Afforestation

•Reforestation

•Soil carbon

enhancement

•Ecosystem

restoration

Projects with clear

historical data

(e.g., methane

reducon)

15Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Source: World Bank (2024); authors’ interpretation.

Table 1. Summary of carbon market instrument types.

On the other hand, the Voluntary Carbon Market Integrity

Initiative’s (VCMI) Claims Code of Practice (VCMI 2023) has

sought to ﬁnd a less extreme version of claims guidance

for corporations voluntarily acquiring and cancelling carbon

credits.

The area of corporate claims and osetting remains

subject to uncertainty, particularly because the VCM and

associated climate-related claims are under growing scrutiny

from regulators, researchers, and non-governmental

organizations (e.g., the actions being taken by the EU to

prohibit carbon neutral claims on consumer products).

In some situations, the viability of corporate climate action

pledges may be enhanced through voluntary agreements

with governments. Notably, various public-private

voluntary-based crediting systems have been or are being

implemented worldwide, including in Australia, Thailand,

India, and Japan, to encourage voluntary climate action.

A summary of the types of carbon market policy options

described is set out in Table 1, alongside examples in

operation today.

Type Covered activities Market approach Examples

Cap-and-trade-

based emis-

sions trading

scheme (ETS)

• Traditionally large point source

emitters (e.g., fossil power, steel,

cement, etc.).

• Road transport, aviation, mari-

time and commercial buildings

also increasingly covered (e.g.,

in the Korea ETS, California CaT,

and EU ETS).

• New sectoral models emerging

(e.g., for buildings and transport

in Europe, and for oil and gas

emissions under Canada’s pro-

posed Federal cap).

• System-wide cap set ex ante for

covered activities and sectors,

based on the scheme operator’s

emissions target.

• Capped entities may acquire

allowances and surrender to

scheme operator as “permits

to emit” based on previous,

veriﬁed emissions.

• Allowances acquired through

any or all of the following: free

allocation, and/or auctioning (by

system operator), and/or trading

between market participants.

• EU ETS

• UK ETS

• Switzerland ETS

• Kazakhstan ETS

• California ETS

• Korea ETS

Intensity- or

output-based

ETS

• Large point source emitters (e.g.,

fossil power, steel, cement etc.).

• System-wide cap set ex post for

covered activities and sectors,

based on reported activity, emis-

sions, and the scheme opera-

tor’s relevant intensity bench-

mark for covered activities.

• Entities emitting below the

sectoral benchmark may sell

to entities whose emissions

exceed the benchmark.

• Market formation through ex

post adjustments.

• China National ETS

• Canada Federal and

Provincial systems

• Australian Safeguard

Mechanism

• Indonesia ETS

Crediting

mechanisms

• Various mitigation activities

falling outside the scope of

climate-related regulations or

carbon pricing systems (varies

by scheme).

Carbon credit uses:

1. International cooperation to

meet NDCs (i.e., Article 6 trades).

2. Internationally agreed osetting

quota (e.g., CORSIA).

3. Flexible mechanism for ETS

compliance (or other carbon

pricing).

4. Voluntary osetting (including

voluntary agreements between

companies and governments).

(a) Domestic compliance:

Kazakhstan ETS,

Indonesia ETS, Korea

ETS, California CaT, etc.

(b) International

compliance: CORSIA;

Article 6

partnerships): Japan GX-

ETSIndia Carbon Credit

Trading Scheme (CCTS)

(d) Voluntary (fully private):

corporate climate-

related claims

16Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Results-Based Finance

Results-based ﬁnance (RBF) is another potential source of

carbon credit demand that has historically received less

attention than osetting-based approaches. RBF is a non-

market approach involving the use of carbon credits as a

measure of outcomes of a support program, with the carbon

credits being used to trigger ﬁnancial disbursements to the

originating entities. The emergence of so-called “mitigation

contribution” claims is also lending more weight to potential

RBF-type use cases for carbon credits. For example,

acquisition of “mitigation contribution A6.4ERs” by entities

other than domestic compliance buyers can be considered

as a form of results-based ﬁnance.

As noted above, the term “mitigation contribution” stems

from discussions under the PACM, where it is being

applied to situations where an activity generates A6.4ERs,

but the host country provides an authorization only for

mitigation contribution, and not for counting towards NDCs

or other international mitigation purposes (OIMP), such as

CORSIA, meaning the units are not an ITMO (UNFCCC

2022). Mitigation contribution A6.4ERs are not subject to

corresponding adjustments. This means that the mitigation

outcomes resulting from the action will remain accounted

for against the NDC of the country of origin, and therefore

should not also be counted against another climate

mitigation target (e.g., another country’s NDC, or under

CORSIA). The corollary is that if a credit acquirer also makes

a mitigation-based oset claim on credits originating from

the same activity, double counting and double claiming

would occur (i.e., claiming of the outcome by both the

country hosting the project activity and the host country

of the entity acquiring the carbon credit). Limiting the use

case for the A6.4ER acquirer to claims relating to its ﬁnancial

“mitigation contribution” to the host country, rather than for

osetting their own emissions, is considered to eliminate the

possibility of double counting or double claiming.

2.2.2 Credit Supply

Three sources of carbon credit origination are in operation

today: international, domestic and independent, as noted in

Figure 2. These dierent credit supply sources are reviewed

below. The basis on which carbon credits are originated is

summarized in Box 2.

Box 2. Generic Modalities and Procedures for Carbon

Credit Origination

Carbon credits are typically originated from project-based or “baseline-and-credit” emission reduction or removal

activities. This type of crediting arrangement involves the implementation of a climate mitigation project, the

monitoring and measurement of its total emissions, and the comparison of these emissions against a notional,

counterfactual baseline (i.e., the most likely scenario to occur without implementation of the mitigation project,

which is also sometimes referred to as a business-as-usual scenario). The dierence between the baseline

emissions and the monitored emissions (and/or removals) – namely, the resulting net accounting of emission

reductions or removals – sets the basis for issuing carbon credits to the activity operator.

A number of other factors must be taken into account in carbon crediting project design, including:

• Eligibility. The mitigation activity type must be eligible under the crediting program and have an applicable

existing methodology that it may use (or otherwise one could be developed).

• Additionality. The mitigation activity needs to go beyond what might have otherwise happened – for

example, under a business-as-usual or otherwise project baseline scenario (i.e., the implemented project

was not required by law or for another reason, and that the main driver for the mitigation activity was the

revenue from the sale of carbon credits).

17Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

• Boundaries and leakage. The project should clearly deﬁne the emissions sources to be monitored and

counted as the activity’s total emissions, and the treatment of emissions that may arise as a result of the

project but occur outside of the control of the project developer.

• Crediting period. The duration over which the project activity will be eligible for crediting, which can vary by

project type.

The exact rules for project monitoring and accounting are laid out in what are variably termed methodologies,

methodological standards, or protocols, which are applicable to dierent types of mitigation activities. These

various methodologies/standards/protocols are prepared and managed by crediting program operators (e.g.,

a national-level crediting mechanism or an ICP). A range of supplementary tools, guidelines, and modules also

often exist within the collection of rules making up a carbon crediting program.

To date, the various carbon crediting programs have included a wide range of eligible reduction and removal

activity types, and a plethora of methodologies are available through which to register activities and to generate

carbon credits. The carbon credit supply market continues to evolve, with methodologies and activities being

regularly added and updated. However, no central record of carbon market system coverage is available.

The design features for project-based crediting for emission reduction mitigation activities are summarized

graphically below, with the additional features for carbon removal activities highlighted separately:

Graphical Summary of Design Features for

Baseline-and-Credit

Box Figure 1(a). Emission reductions.

18Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Box Figure 1(b). Carbon removals (dierences from 1(a) shown with orange text and darker boxes).

The various carbon crediting programs also tend to consist of similar governance, structural, and procedural

arrangements for implementation, as set out below:

Box Figure 2. Core components of a carbon crediting program.

Source: Authors.

Collectively, the procedural and governance components outlined in this box determine the quality framework

for a crediting program. Carbon credit quality is typically deﬁned by the properties of being real, measurable,

additional, not resulting in leakage, not double counted, and permanent.

Source: Authors.

I. Governance, Management, and Administrative Arrangements

• Defines who runs the scheme and oversight bodies.

• Establishes rulemaking procedures (i.e., how it is operated).

• Defines types of eligible activities.

• Sets out principles underpinning credit origination.

• Establishes rules for the accreditation of verifiers etc.

III. Registry

• Electronic database for recording each registered activity.

• Provides basis for issuing unique tagged electronic credits for each tonne of certified CO2 equivalent

emission reduction and/or removal.

• Issued credits transferred to the registry account of an activity operator upon submission and approval

of verified monitoring reports for the registered activity.

• Can be operated in-house or through a third-party platform.

II. Methodologies, Standards, Protocols, and Tools

• Establishment of monitoring and measurement methods through which to calculate the quantified level

of emission reduction or removal achieved by specific activity types.

• Includes specific monitoring and reporting requirements (approaches and scope of monitoring and

reporting may vary according to the specifics of the program).

Establishes rules for the accreditation of veriers, etc.

Provides basis for issuing unique tagged electronic credits for each ton of certied CO2 equivalent

19Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

International Crediting

Programs

This category relates to carbon credits issued for

international-climate-policy-related purposes (e.g., under

the Kyoto Protocol and the PACM). Under the Kyoto

Protocol, project-based carbon credits – CERs and ERUs

from CDM and JI, respectively – could be originated from

mitigation projects in either developing or developed

countries (see Box 1). Demand was driven by the QELROs

of Annex I countries (see Box 2). Following the decline of

the Kyoto Protocol, CERs continue to be issued, acquired,

and cancelled for the purpose of voluntary claims in the

VCM.

Since its start in around 2005, the CDM is reported to

have issued more than 2.4 billion CERs covering more

than 8,000 projects and Programmes of Activities across

the developing world (UNFCCC 2024).

Domestic Crediting

Programs

This category includes various government-run carbon

credit schemes, with varying regional, national, and

sub-national coverage. Currently, 35 such schemes

are reported to be in operation, with 11 more under

development (Figure 4).

Source: Alarfaj (2024), based on World Bank (2024).

Figure 4. Government-administered carbon crediting mechanisms around the world, 2024.

ImplementedCrediting mechanism status Under development

20Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Several crediting mechanisms are linked to compliance

systems. Examples with direct linkages to ETSs include

the Provincial-run Alberta Emissions Oset System and the

British Columbia schemes linked to sub-national ETSs in

Canada, the China CER scheme linked to Chinese ETSs,

and the Korea Oset Credit Mechanism linked to the

Korea ETS.

Examples without direct ETS linkage include the following:

• The Australian Carbon Credit Unit Scheme (ACCU),

although this has recently been linked, at least in

part, to the output-based ETS under the Australian

Safeguard Mechanism.

• Thailand Voluntary Emission Reduction (TVER), which

relies on voluntary purchase, but is seeking linkages

to compliance schemes such as CORSIA.

• Japan’s J-Credits and Joint Crediting Mechanism,

covering domestic and international credits,

respectively, with the intention to link to the

GX-League under the proposed GX-ETS (see Box 3).

• India’s proposed Carbon Credit Trading Scheme

(CCTS), which would link to the proposed Indian ETS.

• Saudi Arabia’s Greenhouse Gas Crediting & Osetting

Mechanism (GCOM) (discussed in section 3.1).

Other domestic, sub-national, and regional crediting

mechanisms in operation include the UK’s Woodland

Carbon Code and Peatland Code, the Portuguese

Voluntary Carbon Market, France’s Label Bas Carbon,

Spain’s FES-CO2 Program, and the Sri Lanka Carbon

Crediting Mechanism.

In the unlinked cases, the carbon crediting schemes were

initially aimed at encouraging voluntary engagement in

climate action (e.g., in Australia and Thailand), but several

have been taking subsequent steps towards formalizing

links to compliance schemes, as outlined above. In several

cases, as well as being established as government-led

mechanisms, government support was also provided to

sustain the mechanism (e.g., Australia’s ACCU reverse

auctions and tax credits for project developers in the case

of Thailand). Japan’s arrangements under the GX-League,

however, are more geared around a public-private

partnership type arrangement between industry and

government (see also Box 2).

21Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Box 3. Japan’s GX-League and GX-ETS and Market-

Based Mechanisms

The GX-League is among the main policy measures brought forward by Japan’s Ministry of Economy, Trade and

Industry to address GHG emissions and achieve climate neutrality in 2050.

The GX-League is founded on three key pillars:

• Creating Future Society. This includes visioning the low carbon future and a “GX Company Code of

Conduct” for member ﬁrms, which sets out various requirements for emission reductions.

• Market Creation and Rulemaking. From 2023 onwards, GX member companies, by agreeing to the code

of conduct, will participate in various market initiatives to create carbon market components. These include

standards, guidelines, and certiﬁcation systems, among others.

• Carbon Credit Exchange Scheme. This comprises a voluntary ETS, known as the GX-ETS. Under it,

GX-League members can pledge their own ambitious reduction targets, and where their performance

exceeds Japan’s NDC target, surplus credits may be exchanged. Periodic review of progress is included, as

is a proposed new Japanese market trading platform (JPX Carbon Credit Exchange).

Japan already has two carbon crediting systems that have been in place since 2013, and that will be used to

support GX-ETS implementation:

1. J-Credit scheme covers a wide range of eligible domestic emission reduction and removal activities. So far

more than 60 methodologies exist, covering a wide range of activities.

2. Joint Crediting Mechanism (JCM) is based on bilateral agreements with developing countries to originate

carbon credits from international partners for use towards meeting Japan’s NDC. So far, 28 partner countries

have joined the JCM, including Saudi Arabia.

Other types of credits may also be eligible within the GX-ETS, according to recent draft proposals.

Source: METI (2022).

22Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Independent Crediting

Programs

Independent crediting programs (ICPs) are privately-

operated carbon credit registries that set their own

methodological standards/protocols, governance

frameworks, and issuance rules.

The ICPs have been in existence for longer than the

international or regulated carbon credit programs. The

American Carbon Registry (now referred to as simply

“ACR”) was established by the Environmental Resources

Trust in 1996 with an original focus on U.S.-based

voluntary credit buyers seeking nature conservation

climate mitigation philanthropy with strong environmental

co-beneﬁts. Since that time, the scope of the ACR has

evolved, and the number of ICPs has grown gradually

to include the Gold Standard (Switzerland, 2003, which

started o as a “bolt-on” to CDM projects), the Voluntary

Carbon Standard (VCS; operated by Verra in the U.S.

since 2006), and the Climate Action Reserve (CAR;

operational in the U.S. since 2008).

More recently, the diversity and specialisms of the

ICP operators has also increased, with newer market

entrants including the Global Carbon Council (established

2016, based in Qatar) and engineered carbon removal

specialists Puro.Earth and Isometric (established in

2018/19 and 2022, respectively).

Although the ICPs were historically small in comparison

with the Kyoto oset markets, they were given a

signiﬁcant boost at the start of the Paris Agreement

era through the launch of the Taskforce for Scaling

the Voluntary Carbon Market (TSVCM), led by former

Governor of the Bank of England Mark Carney (see

TSVCM 2021). In its Phase 1, the TSVCM stated that:

A liquid voluntary carbon market at scale could allow

billions of dollars of capital to ﬂow from those making

commitments, such as carbon neutral or net zero,

into the hands of those with the ability to reduce and

remove carbon (TSVCM 2021, p. 2).

The TSVCM initiative coincided with something of a

VCM boom, with the volume of ICP carbon credit supply

growing signiﬁcantly compared to pre-2020 levels

(Figure 5).

In some cases, credits from ICPs are also linked with

regulated schemes. For example, California Air Resources

Board (ARB) approved oset credits originated under

selected methodologies from ACR, VCS, and CAR can

be used for compliance purposes in the California CaT.

The ICAO-appointed Technical Advisory Body (TAB)

also endorses speciﬁc ICP methodologies as sources of

CORSIA-Eligible Emission Units (CEEUs; i.e., credits that

can be used by airlines under CORSIA).

Source: Forest Trends’ Ecosystem Marketplace (2024).

Figure 5. Voluntary carbon market size by volume of traded carbon credits, pre-2005 to 2023.

23Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Even though linkages between carbon credits

and compliance schemes exist, more than 90% of

demand remains linked to voluntary action in the VCM

(Section 2.2.1). However, as outlined in Section 2.2.1,

lingering concerns regarding the integrity of both the

supply side (credit quality) and the demand side (claims)

are hampering VCM development. These concerns are

seemingly reﬂected in the downturn in the supply of

credits through 2023 compared to the previous three

years. To address such concerns, the Integrity Council

for the Voluntary Carbon Market (IC-VCM) Core Carbon

Principles seek to guide best practice among ICPs on the

supply side (IC-VCM 2024) as a complement to the VCMI

Claims Code of Practice mentioned above (Section 2.2.1).

Despite the traded VCM carbon credit supply hitting

a high of 500 MtCO2e and a value of US$2.1 billion in

2021 (Figure 5), the VCM remains much smaller than ETS

market size. For comparison, in the EU alone, more than

1.1 billion ETS units (i.e., EU Allowances) were in circulation

in 2023, with government revenue from the auctioning of

EU Allowances in 2022 generating around €38.8 billion

($42.2 billion) (EEA 2023). The London Stock Exchange

Group reportedly estimated the global compliance carbon

market in 2023 to be worth US$948.8 billion (Twidale

2024) – several hundred times that of the VCM.

2.3 Future Trends

for Global Carbon

Markets

2.3.1 Linking Markets

and Harmonizing Carbon

Pricing

Climate action is a global challenge that requires global

responses. A globally uniform emissions price can be

a means to address climate action in a harmonized and

optimized manner and to mitigate against free riding (LSE

2011; Cramton, Ockenfels, and Stoft et al. 2015; Cramton et

al. 2017). Many future climate action scenarios developed

in integrated assessment models explore global technical

and economic responses to climate mitigation based

on uniform carbon prices applicable in all world regions

(Carbon Brief 2018).

However, the reality is more complex. First, a universal

carbon price does not address equity issues and

dierentiated responsibilities that are ingrained within

the UNFCCC and the Paris Agreement. Second,

there are signiﬁcant challenges to linking ETSs due to

concerns over, among others, dierences in ETS scope,

variations in measurement rules, the comparability of

stringency/ambition and the level of the cap, and the

potential impacts that such dierences can pose for the

competitiveness of similar GHG emitting industries across

regions. The linking of two seemingly well-aligned ETSs

in Switzerland and the EU, for example, took more than 10

years of negotiations.

The one-way linking of carbon credits to an ETS for

ﬂexibility purposes can be more straightforward. In

seeking to link carbon credits to ETS markets, an ETS

regulator needs to take account of several important

features:

• Eligible activity types (qualitative restrictions).

Carbon credits should originate from outside of

the scope of ETS-covered activities or sectors to

ensure both the additionality of actions (i.e., they

are not actions driven by the ETS price) and to avoid

double counting eects (i.e., the actions are not

counted as both credits towards compliance under

the ETS, and also reductions inside the ETS). In these

respects, examples of potentially eligible mitigation

activities include projects in agriculture, forestry,

waste management, buildings, or non-CO2 gases.

Qualitative restrictions could also be applied to, for

example, the supply of credits from other countries

(e.g., by selection based on the stringency of national

climate ambition).

• Scheme governance and credit quality. The integrity

and robustness of the crediting program in regard to,

for example, general rules or standards, speciﬁcities

of methodologies, application of independent

veriﬁcation, and quality of credit infrastructure are all

important considerations.

• Limitations on credit use (quantitative restrictions).

The potential supply – or oversupply – of credits is

also an important factor. Oversupply will diminish

the incentive to reduce emissions internally and

can potentially crash the price within an ETS where

unlimited access to carbon credits from low-cost

mitigation activities is allowed (see Section 2.1.3 for

examples of the credit supply restrictions in some

ETSs).

24Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

To control these factors, domestic compliance markets

have increasingly tended to link to domestic crediting

programs instead of ICP or international schemes. A

purely domestically regulated approach allows system

regulators to maintain consistency in the scope and

coverage of eligible credits and to ensure equivalency

in the governance arrangements and measurement

requirements applied to both credits and the

domestic ETS.

Where compliance markets seek to link to carbon

credits from ICPs or international schemes, system

operators usually establish a “gateway” with deﬁned

rules that can manage these issues (e.g., there is an ARB

approval process for credits in the California CaT and

the CORSIA has a Technical Advisory Body that makes

recommendations to the ICAO Council regarding eligible

crediting standards and credit types). Notably, however,

where credits originate from third countries outside the

scope of the ETS, a wider set of eligible activities may be

considered as the risk of double counting is diminished.

In the VCM, similar concerns over double counting also

persist. In these circumstances, the concerns are made

more complex by the nature of corporate emissions

reporting, which tends to cover not only direct (so-called

Scope 1) emissions, but also indirect emissions from

bought-in electricity and heat (Scope 2) and emissions

related to goods and services in corporate supply

chains, including customer emissions from product

use (i.e., various categories of Scope 3 emissions). In

these circumstances, it is possible that carbon credits

are acquired from mitigation projects outside the direct

control of the corporate entity, but that address emissions

from activities inside the corporation’s supply chain that

directly impact its Scope 2 or 3 emissions. This means

that the mitigation associated with these credits also

drives reductions in the ﬁrm’s own reported Scope 2 or

Scope 3 emissions. As a result, using the credits to make

osetting claims against the company’s Scope 1, 2, and

3 emissions would result in double counting. Guidance

by groups such as the SBTi therefore recommend that

companies deliver climate action outside of their value

chains, which can avoid this risk (so-called “beyond value

chain mitigation”) (SBTi 2024b). Nevertheless, this practice

of double counting within the value chain remains an

ongoing concern, especially for Scope 3 emissions.

2.3.2 Regulating the VCM

Recent years have seen some jurisdictions take steps to

further regulate claims related to corporate climate and

the linkages therein to the VCM. In the EU, for example,

the 2023 updates to the Corporate Sustainability

Reporting Directive (CSRD) set down more stringent rules

for corporate climate-related disclosures for EU-listed

ﬁrms. These include detailed guidance in the European

Sustainability Reporting Standard (ESRS 2023), which

outlines how GHG reduction targets, actual emissions,

and carbon credit use should be reported.

In the U.S., the Securities and Exchange Commission

is also enacting enhanced climate-related disclosure

rules for listed companies (Securities and Exchange

Commission 2024a and 2024b). The new rule requires

ﬁrms to, inter alia, disclose capitalized costs, expenditures

expensed, and losses related to carbon credit osetting

if used as a material component to achieve a listed ﬁrm’s

disclosed climate-related targets or goals. These moves

can potentially create more robust, less volatile, VCM-

oriented carbon markets.

2.3.3 Carbon Border

Adjustments

The emergence of border adjustment mechanisms

based on carbon pricing is stimulating interest in

establishing national carbon pricing systems in many

parts of the world. For example, the EU’s ﬂedgling

carbon border adjustment mechanism (CBAM) seeks

to equalize production costs between domestic and

imported goods by applying an equivalent carbon price

to selected imports. Phasing in the CBAM will allow for

the synchronized phase out of free allocation of EUAs

to trade-exposed EU-based industrial activities that

are covered by the EU ETS. This should strengthen the

economic incentive for these sectors to reduce emissions.

The U.S. Senate has also mooted several proposals for

similar carbon-price based border adjustment measures

(Gangotra, Carlsen, and Kennedy 2023). Under these

proposals, exporters to covered jurisdictions can gain tax

relief where the country of production applies some form

of carbon pricing.

Collectively, carbon border adjustment mechanisms can

potentially drive the creation of domestic carbon pricing

systems and carbon markets across many parts of the

world, as they may directly or indirectly incentivize other

countries to implement equivalent national schemes

and allow them to collect carbon revenues domestically

(Mehling et al. 2019).



25Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

3. Potential for Carbon

Credit Markets in

Saudi Arabia

3.1 Current status

In 2021 the government of Saudi Arabia announced a

national net-zero GHG target for 2060 and adopted the

concept of the circular carbon economy (CCE) as the

framework for pursuing its medium- and long-term climate

mitigation ambitions. The CCE concept emphasizes

technology-neutral, holistic, context-speciﬁc, and cost-

eective approaches to achieving emissions circularity,

and its implementation in Saudi Arabia is being backed up

by ambitious technology-speciﬁc targets, including 50%

power generation capacity shares for both renewables

and natural gas by 2030, a CCUS capture capacity

of 44 MtCO2 by 2035, and the planting of 50 billion

trees across the region (Aldhuwaihi and Luomi 2024;

Saudi Green Initiatives 2024a). In parallel, the country’s

major corporations, including Saudi Aramco and the

chemicals ﬁrm SABIC, have set net-zero GHG targets for

operational emissions (Scopes 1 and 2) for 2050, and

many others are contemplating following suit. These

developments are also spurring a growing interest in

the potential role of carbon markets in Saudi Arabia to

facilitate implementation.

Achieving full emissions circularity, or net-zero emissions,

in the context of Saudi Arabia’s hydrocarbon wealth

and the major high-emitting industries built around it

will demand major eorts, both in terms of emission

reductions and removals. As the government and major

corporations develop the roadmaps and implementation

strategies toward these goals, carbon markets have

emerged as a potential option to explore as part of the

broader mitigation toolkit. Saudi Arabia’s updated ﬁrst

NDC from 2021 notes that cooperative approaches under

Paris Agreement Article 6 “will play a role in achieving the

Kingdom’s climate change ambitions ... enhance private

sector engagement, advance innovation in business

models, unlock investment ﬂows and support cleaner

energy technology development” (Kingdom of Saudi

Arabia 2021). On the corporate side, Saudi Aramco has

announced plans to mitigate 16 MtCO2e per year by 2035

via a combination of nature-based solutions and “osets”

and, towards this goal, voluntarily bought and retired

approximately 500,000 carbon credits in 2023 as part

of an RVCMC auction and planted 6.5 million mangrove

trees (Aramco 2024a).

A recent modelling assessment of a net-zero pathway

for Saudi Arabia found that an annual emissions decline

of more than 3% from 2030 to 2060 as well as large-

scale deployment of technological carbon removals

would be essential (Kamboj et al. 2023). As outlined

above, domestic carbon market mechanisms oer

the possibility for cost-eective mitigation potential

discovery. International market-based cooperation under

Article 6 could potentially also unlock further options

(e.g., government-authorized transfers of nature-based

removals). Mirroring global trends post 2020, carbon

markets in Saudi Arabia have seen rapid developments

in two areas: the corporate-led VCM and government-

regulated domestic crediting mechanisms.

Regional Voluntary Carbon

Market Company

As the ﬁrst mover in the VCM space in Saudi Arabia,

the Public Investment Fund (PIF), the sovereign wealth

fund, together with the Saudi stock exchange, Tadawul,

launched its Voluntary Carbon Market Initiative in 2021,

which became the Regional Voluntary Carbon Market

Company (RVCMC) in 2022 (PIF 2022).

The RVCMC’s stated purpose is to provide guidance and

support in carbon credit purchases to companies in the

Middle East and North Africa region. In pursuit of its core

26Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

goal, the ﬁrm has organized three record-breaking VCM

auctions. The ﬁrst two auctions, which took place in 2022

and 2023, collectively sold more than 3.6 million carbon

credits to Saudi and international companies. PIF-aliated

and other Saudi-headquartered companies constituted

the majority of buyers, while renewable and clean energy-

based credits registered by Verra comprised the majority

of the credits sold (VCM 2024). Notably, all credits were

sourced from outside Saudi Arabia.

At the Baku Climate Change Conference (COP29) in late

2024, the RVCMC launched the Saudi-based VCM carbon

exchange. The exchange is reported to have initially

enlisted 22 Saudi Arabian and international companies,

and will make available carbon credits that originated from

17 projects from countries around the world (Gualandi

2024). The RVCMC also held a third credit auction in

Baku on the exchange’s opening day, which reportedly

witnessed the sale of 2.5 million carbon credits. The

company has also previously announced plans to set up

an investment fund for mitigation projects (RVCMC 2023;

Arab News 2024).

Greenhouse Gas Crediting and

Osetting Mechanism

The Saudi GCOM is the ﬁrst government regulated

domestic carbon crediting mechanism to be established

in the Middle East and North Africa region. The GCOM

was ﬁrst mooted at the 2022 UN Climate Change

Conference in Sharm El-Sheikh (COP27) and formally

launched at the 2023 MENA Climate Week in Riyadh

(Ministry of Energy 2023). Its development and operation

are led by Saudi Arabia’s CDM Designated National

Authority (DNA), the country’s Paris Agreement DNA and

the focal point for national GHG emission inventories and

reporting to the UNFCCC.

The GCOM intends to support cost-eective mitigation

toward Saudi Arabia’s climate change mitigation targets

by mobilizing cooperation among national entities and

across sectors. Credit demand is not envisaged to be

driven by a compliance mechanism (ETS or carbon tax)

but rather by voluntary participation by public and private

entities interested in osetting their GHG emissions

(GCOM 2024a). Mitigation projects from all sectors

and potentially also from outside the Kingdom can be

credited under the GCOM, and alignment with Article 6 is

encouraged but not mandatory (GCOM 2024b).

Projects under the GCOM can either opt for GCOM-

speciﬁc methodologies or “internationally recognized

methodologies” (GCOM 2024c). As of September

2024, the Saudi DNA had published ﬁve methodology

documents for various emission reduction project types

deemed strategically important for the country:

1. Switching from oil to natural gas in the power sector.

2. Renewable energy generation.

3. Low-carbon hydrogen use in iron and steel

production.

4. Electric vehicles.

5. CCUS.

Four out of the ﬁve are based on existing CDM

methodologies, while the CCUS methodology builds upon

the CDM modalities and procedures document (UNFCCC

2012), given the absence of approved methodologies.

The documents simplify the CDM methodologies in

order to reduce transaction costs and increase ease

of use. The GCOM website also lists three examples of

crediting standards that could qualify under the category

of internationally recognized methodologies: voluntary

standards VCS (Verra), Gold Standard, and I-REC.2

Credit Supply

Saudi Arabia’s experience with carbon crediting to date

is limited. As of mid-2024, there were no registered VCM

crediting projects in the Kingdom.3 Under international

crediting mechanisms, it registered eight CDM projects

and Programmes of Activities and two JCM projects

stretching back across the period 2012-2018 (for more,

see: Luomi, Bosse and Sergeeva 2023; Kondo 2023).

Both the VCM company and particularly the GCOM can

potentially help drive carbon crediting project supply,

as well as demand, in the Kingdom. While the PIF and

Tadawul’s eorts in driving VCM participation have been

laudable, a more structured, consistent, and target-based

approach is only likely to be achieved through a regulated

mechanism that oers stable and enduring demand

for credits.

27Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

3.2 Domestic

Demand and Supply

Potential

This section presents the methodological approach

and results of an analysis of the potential for GHG credit

demand and supply in the Kingdom. The ﬁrst part details

the approach to estimating credit demand by large

Saudi corporations, including related assumptions made,

and presents four demand scenarios reﬂecting varying

assumptions on the share of credits that companies may

on average be using to make voluntary osetting claims.

The second part provides an initial assessment of the

potential supply for carbon credits in Saudi Arabia. The

analysis consists of a three-step approach: assessing

mitigation potential at a high level; narrowing down the

scope of potential creditable activities by screening

criteria including scalability, ease of implementation,

and avoidance of double counting; and developing

quantitative scenario estimates of crediting potential

based on factors including eligibility, the length of the

crediting period, and emission baselines.

3.2.1 Potential Domestic

Credit Demand

Sources of Credit Demand in

Saudi Arabia

Within the broad ambit of carbon pricing and carbon

markets, credit demand can emerge from a variety

of sources (Section 2). Such sources can vary across

dierent countries depending on their state of readiness

and implementation of carbon pricing and carbon

markets.

Given the current status of carbon markets in Saudi

Arabia, where the Saudi government has launched a

standalone national domestic carbon crediting scheme

(GCOM) that is not linked to a compliance mechanism

(Section 3.1), demand for carbon credits is expected to be

driven by Saudi entities in the public and private sectors

that have voluntarily set emission targets and that plan

to purchase carbon credits as a cost-eective means to

achieve their targets.

Table 2 lists large publicly listed companies in Saudi

Arabia that generally have signiﬁcant levels of GHG

emissions and that have voluntarily set net-zero or other

types of long-term emission reduction targets. Setting

such voluntary emission targets is expected to contribute

to enhancing a company’s local and global reputation

while potentially attracting greater levels of investment,

especially from investors focused on contributing to

decarbonization. These Saudi companies with long-

term emission reduction targets are expected to be the

primary source of demand for voluntary carbon credits in

Saudi Arabia, as the purchase and retirement of carbon

credits can help these companies achieve their emission

reduction targets more cost eectively. As Table 2 shows,

these companies together account for a signiﬁcant share

of total national GHG emissions, which were estimated

at 664 MtCO2eq by the DNA (Kingdom of Saudi Arabia

2024) for the year 2019. For example, Saudi Aramco, the

country’s national oil company, emitted 67.3 MtCO2eq

of Scope 1 and 2 emissions in 2023, which represents

around 10% of the country’s total emissions. Similarly,

SABIC, Saudi Arabia’s leading chemicals company,

emitted 52.1 MtCO2eq of Scope 1 and 2 emissions in 2022,

representing almost 8% of total national GHG emissions.

The Saudi Electricity Company (SEC), the Kingdom’s

largest electricity producer, generated 151.9 MtCO2eq of

Scope 1 and 2 emissions in 2023, which is roughly one-

ﬁfth of the Kingdom’s total emissions.4

Another anticipated source of demand for carbon credits

in Saudi Arabia is the PIF’s “Giga-Projects,” which are

major investments by the PIF that are “designed to

stimulate the economy and their beneﬁts are expected

to expand signiﬁcantly beyond the real estate and

infrastructure sectors, helping to diversify the economy

away from oil, especially given their sheer scale” (PIF

2024). These Giga-Projects include NEOM, a city-scale

project that aims to be a global hub for businesses and

innovative living, and Red Sea Global, a developer of

sustainable and luxury tourism destinations. Both NEOM

and Red Sea Global have placed sustainability at the

heart of their visions. For example, Red Sea Global has

committed to net-zero operational emissions by 2030 and

net-zero carbon emissions from assets over the lifetime

of the project (Red Sea Global 2024). Given the scale

of these projects, they are expected to be signiﬁcant

sources of demand, especially in the short term during the

major construction phases.

Following the implementation of CORSIA (see Section

2.2.1), major airlines based in Saudi Arabia like Saudia,

Flynas, and the upcoming Riyadh Air are all expected to

28Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

contribute signiﬁcantly to the demand for carbon credits.

Saudi-based airline corporations have already started

using carbon credits toward voluntary osetting claims.

For example, Saudia claims to have operated the “longest

carbon net positive ﬂight in the world” in 2022 through

the purchase and retirement of “Gold Standard approved

and CORSIA certiﬁed” carbon credits from a hydroelectric

project in India, with the quantity of osets purchased

exceeding the emissions generated by the ﬂight

(SAUDIA 2022).

Table 2. The quantity of emissions generated and emission targets of publicly listed companies in Saudi Arabia.

Entity Sector Near-term

emission target

Net-zero emission

target

Latest Scope 1

and 2 emissions

in MtCO2eq

(reporting year)

Mention of using

carbon credits in their

sustainability strategy?

Saudi Aramco Integrated energy

and chemicals

52 MtCO2eq

reduction below

baseline by 2035

Net-zero Scope

1 and 2 GHG

emissions by 2050

67.3 (2023) “Aramco retired approxi-

mately 500,000

carbon credits in 2023,

against a corporate

emissions plan to use

carbon markets to support

the delivery of our 2035 and

2050 ambition” (Aramco

2024a, p. 46). The 500,000

credits were purchased

through the RVCMC auction.

SABIC Chemicals 20% reduction in

Scope 1 and 2 GHG

emissions by 2030

(relative to 2018)

Net-zero emissions

by 2050 (carbon

neutral by 2050)

52.1 (2022) No public mention of

using carbon credits in their

reports.

Saudi Electric-

ity Company

(SEC)

Utilities Net-zero Scope 1

and 2 emissions by

2050

151.9 (2023) Its purchase of 0.50

MtCOeq of carbon credits

mentioned as an example

of past actions to achieve

goals.

ACWA Power Utilities 50% reduction in

GHG intensity by

2030 compared to

2020

Net-zero emissions

by 2050

64.8 (2023) ACWA Power noted a

“maximum use of up to 5%

carbon capture credits” in

2050 (ACWA Power 2023).

STC Telecom services 50% reduction in

Scope 1 and 2 emis-

sions by 2030 (from

2019 baseline)

46.2% reduction in

Scope 3 emissions

by 2030 (from 2019

baseline)

STC has committed

to a net-zero target

by 2050, which en-

compasses Scope

1, 2, and 3 emissions

0.28 (2023) “To oset emissions

that could not be immedi-

ately reduced, we pur-

chased veriﬁed, high-quality

carbon credits … at the larg-

est-ever voluntary carbon

credit auction event held

in Nairobi, Kenya” that was

organized by RVCMC (STC

2024, p. 73).

Tasnee Chemicals Net-zero carbon

emissions from

the petrochemical

complex in Jubail by

2060

4.1 (2023) No public mention of

using carbon credits in their

reports.

29Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Table 2. Continued.

Entity Sector Near-term

emission target

Net-zero emission

target

Latest Scope 1

and 2 emissions

in MtCO2eq

(reporting year)

Mention of using

carbon credits in their

sustainability strategy?

Bahri Transportation and

logistics

Cut GHG emissions

by 50% by 2050

2.9 (2020) No public mention of

using carbon credits in their

reports.

Petro Rabigh Reﬁning and chem-

icals

Achieve a 25%

reduction in Scope

1 and 2 GHG emis-

sions from

existing assets by

2027 compared to

2021

Net zero by 2060

(in line with national

net-zero ambition)

9.6 (2022) No public mention of

using carbon credits in their

reports.

Sources: Aramco (2024a); SABIC (2023); SEC (2024); ACWA Power (2023, 2024), Ma’aden (2024), STC (2024), Tasnee (2024), Bahri (2020), Sipchem

(2023), Petro Rabigh (2023).

30Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Methods for Estimating Credit

Demand in Saudi Arabia

To generate estimates of potential carbon credit demand

in Saudi Arabia, the emissions data published by major

publicly listed companies on the Saudi stock exchange,

Tadawul, were used. Non-publicly listed companies

were excluded because of the absence of reported

To generate a business-as-usual projection of emissions,

historical emissions data were used for each company.

However, given the absence of suciently long time

series data on emissions (most companies generally

started reporting emissions in 2018 or later, yielding only

a handful of data points), simple trend extrapolations (e.g.,

linear or exponential) were used to estimate business-

as-usual emissions for each company, with the choice

generally made based on the level of correlation. In the

emissions data. The analysis relies on four elements:

(1) a business-as-usual projection of emissions for each

company that runs up to 2050, (2) a target emissions

pathway (generally a net-zero emissions pathway) for

each company, (3) the total mitigation eorts or actions

required by each company to shift from business-as-usual

to the target pathway, and (4) the contribution of carbon

credit purchases and retirements to each company’s total

mitigation eorts. The approach is illustrated in Figure 6.

case of Aramco, a ﬁxed percentage growth rate was

used, as it produced a business-as-usual projection that

passed through the company’s publicly disclosed 2035

emissions projection. In the case of SEC, its baseline was

established based on internal analysis by SEC (2023).

Excluding SEC, all of the derived baseline emission

projections for the companies listed in Table 2 are shown

in Figure 7.

Figure 6. Illustration of the approach used to estimate the demand for carbon credits by each company.

Source: Authors.

31Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Figure 7(a). Baseline emission projections by the authors for companies with Scope 1 and 2 emissions that exceed

40 MtCO2eq.

Figure 7(b). Baseline emission projections by the authors for companies with Scope 1 and 2 emissions below 40

MtCO2eq.

Sources: Aramco (2024a); SABIC (2023); SEC (2024); ACWA Power (2023, 2024), Ma’aden (2024), STC (2024), Tasnee (2024), Bahri (2020), Sipchem

(2023), Petro Rabigh (2023).

Notes: SEC is excluded from the Figure.

100

120

140

160

180

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Scope 1 and 2 GHG emissions (in MtCO2eq)

Aramco SABIC AWCA Power

Saudi Aramco

ACWA Power

SABIC

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Scope 1 and 2 GHG emissions (in MtCO2eq)

Ma'aden Tasnee STC Bahri Sipchem Petrorabigh

Ma’aden

STC

Tasnee

Petro Rabigh

Sipchem and Bahri

32Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

To generate the target emissions pathway for each

company, polynomial curves were ﬁtted that passed

through each company’s interim and long-term targets.

For all companies other than Bahri, the long-term target

was a net-zero target. For companies that had only set

a long-term target, interim targets were assumed to be

similar to those publicly set by other Saudi companies

in the same sector (or adjacent sectors). The target

emissions pathways for all the companies listed in Table 2

are shown in Figure 8.

The total mitigation actions required to shift from

business-as-usual to the target pathway were calculated

by taking the dierence between the business-as-usual

and target emissions pathways, both measured in units

of MtCO2eq. The calculation was made for each year

between the start year (2024) of the analysis and the end

year (2050).

Within the estimated reduction wedge of each ﬁrm

following the method shown in Figure 6, an estimate of

the potential contribution of carbon credits was made.

This estimate provides the basis for the potential carbon

credit demand estimates in the Kingdom over the next 25

years or so. The contribution of carbon credits is based

on a percentage that is assumed to reﬂect a reasonable

share for the contribution of carbon credits towards total

mitigation actions. This assumed share is the key variable

driving the analysis.

Figure 8(a). Target emission projections by the authors for companies with Scope 1 and 2 emissions that exceed 40

MtCO2eq.

-10

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Scope 1 and 2 GHG emissions (in MtCO2eq)

Aramco SABIC AWCA Power

Saudi Aramco

ACWA Power

SABIC

33Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Figure 8(b). Target emission projections by the authors for companies with Scope 1 and 2 emissions below 40 MtCO2eq.

Sources: Saudi Aramco (2024a); SABIC (2023); SEC (2024); ACWA Power (2023, 2024), Ma’aden (2024), STC (2024), Tasnee (2024), Bahri (2020),

Sipchem (2023), Petro Rabigh (2023).

Notes: SEC is excluded from the Figure.

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Scope 1 and 2 GHG emissions (in MtCO2eq)

Ma'aden Tasnee STC Bahri Sipchem Petrorabigh

Ma’aden

STC

Tasnee

Petro Rabigh

Bahri

Sipchem

The Contribution of Carbon

Credit Usage to Total Mitigation

Eorts

To obtain a range for the share/contribution of carbon

credits to the total mitigation eorts of each company,

the sustainability reports of Saudi and international

companies were reviewed for information on their

carbon credit usage plans and strategies. As shown in

Table 2, a few Saudi companies have outlined their past

actions or plans for carbon credit usage. For example,

Saudi Aramco retired around 500,000 carbon credits in

2023 as part of its plan to utilize carbon markets to meet

its 2035 and 2050 emission targets (Aramco 2024a).

Aramco has also stated that it has recently “developed

its Internal Guidelines for Carbon Osets and Crediting

that commit to sourcing high integrity carbon credits”

(Aramco 2024a). Furthermore, Aramco lists “natural

climate solutions and osets” as the ﬁfth of ﬁve pillars for

mitigation, demonstrating that it is expected to account

for 30.7% of Aramco’s total mitigation eorts by 2035.

This ﬁfth pillar includes both Aramco’s internal mangrove

planting eorts both in and outside Saudi Arabia (which

can be referred to as “insetting”) and its purchase and

retirement of carbon credits (for osetting). Dividing the

30.7% share equally between insetting and osetting,

carbon credits could contribute roughly 15% of Aramco’s

total mitigation eorts. ACWA Power also detailed its

plans for carbon credit usage, stating a “maximum use of

up to 5% carbon capture credits” by 2050 (ACWA Power

2024). Other companies like STC and SEC have made no

public mention of these shares but instead only described

their past engagements with carbon markets as buyers of

credits (SEC 2024; STC 2024).

34Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

While many international companies have described their

plans for carbon credit usage (e.g., Shell 2023; Kerry

Logistics 2024), very few have provided quantitative

estimates of their potential contribution to their total

mitigation eorts over the coming decades. Examples

include American Airlines, which has stated that “the

aviation sector will need to rely on carbon osets and

removals to neutralize residual emissions.” American

Airlines expects carbon credit usage to account for

roughly 20% of its total mitigation actions by 2050

(American Airlines 2024). In contrast, energy sector

service company Baker Hughes issued a statement that

it currently aims to reduce its GHG emissions through

internal eorts only, stating that it “will not use carbon

osets to help meet these objectives” (Baker Hughes

2022).5

In summary, a review of the sustainability reports of Saudi

and international companies suggests that carbon credits

could contribute anywhere between 0% to 20% of a

company’s total mitigation eorts, but there remains a lot

of uncertainty as companies develop and update their

plans around carbon credit usage, which could change

signiﬁcantly in the long term. In fact, the regular revision

of a company’s osetting strategy has been presented

as a key principle for net-zero aligned carbon osetting

(Axelsson et al. 2024).

Other Important Assumptions

Saudi entities can purchase carbon credits issued through

the GCOM or by ICPs like Gold Standard and Verra. In the

absence of any data that could capture the preferences

of dierent Saudi entities, assumptions have been used

to model these preferences. In the short-term, it will likely

take time to build a supply of domestic GCOM credits due

to project registration and implementation timelines, so it

is assumed that demand in the short term will be entirely

met by international carbon credits. Over the medium-

term, the supply of GCOM credits is expected to increase

steadily until the end of 2030, so that from 2031 onwards,

it is assumed that 80% of total carbon credit demand is

being met by domestic GCOM credits. (In other words, it

is assumed that Saudi entities will inherently prefer to buy

GCOM credits once there is enough supply.)

The methodology illustrated in Figure 6 was applied to

the 10 major publicly listed companies in Saudi Arabia (per

Table 2). However, since there are Saudi entities for which

no data was available, and there are likely other publicly

listed Saudi companies that are currently exploring the

possibility of setting net-zero targets, it is assumed that

every year starting from 2024, other Saudi entities will set

new net-zero targets and become potential sources of

demand. To capture the additional demand that is created

by these other entities, it is assumed, in the absence

of data, that their combined demand would be equal to

2.5% of the demand of the 10 analyzed companies in

2024, rising by 2.5% each year until 2035 as more and

more entities set net-zero targets. It is assumed that the

additional demand by all these other entities reaches a

maximum of 30% of the total estimated demand for the 10

major companies that were listed in Table 2.

Saudi Carbon Credit Demand

Results and Discussion

Figure 9 shows four scenarios for total carbon credit

demand by Saudi companies between 2024 and 2050.

The four scenarios are based on changing the assumed

contribution of osetting to each ﬁrm’s total mitigation

eorts. In a low scenario where the contribution of

osetting rises linearly from 0% in 2024 to 5% by 2050,

the total demand for carbon credits is estimated at 1.0

MtCO2eq in 2030 and 22.4 MtCO2eq in 2050. In a high

scenario where the contribution of osetting rises linearly

from 0% in 2024 to 20% by 2050, the total demand for

carbon credits is estimated at 4.0 MtCO2eq in 2030 and

89.6 MtCO2eq by 2050. In all scenarios, the contribution

of osetting rises linearly from a value of zero in 2024

to the scenario’s maximum share in 2050. This slow

growth in the contribution of carbon credits towards each

company’s target reﬂects how the credits are expected

to contribute less in the short term since companies

will initially have a larger potential for internal mitigation

actions, and more over the long term as those internal

mitigation options get exhausted.

Figure 9 also breaks down the four scenarios for total

carbon credit demand into demand for credits issued by

GCOM and ICPs, reﬂecting the assumption that Saudi

entities will prefer to purchase GCOM credits as they

become available.

In conclusion, the results presented in this section reﬂect

the assumptions and analysis of the evolution of potential

domestic carbon credit demand in Saudi Arabia between

2024 and 2050. The results illustrate the expectation

that demand will be lower in the short term and higher

in the long term as Saudi entities oset their residual,

hard-to-abate emissions to achieve their long-term net-

zero targets. Nevertheless, these results are sensitive

to companies’ policies regarding carbon credit usage,

which in turn are inﬂuenced by global guidelines and

perceptions around the use of carbon credits to achieve

near-term and long-term climate targets.

35Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Figure 9. Scenarios of carbon credit demand by Saudi entities between 2024 and 2050.

Source: Authors.

1.0

22.4

100

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Carbon credit demand

(MtCO2eq)

Contribution of osets: 0% in 2024 to 5% in 2050

Demand for domestic credits Demand for international credits

2.0

44.8

100

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Carbon credit demand

(MtCO2eq)

Contribution of osets: 0% in 2024 to 10% in 2050

4.0

89.6

100

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Carbon credit demand

(MtCO2eq)

Contribution of osets: 0% in 2024 to 20% in 2050

36Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

3.2.2 Potential Domestic

Credit Supply

As discussed in Section 2.2, the current global carbon

market consists of three main sources of carbon credits

supply: international, domestic, and ICPs (see also Figure

2). While there are dierences, all carbon crediting

programs generally follow a similar baseline-and-credit

accounting approach that seeks to issue carbon credits

for the quantiﬁed amount of emission reductions and/or

removals achieved by speciﬁc, identiﬁable management

interventions or activities (Box 2).

Saudi Arabia’s unique geography and economy

(e.g., extreme temperatures and aridity, and strong

dependance on fossil fuels) means that not all sectors

and mitigation actions will be relevant for the potential

supply of domestic carbon credits (Luomi, Bosse, and

Sergeeva 2023). Rather, key mitigation areas are likely

to encompass activities such as energy production and

transformation, electricity generation and use (including

water desalination), industry (especially petrochemicals),

and waste management (Luomi, Bosse, and Sergeeva

2023).

The following subsections provide an initial assessment

of the potential supply for carbon credits in Saudi Arabia.

The assessment draws from national knowledge and

expertise on climate mitigation strategies and known

design features as well as methodological considerations

within the existing carbon market.

The methodological approach is as follows:

• First, potential sources for carbon credit supply are

assessed based on the major economic activities

in the country and therefore the greatest emissions

abatement and/or carbon removal potential.

• Second, a set of screening criteria are developed by

which to identify mitigation actions within the given

sectors and to select the most nationally relevant

mitigation options to take forward to a more detailed

assessment of crediting potential.

• Third, the crediting potentials of the selected

mitigation actions to 2050 are estimated based on

factors such as eligibility for crediting of the given

intervention/activity, the potential crediting period

(in years), the baseline (e.g., the levels emissions

that would have occurred had the activity not been

implemented), and forecasts for deployment of the

mitigation action (i.e., how much could get deployed

in coming years).

Each of these three aspects is discussed in more

detail below.

High-Level Assessment of

Potential Sources

Estimating overall mitigation potential is a ﬁrst step to

understanding how many credits could be supplied by

projects within a given region. For Saudi Arabia, the

scope of potential opportunities lies in a few key emitting

sectors and activity types.

For example, according to DNA data for 2019 (Kingdom of

Saudi Arabia 2024), the major sources of GHG emissions

in the country are electricity and heat generation

(stationary combustion, which also includes desalination),

other energy sector activities (e.g., oil and gas production

and transformation), and transport (mobile combustion)

using fossil fuels. These sectors account for 82% of

national GHG emissions (Figure 10). Relevant mitigation

actions for these sectors could include substitution by

renewable power generation, transport modal shift,

energy eciency measures in various sectors, and/or

carbon capture, utilization and storage (CCUS).

At the other end of the spectrum, agriculture and waste

combined account for less than 8% of national GHG

emissions, and the land sector makes only a negligible

contribution to national emissions totals, with a small level

of carbon removals (Figure 10).

37Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Figure 10. Saudi Arabia’s GHG emissions by IPCC reporting category, 2019, MtCO2e.

544, 80%

79, 12%

40, 6%

10, 1% -8, -1%

Energy (including transportation

and desalinization)

Industrial Processes and

Product Use (IPPU)

Waste

Agriculture

Forestry and Other Land-Use (FOLU)

Source: Kingdom of Saudi Arabia (2024).

Notes: IPPU = Industrial process and product use; FOLU = Forestry and other land use. CH4 GWP100 = 28. N2O GWP100 = 265.

Consequently, mitigation activities undertaken in all of

the sectors highlighted in Figure 10 may be eligible for

crediting, although a more signiﬁcant focus on energy and

industry can be expected.

The Concepts of Additionality

and Double Counting

Aspects such as mitigation opportunity (i.e., which types

of technologies may be deployed), additionality (e.g.,

which technologies act to accelerate mitigation ahead of

what may otherwise occur), and double counting are also

important considerations for estimating the potential of a

carbon crediting system in Saudi Arabia.

Some mitigation technologies remain at early

development or near-market status, making their

deployment and scale-up more challenging (e.g., CCUS).

Other mitigation technologies may only result in small

incremental improvements or require more complex

changes to existing production processes or for many

actors to make behavioral changes (e.g., domestic energy

eciency measures or modal shifts in transport). These

factors may constrain the rate and scale at which certain

mitigation actions take place.

In some circumstances, mitigation activities may already

be happening due to other factors – such as, for

example, being already ﬁnancially attractive compared to

alternatives, or where certain actions are required by law

or regulations. Renewable energy is a commonly cited

example. Yet, a key basis for crediting a mitigation action

is that the anticipated revenue from the sale of carbon

credits was a decisive factor triggering the investment,

and that without the prospect of selling carbon credits,

an alternative, more emissive investment or action would

38Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

have otherwise happened. This important feature of a

carbon credit is known as its “additionality” – that is, the

credited action is considered additional to what would

have otherwise happened in an alternative baseline

scenario.6

Additionality of a creditable mitigation action/project

is typically demonstrated through the application of

three tests:

1. Regulatory surplus. The mitigation activity exceeds

what is required by law and regulations in the

relevant jurisdiction and economic sector.

2. Financial additionality. The mitigation activity is not

the most economically attractive course of action,

taking into account barriers to investment.

3. Common practice. The mitigation activity is not

common practice in the relevant jurisdiction and

economic sector.

Notwithstanding fairly broad agreement on the

approaches to additionality testing, its demonstration in

practice is dicult due to the many variables aecting

investment choices, an often lack of full transparency (or

information asymmetry), and the inherent challenges in

forecasting counterfactual, what-if type scenarios from

which to draw the baseline.

Finally, caution is needed to avoid the crediting of

mitigation activities that could potentially lead to double

counting. In this respect, carbon credits should not be

originated from mitigation activities within a buyer entity’s

own operations (see Section 2.3.1).

Double counting can arise in energy eciency projects

– for example, where the energy eciency measures

reduce electricity demand, which reduces the direct

emissions of electricity generators – that may in turn

also buy the credits to oset their remaining, ongoing

emissions. Taken to an extreme conclusion, if energy

eciency measures led to a 50% reduction in emissions

from electricity generation, which are all subject to

crediting and acquired by the electricity generators,

they could claim a net of zero emissions even though

emissions had actually only been cut by half.

For this reason, project actions that reduce emissions

within a ﬁrm’s value chain are sometimes referred to

instead as insets or insetting as opposed to osetting (see

also Section 2.3.1). Careful control of the source of credits,

the types of entities using credits, and the types of claims

made regarding osetting should all be considered when

designing a domestic carbon crediting mechanism.

Developing Criteria to Identify

Creditable Mitigation Actions

Certain features can be assumed to characterize the

source and types of carbon credits that could be

originated in a domestic crediting scheme in Saudi Arabia.

Features include mitigation potential, additionality, and

ease of implementation (e.g., in terms of methodological

complexity). The latter aspect is particularly important for

countries with limited experience in developing carbon

credit projects, such as Saudi Arabia (Luomi, Bosse, and

Sergeeva 2023).

These features were used to guide the development of

criteria by which to identify sectors and activities for a

more detailed assessment of crediting potential (Table 3).

39Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Table 3. Features of viable oset projects for KSA.

Source: Authors.

Criteria Description

Mitigation potential • To what extent can the activity reduce emissions/increase removals nationally?

Project feasibility/scalability • How mature is the technology?

• How easy are individual project activities to implement?

• Can the activities be rapidly scaled to make signiﬁcant reductions/removals?

Ease of implementation

(methodological complexity)

• Are baselines clear and easy to determine? Are monitoring methods simple?

• Are reductions permanent and/or can liability for reversal be allocated?

• Can it be readily implemented under a domestic oset program?

Risk of double counting • Is there a risk that reductions/removals will be counted twice?

• Will the activity create reductions/removals within buyer entities’ GHG inventories?

In respect of ease of implementation, methodological approaches applied to some mitigation project types can be

more complex than others (Box 4).

Box 4. Examples of Methodological Choices and Ease

of Implementation

Methodological choices pose trade-os between complexity, accuracy and environmental integrity, which impact

upon ease of implementation. For example, a renewable power project can meter the amount of electricity

dispatched to a grid (or other demand source) and assume that an equivalent amount of fossil thermal electricity

is displaced, which produces a mitigation eect. A simple emission factor applied to each dispatched kilowatt-

hour of renewable electricity can be used to calculate the baseline for the activity (e.g., an emissions factor of

0.35 tCO2e/kWh). This simpliﬁed approach assumes a ﬁxed mitigation eect, although the reality is more complex

because grid emissions vary over time, resulting from changes in the mix of plants that are dispatching power.

Other more dynamic methodologies exist by which to establish emission factors for grid electricity systems, but

these are more analytically demanding (e.g., methods involving a so-called build margin, operating margin, and/or

the combined margin) (UNFCCC 2018).

Similarly, methodological approaches for some types of mitigation activity may require historical datasets or the

collection of data ahead of implementation. Detailed monitoring data and information can also be anticipated post

implementation. For example, this is usually the case for mitigation measures that rely on individual behavioral

changes (e.g., workers, general public) or project activities involving nature-based climate solutions (which often

require historical reference data and extensive/advanced monitoring to be implemented after the project’s start).

In the case of the former, simply introducing a new practice is insucient to achieve a mitigation eect absent

of signiﬁcant uptake by users. For example, public transport projects require a modal shift by users away from

private car use, or some residential, commercial, or transport ﬂeet-related energy eciency measures require

behavioral changes by users and operators. Monitoring changes in behavioral practices is therefore also needed

to determine the total mitigation eect.

Some project activities may also meet previously suppressed demand, which can erode the level of mitigation

achieved. For example, by making services available to users who previously went without access.

40Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Figure 11. Results of assessment of sectoral/activity type crediting potential within Saudi Arabia.

Source: Authors.

Initial Screening of Mitigation

Options

Using the screening criteria described above, an

assessment of a range of domestic carbon crediting

opportunities was undertaken. The assessment

considered positive attributes (mitigation potential

and feasibility/scalability) and negative attributes

(implementation complexity and double-counting risk).

Each criterion was scored on a scale of 1 to 5 and

summarized using a trac-light-style scale, with green

for positive attributes and red for negative attributes.

The results of the rapid assessment are presented below

(Figure 11; the darker shading shows a half point).

Summary features for selected mitigation project types

outlining the rationale for some of the scores is also set

out below (Table 4).

41Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Table 4. Features for crediting selected mitigation activity types.

Source: Authors.

Type Mitigation potential Feasibility/scalability Implementation complexity (methodological) Double-counting risk

Renewable energy High. Displacement of

predominately fossil ther-

mal power.

Can be deployed fairly rapidly

given low costs at present, and

the lack of space constraints in

Saudi Arabia.

Simple standardized baseline methods can be applied to de-

termine additionality and mitigation eects (i.e., ﬁxed emission

factor for the baseline). More complex methods may be adopt-

ed (e.g., build margin).

High. Power generators may count the

reduction and also acquire the credits

as osets against ongoing emissions.

Energy eciency High. High grid emission

factors.

Potential exists in industry,

commercial, and residential set-

tings in Saudi Arabia, and also

in desalination upgrading and

transport (ﬂeet driving training).

Measurement and attribution of energy eciency actions face

challenges. Additionality can depend on prevailing energy e-

ciency regulations and ﬁnancial incentives to reduce electricity

consumption in Saudi Arabia.

High. Power generators may count the

reduction and also acquire the credits

as osets against ongoing emissions.

Fugitive emissions in

petroleum systems

High. Potential exists to eliminate leaks

from transmission system as well

as routine ﬂaring and venting (c.

16 Mt CO2e/yr). May be challeng-

ing to scale due to costs of gas

evacuation infrastructure.

Methodologies exist but can vary in complexity. Likely to be

straightforward to implement in Saudi Arabia given extensive

expertise and data. Risk of double counting (double claiming by

credit buyers).

High. Petroleum producers may count

the reduction and also acquire the

credits as osets against ongoing

emissions.

Waste Low Potential exists to reduce meth-

ane from landﬁlls in KSA through

ﬂaring and/or energy recovery.

Waste-to-energy competes with

low-cost natural gas and oil in

Saudi Arabia.

Methodologically straightforward to implement. Additionality

can be high for waste-to-energy (power generation) due to

competition with low-cost gas and oil.

Low. Waste handlers unlikely to be

buyers of credits.

Transport Medium. Modal shift

complex to achieve.

Modal shifts involve switching

users from cars to trains or bus

rapid transit.

Costly and slow to build.

Modal shift requires baseline surveys of users prior to imple-

mentation, and surveys to determine the extent to which users

have switched transport modes to estimate mitigation eects

(i.e., crediting amount).

Low. Transport operators unlikely to be

buyers of credits.

CCUS and

technological carbon

removal

High. Signiﬁcant points

sources

Projects are expensive and slow

to implement.

Dicult to scale in early stages,

although should become easier

over time.

Some methodological components can be straightforward

(baselines, additionality). Monitoring of storage and manage-

ment of the non-permanence and carbon reversal risk creates

challenges for methodology design.

Medium. Petroleum producers likely not

to count the reduction and also acquire

the credits as osets against ongoing

emissions.

Agriculture and

forestry and other

land use (FOLU)

Low Generally limited potential in

Saudi Arabia due to its arid

climate. Mangrove planting may

produce some mitigation eect

and oer co-beneﬁts for nature

conservation and ecosystem

development.

Baselines can be challenging to identify and develop (e.g., use

of reference levels). Monitoring of sink enhancements faces

challenges due to the diculties of accurately measuring car-

bon stocks. Non-permanence and carbon reversal risk creates

challenges in a similar way as for CCUS and technological

carbon removal.

Medium. Some large agricultural pro-

ducers may be buyers of credits.

42Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Estimates of Crediting Potential

to 2050 for Selected Mitigation

Actions

The evaluation presented above suggests several

sectors/activity types could be promising for domestic

credit development in Saudi Arabia. Primary candidates

would include renewable energy, CCUS/technical carbon

removal (e.g., direct air capture with geological CO2

storage), and waste (landﬁll gas management), as well as,

potentially, energy eciency and transport.

In regard to waste, data and information on the size of

individual sites, their location, and their speciﬁc design

aspects is not currently available (e.g., whether they

are contained or open waste management systems),

hindering an assessment of the mitigation potential

of approaches such as landﬁll gas management

(ﬂaring, conversion of energy). As such, no analysis

was undertaken.

Energy eciency and transport were also excluded from

the analysis due to the complexity of estimating mitigation

potential, as well as other methodological complexities

described above.

For the other potential creditable activities, the following

approach was taken.

Renewable energy. Saudi Arabia holds signiﬁcant

potential for solar photovoltaic (PV) development, with

mitigation through the displacement of mainly oil-ﬁred

thermal power generation. The main methodological

challenges for carbon credit development are uncertainty

over additionality and the risk of double counting.

Methodological complexity may also pose challenges if

sophisticated baseline emissions calculation approaches

are considered necessary. In these respects, the GCOM

(see Section 3.2.1) has published a “Methodology

for Determining Emission Reductions Resulting from

Electricity Generation from Renewable Resources”

(SD-DNA-M2), which suggests that the baseline emission

factor should be the “combined margin CO2 emission

factor for grid connected power generation” (GCOM

2024d). However, no guidance is provided on how to

calculate the combined margin. The CDM “Methodological

Tool: Tool to Calculate the Emission Factor for an

Electricity System, Version 07.0” (UNFCCC 2018) is a

more complex, data and analysis intensive method for

calculating the combined margin emission factor for an

electricity grid. For Saudi Arabia, where experience with

carbon pricing is low, it may be preferable to start with a

simpler approach to the combined margin, such as the

grid average emission factor over one year, which should

be calculable using data from the grid system operator.

Alternatively, a more conservative ﬁxed build margin

could be applied, based on the type of plant that would

otherwise be built in the absence of the renewable power

project (e.g., 0.35 tCO2e/MWh, assuming a modern gas-

ﬁred power plant). In the analysis below, a ﬁxed baseline

emission factor is assumed.

CCUS and DAC with geological storage (DACCS).

Saudi Arabia holds signiﬁcant potential to capture and

geologically store CO2 from point sources such as

electricity generation and industrial plants. Similarly,

expansion of renewable energy generation coupled to

DACCS could oer a means to permanently remove CO2

from the atmosphere on a net basis (Odeh et al. 2024).

Such projects are complex and costly to develop, but

would not face major methodological issues relating

to additionality. Greater challenges lie in assuring the

long-term permanence of such actions and allocating

responsibility to compensate in the event of re-release

(referred to widely as carbon reversal). Double counting

may also be an issue where the CCS actions reduce

the direct emissions of the buying entity and also

generate credits for oset use. The GCOM Methodology

for Determining Emission Reductions Resulting from

CCS/CCUS Activities (SD-DNA-M5) requires project

developers to manage the risk of seepage of CO2 injected

into geological reservoirs through good site selection and

management, including eective monitoring during and

after (post) injection, and the use of corrective measures

to control any signiﬁcant irregularities in the subsurface

behavior of the CO2 (GCOM 2024e). The requirements

under GCOM draw from CDM and align with common

best practice for crediting geological storage activities.

In the analysis below, the target quantity of CCS is used

as the basis for estimating crediting potential. In practice,

the amount of credits may be lower due to the need to

account for project emissions relating to any fossil CO2

emission sources relating directly to activities (e.g., heat

and power generation).

Agriculture and FOLU (mangroves). Saudi Arabia is

likely to oer rather limited potential for carbon crediting

through agriculture and FOLU. However, the area is of

interest for various reasons. First, mangrove planting

largely occurs outside the value chain of entities that

would be acquiring credits, and therefore avoids double-

counting risks. Second, uptake of CO2 by mangrove

growth results in carbon removals rather than just

emission reductions. Third, mangrove planting oers

43Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

a potentially small-scale project approach that can

be attractive for new entrants in the ﬁeld (e.g., project

developer start-up ﬁrms).

Moreover, there are signiﬁcant ongoing mangrove

development programs in the Kingdom led by Aramco

and the Saudi Green Initiative. These schemes target the

planting of hundreds of millions of trees through to 2050.

For example, Aramco has reportedly planted more than

4.3 million trees on the Arabian and Red Sea coasts, and a

further 2 million seedlings in Yanbu (Aramco 2024b). The

Saudi Green Initiative plans a further 100 million plantings

by 2030 (Saudi Green Initiatives 2024b), with Aramco

pledging to plant 350 million trees by 2035.

For agriculture, granular data is presently lacking on the

speciﬁc emission source types, while the nature of the

mitigation opportunities for agriculture and FOLU need

further reﬁnement (e.g., locations for mangrove planting).

In the analysis below, an estimate of the level of carbon

removal that could be achieved by mangrove planting has

been made based on the various announced programs in

the Kingdom (see below).

The estimated credit supply for mitigation activities

involving renewable energy generation, CCUS,

and mangrove planting, as well as the assumptions

underpinning the estimates, are set out below.

Estimates for Renewable Energy

Crediting Potential

Using the assumptions summarized in Table 5, the total

domestic potential credit supply from renewable energy

projects is estimated to lie between 21 and 40 million to

2035, with a peak annual credit supply of between 2 to 4

million across the late 2020s (Figure 12).

The estimate is at the upper end of what could be

feasible and depends on many factors, including whether

ambitious renewable deployment plans are met, and

whether projects and actions aligned with the national

policy are considered to be additional and therefore

eligible for crediting. In respect of the latter, ICPs such as

Gold Standard and the VCS (Verra) do not consider most

renewable energy project types to be additional except in

special circumstances (e.g., in least developed countries,

or where renewable penetration into the electricity grid is

less than 5% of connected capacity). The Global Carbon

Council does not impose such restrictions. Noting these

constraints, only a 10-year crediting period is assumed,

and from 2030 onwards, new renewable energy project

activities are no longer considered eligible for crediting.7

Table 5. Assumptions used to estimate renewable energy credit supply in Saudi Arabia.

Source: Authors.

Factor Assumption

Eligibility • New capacity additions between 2022 and 2030 eligible for crediting.

• Post 2030, new renewable energy project activities will be non-additional, and therefore no

longer eligible for crediting.

Crediting period • 10 years, ﬁxed (as per Global Carbon Council, the only major crediting standard awarding credits

to renewable power projects) (Global Carbon Council GCM001).

Baseline • Three estimates applied:

0.35 tCO2e/MWh (approximate natural gas build margin).

0.65 tCO2e/MWh (heavy fuel oil build margin).

Grid operating margin (taken from the KAPSARC Energy Model (Matar 2016), ranging 0.675

to 0.473 tCO2e/MWh over the crediting period).

Deployment • Based on the KAPSARC Energy Model (Matar 2016), which estimates the amount of new renew-

able capacity that may be deployed based on current plans.

44Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Figure 12. Estimated carbon credit supply from renewable energy projects in Saudi Arabia under three baseline factors,

2020-2050.

Source: Authors.

Note: Total creditable capacity is the amount of installed capacity (in MW) that is considered eligible for carbon credits under the assumptions and

constraints outlined above.

100

200

300

400

500

600

700

800

900

1000

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2020 2025 2030 2035 2040 2045 2050

Total creditable capacity

(MW)

Credit generation potential

(tCO2-e/yr)

Credit potential (tCO2/yr at 0.65 tCO2/MWh) Credit potential (tCO2/yr at OM tCO2/MWh)

Credit potential (tCO2/yr at 0.35 tCO2/MWh) Creditbale capacity (MW)

∑ 21 million credits

∑ 30 million credits

∑ 40 million credits

Estimates for CCUS Crediting

Potential

Using the assumptions summarized in Table 6, the

cumulative domestic potential credit supply from CCUS

projects is estimated at around 180 million credits to

2050, with a peak supply of 27 million credits per year

starting in the 2030s (Figure 13).

The estimate is at the upper end of what could be feasible

and depends on whether ambitious development plans

will be met. Notably, the estimates do not include the

9 million tCO2 Jubail project planned for completion in

2027 and the 11 million tCO2 capacity planned by Aramco

(2024c), as these have been pledged in Aramco’s

corporate targets and are expected to contribute to

Aramco’s net-zero target.

45Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Table 6. Assumptions used to estimate CCUS credit supply in Saudi Arabia.

Figure 13. Estimated carbon credit supply from CCUS projects in Saudi Arabia, 2020-2050.

Source: Authors.

Factor Assumption

Eligibility • New capacity additions from 2022 eligible for crediting.

• Aramco deployment under corporate target not eligible for crediting.

Crediting period • 10 years, renewable indeﬁnitely (based on American Carbon Registry, 2021v2.0).

Baseline • Need to account for energy penalty of CO2 capture, which increases the levels of CO2 generated

per unit output (in some circumstances).

• Assume 85% of captured CO2 is eligible for crediting (i.e. 15% energy penalty).

Deployment • Assume deployment occurs aligned with:

Aramco target (9 MtCO2 by 2027; 11 MtCO2 by 2035).

KSA national target (44 MtCO2 by 2035).

• KSA Target minus Aramco Target = assumed Creditable Capacity.

• Deployment towards targets is staggered to smooth curve.

∑ 585 million credits

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2020 2025 2030 2035 2040 2045 2050

Total creditable capacity

(MtCO2)

Credit generation potential

(tCO2-e/yr)

Credit potential (tCO

/yr) Creditable capacity (MtCO

)

46Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Table 7. Assumptions used to estimate mangrove planting credit supply in Saudi Arabia.

Source: Authors.

Factor Assumption

Eligibility • At least two crediting methodologies exist for mangrove management, restoration, and establish-

ment (Gold Standard 2024 [draft]; Social Carbon 2024).

• VERRA-VCS is also exploring possibilities.

Crediting period • Nature-based solutions project activities tend to have long crediting periods (60-100 years).

Baseline • Assume that all newly-planted mangroves lead to new, additional removals (zero removals in the

baseline).

Deployment • Planting rate estimated from Aramco and Saudi Green Initiative (200 million trees by 2030;

350 million trees by 2035. Assumed to continue planting around 30 million trees per year

through to 2050).

• Survival rate: 25% of planted trees (based on mixed results in the literature, e.g., Takagi 2023;

Kodikara et al. 2017). No speciﬁc data on mangrove planting survival rates in Saudi Arabia (Red

Sea or Arabian Gulf).

• Trees assumed to uptake CO2 over 25 years from planting date until reaching maturity.

• Mature tree (aboveground and belowground biomass) assumed to be 0.196 tCO2 per mature tree

(based on tropical [dry] in Osaki 2013).

• Sigmoid curve used to simulate CO2 uptake by tree growth from planting to full maturity

Estimates for Crediting Potential

from Mangrove Planting

Applying the assumptions summarized in Table 7,

the cumulative potential domestic credit supply from

mangrove planting activities is estimated to be around 21

million credits to 2050, with a peak supply of 1.6 million

credits per year in the mid-2040s (Figure 14).

Estimating the carbon credit potential of mangrove

planting is extremely uncertain. As well as planting rates,

factors aecting success include the survival rate of

saplings, their assumed growth rate, and the maximum

carbon storage potential of mature mangrove trees.

The estimated potential provided is considered to be

conservative because it assumes fairly moderate survival

rates and a maximum carbon sequestration potential

at the lower end of the empirical evidence base (Osaki

2013). Small changes to any of these factors lead to

signiﬁcant changes in the estimated potential.

47Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Figure 14. Estimated carbon credit supply from mangrove planting activities in Saudi Arabia, 2020-2050.

Source: Authors.

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2020 2025 2030 2035 2040 2045 2050

∑ 21 million credits

Total creditable capacity

(tCO2-e)

Credit generation potential

(tCO2-e/yr)

Credit potential (conservative scenario at 0.196 tCO

/tree) Mangrove trees planted (millions)

48Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Figure 15. Total estimated carbon credit supply from renewable energy, CCUS and NBS (mangrove planting)

activities in Saudi Arabia, 2020-2050.

Source: Authors.

Based on the estimates for the three types of mitigation

activity types described above, the total domestic carbon

credit supply in Saudi Arabia could reach almost 30 million

per year by 2033 and sustain similar levels of crediting

up to 2050. The largest supply of credits is clearly from

CCUS, accounting for 85-95% of total estimated credit

supply (Figure 15).

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

2020 2025 2030 2035 2040 2045 2050

Mangrove planting Renewables (at 0.35 tCO

/MWh) CCUS

∑ 585 million credits

∑ 21 million credits∑ 21 million credits

Credit generation potential

(tCO2-e/yr)

49Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

4. Conclusion and

Next Steps

The estimates presented show that if Saudi corporations maintain their

ambitious net-zero pledges and incorporate carbon credits into their

decarbonization strategies, demand for carbon credits will be sustained and

increase signiﬁcantly over the coming decades. On the supply side, decisive

action to bring new projects online at a scale can also ensure that a share

of mitigation beneﬁts delivered through carbon crediting are kept within

the borders of Saudi Arabia. Such developments can also contribute to the

government’s climate change targets, rather than the credits being sourced

from other countries.

In the low-demand scenario, which assumes the modeled

companies’ carbon credit use rises gradually up to 5%

of their total mitigation eort by 2050, total demand for

carbon credits would reach 1.0 MtCO2e in 2030 and 22.4

MtCO2e in 2050. In the high demand scenario, where

carbon credit use rises gradually up to 20% of total

mitigation eort by 2050, the total demand for carbon

credits would reach 4.0 MtCO2e in 2030 and 89.6 MtCO2e

per year by 2050.

Domestic credit supply from renewable energy alone

has the theoretical potential to supply 2-4 million MtCO2e

in 2030, which would suce to cover the domestic

demand in the medium term (assuming the buyers

would be willing to purchase this credit type). Alongside

potentially signiﬁcant levels of CCUS credits, which

have the theoretical potential to increase to a peak of

27 MtCO2e per year from the 2030s onwards, along

with a stream of nature-based credits from mangrove

plantations, domestic supply from these three mitigation

activity areas would suce to meet credit demand in the

low-end demand scenario. However, in order to cater for

higher levels of demand, supply would need to come from

additional sectors/activities or from international projects.

The positive outlook notwithstanding, it is important that

the results of the study are carefully considered in the

context of the methodological choices and assumptions

made to reach them, as described in Section 3. Updated

and more reﬁned estimates should be possible as

improved and more extensive data on Saudi corporate

emissions and their mitigation targets, plans, and

pathways become available. Further clarity on the rules

around the GCOM will also help to reﬁne estimates of

potential credit supply.

Carbon market development remains an active and

ongoing activity in Saudi Arabia at the time of writing.

The GCOM and RVCMC continue their eorts to bring

carbon credits to market from both domestic and

international sources. Firms in Saudi Arabia remain

interested in acquiring carbon credits to support voluntary

decarbonization claims.

Yet, there are a number of reasons to consider further

formalizing the carbon credit market in the Kingdom.

Carbon credit-based market systems can provide a

powerful entry point through which both governments

and operators can take early steps into monitoring and

reporting emissions and trading carbon-based units. Such

systems oer the potential to evolve over time into more

ambitious compliance-based systems – either cap-and-

trade or output-based ETSs – as experience with carbon

market implementation grows.

50Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

4.1 Market

Opportunities

Introducing a more structured carbon market in Saudi

Arabia could help to drive technological innovation and

support socio-economic development. In particular,

the technologies with the largest crediting potential in

Saudi Arabia, namely, CCUS and also approaches such

as DACCS, both of which are wholly dependent upon

carbon-based incentives to be economically viable.

The adoption of the GCOM can create a new source

of economic activity in Saudi Arabia, especially in the

small- and medium-sized enterprise sector. Demand for

credits can stimulate entrepreneurs to seek and develop

mitigation activities, and to devise new methodologies for

crediting identiﬁed actions. This can help enhance Saudi

Arabia’s service sector and knowledge economy.

In general, a more formalized system of emission

measurement and reporting as well as the origination

of carbon credits can act to increase environmental

awareness among workers and society at large.

A more structured market can also position Saudia Arabia

as a progressive regional leader on climate action and

support further engagement in international climate action

and markets, such as those emerging from Article 6 of the

Paris Agreement.

4.2 Design

Considerations

Pushing ahead with ambitious carbon crediting programs

and potential market evolution can be a powerful lever

for economic and social development in Saudi Arabia.

Yet, carbon markets can be challenging to develop in

a fair and equitable manner, and carbon credits can be

complex instruments that require some care in design

and origination.

On the demand side, there will be a need to ensure the

environmental integrity of the crediting scheme and the

carbon credits. In these respects, as several companies

have mentioned that they will be targeting only high-

quality carbon credits, with some companies like ACWA

Power (2024) speciﬁcally highlighting their plans to buy

only carbon capture credits, the sustainability strategies

of Saudi companies and their plans for osetting will likely

evolve as global guidelines change, potentially leading

to uncertainty in the demand for carbon credits. In the

medium to long term, as Saudi Arabia builds greater

experience around carbon markets, it is possible that

compliance-based systems will be introduced (in certain

sectors), potentially driving further demand for carbon

credits originating from the remaining sectors.

In considering both supply and demand, the risk of

double counting must also be taken into account. Double

counting will undermine the environmental integrity of

the market because the same action gets counted and

claimed twice. Many of the creditable activities identiﬁed

herein can occur inside the value chain of Saudi ﬁrms

that would also be the buyers of the carbon credits (i.e.,

mitigation actions will have direct eects on their Scope

1, 2, or 3 GHG emissions inventories). Reducing both the

reported GHG emissions of buyers (Scope 1, 2, or 3) and

generating carbon credits for the same action results in

double counting (see Section 2.1.3).

Furthermore, economic and competitive impacts also

need to be taken into account. If the setting of climate-

related targets and the acquisition of carbon credits

remains entirely discretionary, market distortions can

occur. Ambitious buyer entities can ultimately end up

subsidizing less ambitious competitors, for example,

between power generating companies with and

without targets. Less ambitious ﬁrms could develop

credits and sell these to ambitious ﬁrms, which will

impact dispatchable electricity prices and, ultimately,

the market functioning of national renewable energy

capacity auctions (i.e., entities without emissions targets

can generate at lower costs due to the credit purchase

subsidy received from buyer entities with targets)

On the supply side, care is also needed to retain

practicality and deliverability. Saudi Arabian enterprises

have only limited experience with carbon markets and

carbon credits, so complex rules and methodologies

are unlikely to encourage participation. Therefore, it

will be important to maintain a good balance in the

number and complexity of crediting methodologies, and

to implement parallel capacity building, training, and

information campaigns in order to raise awareness among

corporations and to empower project developers. An

evolutionary pathway to system development should be

adopted given national start points. As experience grows

over time, rules can be adapted and methodologies

updated and renewed where necessary. Integration and

alignment with the global carbon credit marketplace

can perhaps be best viewed as a medium-term goal as

domestic knowledge and experience grows.

51Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Endnotes

1 For example, in the case of electricity generating facilities, establishment of a benchmark of 250 kgCO2/kWh would

mean that for every 4 kWh of power exported to the grid by the facility over the course of a year, a 1 tCO2 allowance

would be allocated and issued ex post. Similar GHG intensity benchmarks can be established for other types

of products.

2 Notably, I-RECs are not carbon credits but non-GHG-metric-based certiﬁcates of origin measured in megawatt

hours (MWh) that companies can use to make voluntary Scope 2 emissions claims (ITSF 2024). In addition to MWh of

renewable electricity produced, 13 other non-GHG metrics accommodated by the GCOM as of July 2024 included

installed renewable electricity generation capacity, ﬂoor area of energy-ecient buildings, person/ton-kilometres

of electric vehicles, tons of grey hydrogen/ammonia replaced with green/blue hydrogen/ammonia, tons of waste

incinerated, and tons of agricultural production localized (GCOM 2024f). A novel feature for a crediting mechanism, how

these non-GHG metric-based credits will interplay with the traditional carbon credits still remains to be established.

3 Verra’s registry includes a small-scale mangrove planting project in the Eastern Province, pending registration and

veriﬁcation as of July 18, 2024 (Verra 2024).

4 The emissions of these companies in some cases may include emissions from operations that occur outside of

Saudi Arabia.

5 Some companies, particularly in the oil and gas sector, have started to roll back their ambitious climate action plans

because of the challenges associated with the energy transition (Wilson 2024).

6 Additionality is a key component high environmental integrity osetting, because without the carbon credit

incentive, emissions would be higher. Additionality is therefore primarily about identifying and linking causality to a

mitigation action.

7 Based on the view that both VERRA-VCS and Gold Standard already exclude renewable energy projects from the

scope of crediting because it is considered non-additional except in exceptional circumstances (e.g., in some least

developed countries).

52Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

References

Aramco. 2024c. “We’re Advancing Carbon Capture

Technology to Help Reduce Global Emissions.”

https://www.aramco.com/en/about-us/our-brand/

powered-by-how/carbon-capture-technology.

Axelsson, Kaya, Audrey Wagner, Injy Johnstone, Myles

Allen, Ben Caldecott, Nick Eyre, Sam Fankhauser, Thomas

Hale, Cameron Hepburn, Conor Hickey, Radhika Khosla,

Stephen Lezak, Eli Mitchell-Larson, Yadvinder Malhi,

Nathalie Seddon, Alison Smith, and Stephen M. Smith.

2024. Oxford Principles for Net Zero Aligned Carbon

Osetting (Revised 2024). Oxford: University of Oxford.

https://www.smithschool.ox.ac.uk/sites/default/ﬁles/2024-

02/Oxford-Principles-for-Net-Zero-Aligned-Carbon-

Osetting-revised-2024.pdf.

Bahri. 2021. Sustainability Report 2020. https://insights.

bahri.sa/view/484356925/.

Baker Hughes. 2022. “Carbon Osets Policy Statement.”

https://www.bakerhughes.com/sites/bakerhughes/

ﬁles/2022-05/2022-05-baker-hughes-carbon-osets-

policy.pdf.

Carbon Brief. 2018. “Q&A: How ‘Integrated Assessment

Models’ are Used to Study Climate Change.” October

2. https://www.carbonbrief.org/qa-how-integrated-

assessment-models-are-used-to-study-climate-change/.

Cramton, Peter, David J.C. MacKay, Axel Ockenfels, and

Steven Stoft, eds. 2017. Global Carbon Pricing: The Path

to Climate Cooperation. Cambridge and London: The MIT

Press. https://doi.org/10.7551/mitpress/10914.001.0001.

Cramton, Peter, Axel Ockenfels, and Steven Stoft. 2015.

“Symposium on International Climate Negotiations.”

Economics of Energy & Environmental Policy 4 (2):

1–4. https://cramton.umd.edu/papers2015-2019/eeep-

symposium-international-climate-negotiations.pdf.

ACWA Power. 2023. Integrated Annual Report

2022. https://acwapower.com/en/sustainability/

sustainability-reports/.

ACWA Power. 2024. Integrated Annual Report

2023. https://acwapower.com/en/sustainability/

sustainability-reports/.

Alarfaj, Alaa. 2024. “Carbon Markets: A Comprehensive

Guide to Understand Carbon Markets and How They

Work.” Riyadh: King Abdullah Petroleum Studies and

Research Center (KAPSARC). https://stories.kapsarc.org/

carbon-markets.

Aldhuwaihi, Hind, and Mari Luomi. 2024. “Saudi Arabia

and the Circular Carbon Economy: From Vision to

Implementation.” October 6. Riyadh: King Abdullah

Petroleum Studies and Research Center (KAPSARC).

https://www.kapsarc.org/research/publications/saudi-

arabia-and-the-circular-carbon-economy-from-vision-to-

implementation/.

Allen, Myles, Kaya Axelsson, Ben Caldecott, Thomas Hale,

Cameron Hepburn, Conor Hickey, Eli Mitchell-Larson,

Yadvinder Malhi, Friederike Otto, Nathalie Seddon, and

Steve Smith. 2020. The Oxford Principles for Net Zero

Aligned Carbon Osetting. September. Oxford: University

of Oxford. https://www.smithschool.ox.ac.uk/sites/default/

ﬁles/2022-01/Oxford-Osetting-Principles-2020.pdf.

American Airlines. 2024. Sustainability Report 2023.

https://s202.q4cdn.com/986123435/ﬁles/images/esg/

American-Airlines-Sustainability-Report-2023.pdf.

Arab News. 2024. “Who’s Who: Riham El-Gizy, CEO of

Voluntary Carbon Market.” July 15. https://www.arabnews.

com/node/2550336/saudi-arabia.

Aramco. 2024a. Aramco Sustainability Report

2023. https://www.aramco.com/en/sustainability/

sustainability-report.

Aramco. 2024b. “Mangrove Initiatives.” https://

www.aramco.com/en/sustainability/environment/

biodiversity-initiatives/mangrove-initiatives.

53Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Dubash, Navroz K., Catherine Mitchell, Elin Lerum

Boasson, Mercy J. Borbor-Córdova, Solomone Fiﬁta,

Erik Haites, Mark Jaccard, Frank Jotzo, Sasha Naidoo,

Patricia Romero-Lankao, Wei Shen, Mykola Shlapak,

and Libo Wu. 2022. “National and Sub-National Policies

and Institutions.” In Climate Change 2022: Mitigation of

Climate Change: Contribution of Working Group III to the

Sixth Assessment Report of the Intergovernmental Panel

on Climate Change, edited by P.R. Shukla, J. Skea, R.

Slade, A. Al Khourdajie, R. van Diemen, D. McCollum, M.

Pathak, S. Some, P. Vyas, R. Fradera, M. Belkacemi, A.

Hasija, G. Lisboa, S. Luz, J. Malley. Cambridge, UK, and

New York, NY, USA: Cambridge University Press. https://

doi.org/10.1017/9781009157926.015.

European Environment Agency (EEA). 2023.

“Auctioning Revenues and Reported Usage, EU-27.”

https://www.eea.europa.eu/data-and-maps/ﬁgures/

auctioning-revenues-and-reported-usage-1/.

European Sustainability Reporting Standard

(ESRS). 2023. “E1: Climate Change.” In Commission

Delegated Regulation (EU) 2023/2772 of 31 July 2023

Supplementing Directive 2013/34/EU of the European

Parliament and of the Council as Regards Sustainability

Reporting Standards. https://eur-lex.europa.eu/eli/

reg_del/2023/2772/oj/eng.

Forest Trends’ Ecosystem Marketplace. 2024. State of

the Voluntary Carbon Markets (SOVCM). Washington

DC: Forest Trends Association. https://www.

ecosystemmarketplace.com/publications/2024-state-of-

the-voluntary-carbon-markets-sovcm/.

Gangotra, Ankita, Willy Carlsen and Kevin Kennedy.

2023. “4 US Congress Bills Related to Carbon Border

Adjustments in 2023.” World Resources Institute,

December 13. https://www.wri.org/update/4-us-congress-

bills-related-carbon-border-adjustments-2023.

Greenhouse Gas Crediting and Osetting Mechanism of

Saudi Arabia (GCOM). 2024a. “Purpose and Objective.”

https://gcom.cdmdna.gov.sa/Purpose.

Greenhouse Gas Crediting and Osetting Mechanism of

Saudi Arabia (GCOM). 2024b GCOM Guidelines: Saudi

Arabia’s Greenhouse Gas Crediting and Osetting

Mechanism. https://gcom.cdmdna.gov.sa/Downloads/

KSA-GCOM-GUIDELINE.pdf.

Greenhouse Gas Crediting and Osetting Mechanism of

Saudi Arabia (GCOM). 2024c. “Methodologies.” https://

gcom.cdmdna.gov.sa/Methodologies.

Greenhouse Gas Crediting and Osetting Mechanism

of Saudi Arabia (GCOM). 2024d. Methodology for

Determining Emission Reductions from Electricity

Generation from Renewable Sources. SA-DNA-M2.

https://gcom.cdmdna.gov.sa/Downloads/SA-DNA-M2.pdf.

Greenhouse Gas Crediting and Osetting Mechanism

of Saudi Arabia (GCOM). 2024e. Methodology for

Determining Emission Reductions Resulting from CCS/

CCUS Activities. SA-DNA-M5. https://gcom.cdmdna.gov.

sa/Downloads/SA-DNA-M2.pdf.

Greenhouse Gas Crediting and Osetting Mechanism of

Saudi Arabia (GCOM). 2024f. Non-GHG Metric. https://

gcom.cdmdna.gov.sa/Registry/nonGHG.

Gualandi, Rebecca. 2024. “COP29: Saudi Firm Launches

Country’s First Carbon Market Exchange.” Carbon Pulse,

November 12. https://carbon-pulse.com/341452/.

Integrity Council for the Voluntary Carbon Market

(IC-VCM). 2024. Core Carbon Principles, Assessment

Framework and Assessment Procedure. January

2024, Version 1.1. https://icvcm.org/wp-content/

uploads/2024/02/CCP-Book-V1.1-FINAL-LowRes-15May24.

pdf.

International Carbon Action Partnership (ICAP). 2024.

Emissions Trading Worldwide: 2024 ICAP Status

Report. Berlin: International Carbon Action Partnership.

https://icapcarbonaction.com/en/publications/

emissions-trading-worldwide-2024-icap-status-report.

International Organization for Standardization (ISO).

2022. Net Zero Guidelines. International Workshop

Agreement (IWA) 42:2022. https://www.iso.org/obp/ui/

en/#iso:std:iso:iwa:42:ed-1:v1:en.

International Tracking Standard Foundation (ITSF). 2024.

Product Code for Electricity. https://www.trackingstandard.

org/product-code/electricity/.

54Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Kamboj, Puneet, Mohamad Hejazi, Yang Qiu, Page Kyle,

Gokul Iyer. 2023. “Long-Term Decarbonization Pathway

for Saudi Arabia to Reach Net Zero GHG Emissions by

2060.” Riyadh: King Abdullah Petroleum Studies and

Research Center (KAPSARC). https://www.kapsarc.

org/research/publications/long-term-decarbonization-

pathway-for-saudi-arabia-to-reach-net-zero-ghg-

emissions-by-2060/.

Kerry Logistics. 2024. “Carbon Oset Policy.” https://

www.kerrylogistics.com/en/policy-statements/

carbon-oset-policy/.

Kingdom of Saudi Arabia. 2021. Updated First

Nationally Determined Contribution. 2021 Submission

to the UNFCCC. https://unfccc.int/sites/default/ﬁles/

resource/202203111154---KSA%20NDC%202021.pdf.

Kingdom of Saudi Arabia. 2024. The Second Biennial

Update Report (BUR2). Submitted to the United Nations

Framework Convention on Climate Change, March.

https://unfccc.int/sites/default/ﬁles/resource/Kingdom%20

of%20Saudi%20Arabia%C2%A0Bur2.pdf.

Kodikara, K.A.S., Mukherjee N., Jayatissa, L.P., Dahdouh-

Guebas, F. and Koedam, N. 2017. “Have Mangrove

Restoration Projects Worked? An In-Depth Study in

Sri Lanka.” Restoration Ecology 25, no. 5 (September):

705–716. https://doi.org/10.1111/rec.12492.

Kondo, Shigeto. 2023. “The Joint Crediting Mechanism

in the Paris Agreement Era: The Challenges of and

Potential for Future Saudi-Japanese Cooperation.” Riyadh:

King Abdullah Petroleum Studies and Research Center

(KAPSARC). https://doi.org/10.30573/KS--2023-DP07.

London School of Economics (LSE). 2011. Brieﬁng Note:

The Case for Carbon Pricing. The Grantham Research

Institute on Climate Change and the Environment.

Luomi, Mari, Thomas Bosse and Zlata Sergeeva. 2023.

“Lessons from Gulf Cooperation Council Countries’

Participation in the Clean Development Mechanism.”

Riyadh: King Abdullah Petroleum Studies and

Research Center (KAPSARC). https://doi.org/10.30573/

KS--2023-DP04.

Ma’aden. 2024. Driving Change: Sustainability Report

2023. https://www.maaden.com.sa/en/sustainability/

report.

Matar, Walid 2016. “The KAPSARC Energy Model for

Saudi Arabia: Documentation of the model build called

“KEM-SA_v9.16.” Riyadh: King Abdullah Petroleum

Studies and Research Center (KAPSARC). http://dx.doi.

org/10.13140/RG.2.2.19405.33768.

Mehling, Michael A., Harro van Asselt, Kasturi Das,

Susanne Droege and Cleo Verkuijl. 2019. “Designing

Border Carbon Adjustments for Enhanced Climate Action.”

American Journal of International Law 113 (3): 433–481.

https://doi.org/10.1017/ajil.2019.22.

Ministry of Economy, Trade and Industry (Japan) (METI).

2022. “About GX League.” https://gx-league.go.jp/en/.

Ministry of Energy. 2023. “Saudi Arabia Launches

Groundbreaking Greenhouse Gas Crediting and

Osetting Mechanism to Advance Global Climate Goals.”

Ministry of Energy, Saudi Arabia, October 9. https://

www.moenergy.gov.sa/en/MediaCenter/ClimateWeek/

Pages/KSA-Launches-GHG-Crediting-and-Osetting-

Mechanism-GCOM.aspx.

Nordhaus, W. 2013. The Climate Casino: Risk, Uncertainty,

and Economics for a Warming World. New Haven: Yale

University Press. https://doi.org/10.2307/j.ctt5vkrpp.

Osaki, Mitsuru 2013. 2013 Supplement to the 2006

IPCC Guidelines for National Greenhouse Gas

Inventories: Wetlands Methodological Guidance on

Lands with Wet and Drained Soils, and Constructed

Wetlands for Wastewater Treatment, edited by

Takahiko Hiraishi, Thelma Krug, Kiyoto Tanabe, Nalin

Srivastava, Baasansuren Jamsranjav, Maya Fukuda

and Tiany Troxler. Intergovernmental Panel on

Climate Change (IPCC). https://www.researchgate.

net/publication/272170539_2013_Supplement_to_

the_2006_IPCC_Guidelines_for_National_Greenhouse_

Gas_Inventories_Wetlands_Methodological_Guidance_

on_Lands_with_Wet_and_Drained_Soils_and_

Constructed_Wetlands_for_Wastewater_Treatme.

Odeh, Naser, Julian Hunt, Mohamad Hejazi, Yoshihide

Wada. 2024. “Assessing the Potential and Feasibility of

Carbon Dioxide Removal (CDR) Technologies in Saudi

Arabia.” Riyadh: King Abdullah Petroleum Studies and

Research Center (KAPSARC). https://www.kapsarc.org/

research/publications/assessing-the-potential-and-

feasibility-of-carbon-dioxide-removal-cdr-technologies-in-

saudi-arabia/.

55Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Petro Rabigh. 2023. Sustainability Report 2023. https://

www.petrorabigh.com/Documents/Report/2023_

Sustainability_Report_PetroRabigh.pdf.

Public Investment Fund (PIF). 2022. “PIF Announces

the Establishment of the Regional Voluntary Carbon

Market Company.” October 24. https://www.pif.

gov.sa/en/news-and-insights/press-releases/2022/

regional-voluntary-carbon-market/.

Public Investment Fund (PIF). 2024. “Giga-Projects.”

https://www.pif.gov.sa/en/our-investments/giga-projects/.

Regional Voluntary Carbon Market Company (RVCMC).

2023. “RVCMC Successfully Sells over 2.2 Million Tonnes

of Carbon Credits at Largest-Ever Voluntary Carbon

Credit Auction Event in Nairobi, Kenya.” PR Newswire,

June 15. https://www.prnewswire.com/in/news-releases/

rvcmc-successfully-sells-over-2-2-million-tonnes-of-

carbon-credits-at-largest-ever-voluntary-carbon-credit-

auction-event-in-nairobi-kenya-301851176.html.

Red Sea Global, 2023. Annual Sustainability

Report 2023. https://www.redseaglobal.com/en/

responsible-development/report-2023/.

SABIC. 2023. Sustainable Growth for a Better World:

Sustainability Report 2022. https://www.sabic.com/

en/Images/SABIC_Sustainability_2022_EN_120224_

tcm1010-40888.pdf.

SAUDIA. 2022. “Saudia Wins Top Sustainability Award

for Customer Engagement.” July 8. https://www.

saudia.com/pages/experience/about-us/corporate-

communication/press-releases-and-news/press-releases/

press-release-08072022.

Saudi Electricity Company (SEC). 2023. “Personal

Communications.”

Saudi Electricity Company (SEC). 2024. Sustainability

Report 2023. https://www.se.com.sa/en/Sustainability/

ColumnA/About-Sustainable/Learn-More.

Saudi Green Initiatives. 2024a. Saudi Green Initiative.

https://www.vision2030.gov.sa/en/explore/projects/

saudi-green-initiative.

Saudi Green Initiatives. 2024b. “MGI Target: Plant

50 Billion Trees Across the Middle East.” https://

www.greeninitiatives.gov.sa/about-mgi/mgi-targets/

planting-trees/.

Science-Based Targets Initiative (SBTi). 2024a. SBTi

Corporate Net-Zero Standard. Version 1.2. March. https://

sciencebasedtargets.org/resources/ﬁles/Net-Zero-

Standard-Criteria.pdf.

Science-Based Targets Initiative (SBTi). 2024b. Above

and Beyond: An SBTi Report on the Design and

Implementation of Beyond Value Chain Mitigation (BVCM).

Version 1.0. February. https://sciencebasedtargets.org/

resources/ﬁles/Above-and-Beyond-Report-on-BVCM.pdf.

Securities and Exchange Commission. 2024a. The

Enhancement and Standardization of Climate-Related

Disclosures for Investors, 17 CFR 210, 229, 230, 232,

239, and 249. March 6. https://www.sec.gov/ﬁles/rules/

ﬁnal/2024/33-11275.pdf.

Securities and Exchange Commission. 2024b. “SEC

Adopts Rules to Enhance and Standardize Climate-

Related Disclosures for Investors.” https://www.sec.gov/

newsroom/press-releases/2024-31.

Shell. 2023. Sustainability Report 2022. https://reports.

shell.com/sustainability-report/2022/_assets/downloads/

shell-sustainability-report-2022.pdf.

Sipchem. 2023. Sustainability Report 2022. https://www.

sipchem.com/sites/default/ﬁles/2023-10/Sipchem%20

Sustainability%20Report%202022.pdf.

Somanathan Eswaran, Thomas Sterner, Taishi Sugiyama,

Donald Chimanikire, Navroz K. Dubash, Joseph Kow

Essandoh-Yeddu, Solomone Fiﬁta, Lawrence Goulder,

Adam Jae, Xavier Labandeira, Shunsuke Managi,

Catherine Mitchell, Juan Pablo Montero, Fei Teng, and

Tomasz Zylicz. 2014. “National and Sub-National Policies

and Institutions.” In Climate Change 2014: Mitigation of

Climate Change: Contribution of Working Group III to the

Fifth Assessment. Report of the Intergovernmental Panel

on Climate Change, edited by O. Edenhofer, R. Pichs-

Madruga, Y. Sokona, E. Farahani, S. Kadner, K. Seyboth, A.

Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J.

Savolainen, S. Schlamer, C. von Stechow, T. Zwickel, and

J.C. Minx. Cambridge University Press, Cambridge, United

Kingdom, and New York, NY, USA. https://www.ipcc.ch/

site/assets/uploads/2018/02/ipcc_wg3_ar5_full.pdf.

STC. 2024. Sustainability Report 2023. https://www.stc.

com/content/dam/groupsites/common/generic/stc_cc_

GRI_report_2023_english.pdf.

56Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Takagi, Hiroshi. 2023. “Survival of Young Planted

Mangroves in a Calm Bay Environment During a Tropical

Cyclone.” Nature-Based Solutions 4 (December): 100082.

https://doi.org/10.1016/j.nbsj.2023.100082.

Tasnee. 2024. Sustainability Report 2023. https://www.

tasnee.com/media/0zkjog1l/tasnee-2023-sustainability-

report.pdf.

TSVCM (Taskforce on Scaling Voluntary Carbon Markets).

2021. Taskforce on Scaling Voluntary Carbon Markets.

January. https://www.iif.com/Portals/1/Files/TSVCM_

Report.pdf.

Twidale, Susan. 2024. “Global Carbon Markets Value Hit

Record $949 Billion Last Year – LSEG.” Reuters, February

12. https://www.reuters.com/markets/commodities/global-

carbon-markets-value-hit-record-949-bln-last-year-

lseg-2024-02-12/.

United Nations Framework Convention on Climate

Change (UNFCCC). 2012. “Decision 10/CMP.7: Modalities

and Procedures for Carbon Dioxide Capture and Storage

in Geological Formations as Clean Development Project

Activities.” In Report of the Conference of the Parties

Serving as the Meeting of the Parties to the Kyoto

Protocol on its Seventh session, held in Durban from 28

November to 11 December 2011, FCCC/KP/CMP/2011/10/

Add.2, 12-30. March 15. https://unfccc.int/sites/default/

ﬁles/resource/docs/2011/cmp7/eng/10a02.pdf.

United Nations Framework Convention on Climate

Change (UNFCCC). 2018. Methodological Tool: Tool

to Calculate the Emission Factor for an Electricity

System (Version 07.0). August 31. https://cdm.

unfccc.int/methodologies/PAmethodologies/tools/

am-tool-07-v7.0.pdf.

United Nations Framework Convention on Climate

Change (UNFCCC). 2022. Guidance on the Mechanism

Established by Article 6, Paragraph 4, of the Paris

Agreement. Draft decision -/CMA.6. Proposal by the

President. https://unfccc.int/documents/642623.

United Nations Framework Convention on Climate

Change (UNFCCC). 2024. “Data.” Clean Development

Mechanism (CDM). https://cdm.unfccc.int/.

Verra. 2024. “Abu Ali Island Mangrove Planting Project –

Eastern Province Saudi Arabia.” https://registry.verra.org/

app/projectDetail/VCS/3230?

Voluntary Carbon Market (VCM). 2024. “Voluntary Carbon

Market.” https://vcm.com.sa/.

Voluntary Carbon Market Integrity Initiative (VCMI). 2023.

Claims Code of Practice. Building Integrity in Voluntary

Carbon Markets. November, v.2. https://vcmintegrity.

org/wp-content/uploads/2023/11/VCMI-Claims-Code-of-

Practice-November-2023.pdf.

Wilson, Tom. 2024. “Big Oil Under Pressure

to Recalibrate Green Transition Goals.”

Financial Times, June 26. https://www.ft.com/

content/7e09562f-01a4-4d67-a76a-425656ee127a.

World Bank. 2024. State and Trends of Carbon Pricing

2024. Washington, DC: World Bank. https://hdl.handle.

net/10986/41544.

57Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

Acknowledgements

The authors are grateful to Abdulaziz Alzoman, Norah Alorainy, Sarah

Alhunaiti, Aljawhara AlQuayid, and Laura Bougary for their extensive support

in reviewing Saudi corporate sustainability reports, collecting data, and

modeling potential carbon credit demand. The authors are also grateful to

Walid Matar for running multiple power sector scenarios using the KAPSARC

Energy Model (KEM), which informed the carbon credit supply analysis.

58Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

About the Authors

Paul Zakkour

Paul Zakkour is a founding Director of Carbon Counts, a consultancy specialized in international

climate change policy, a Senior Advisor at the International Emissions Trading Association, and a

former Visiting Researcher at KASPARC.

Paul has provided consulting advice to a wide range of international organizations, including

the International Energy Agency, the European Commission, the World Bank, the African

Development Bank, the Climate Technology Centre and Network, the UNFCCC, and UNIDO.

His advisory work with national governments includes the UK, Botswana, China, Chile, Egypt,

Indonesia, Morocco, Mexico, Norway, South Africa, Tanzania, Thailand, Uganda, and Zimbabwe.

Consultancy advice has also been provided to a number of FTSE25 companies.

Paul holds a Ph.D. in Environmental Technology from Imperial College, London, and lives and

works in the Frankfurt am Main region in Germany.

Anwar Gasim

Anwar is a Principal Fellow in the Climate and Sustainability Department. He is an energy and

environmental economist with a strong engineering background and over a decade of research

and advisory experience in energy demand, greenhouse gas emission measurement, energy

subsidy reform, and carbon pricing. Anwar currently leads multiple cross-functional teams on

key projects tackling these areas, with a proven track record of publishing high-impact papers

in prominent energy and environmental journals, advising policymakers, and building the

capabilities of talent within the organization.

Anwar holds an M.Sc. in Electrical Engineering from KAUST and a B.Eng. in the same ﬁeld from

the University of Liverpool.

Mari Luomi

Mari is a Principal Fellow in the Climate and Sustainability Department. She is a policy-oriented

social scientist who has been studying climate change, energy transitions and sustainable

development policy in the Gulf and globally for 17 years. She has worked for other leading

energy, sustainable development, and foreign policy research institutions, including the Oxford

Institute for Energy Studies, the International Institute for Sustainable Development (Earth

Negotiations Bulletin), Georgetown University, the Finnish Institute of International Aairs, and

the Emirates Diplomatic Academy.

Mari holds a master’s degree in Political Science and International Politics from the University

of Helsinki and a Ph.D. in Middle Eastern Studies from Durham University. In addition to a

broad research publications portfolio, she has substantial experience in executive training,

presentations, policy advisory, and reporting services for multilateral environmental negotiations.

59Carbon Markets and Saudi Arabia: A Review of Options and Analysis of Carbon Crediting Potential

About the Project

KAPSARC’s Carbon Markets and Paris Agreement Article 6 project aims to

support Saudi Arabia’s participation in and engagement with domestic and

international carbon markets. It seeks to contribute to increasing awareness

and strengthening understanding of carbon markets in Saudi Arabia and

the broader Gulf Cooperation Council (GCC) region through empirical,

evidence-based, policy-oriented research and analysis. Carbon markets can

support both private sector and government eorts to reduce or remove

greenhouse gas (GHG) emissions and contribute to reaching the goals of

the Paris Agreement in an eective way while providing various beneﬁts to

multiple stakeholders. Among other things, well-functioning carbon markets

can lower the costs of GHG emission reductions, support the transfer of clean

technologies and ﬁnance, and unlock higher mitigation ambition over time.

The project focuses on questions including the following:

• What lessons can be learned from Saudi Arabia’s and the Gulf region’s past

experience with carbon markets that are helpful for the post-2020 era?

• How is the international carbon market landscape shaping up, including

in relation to regulated carbon markets, voluntary carbon markets (VCM),

and mechanisms linked to Article 6, and what are the related challenges

and opportunities?

• What can Saudi Arabia do to reap the most beneﬁts from both regulated

and VCM approaches and instruments? Which design options best suit

Saudi Arabia’s priorities and goals?