DFM to launch pilot carbon credit programme at Cop28

The Dubai Financial Market has introduced a pilot programme for trading carbon credits, which is scheduled to debut at the Cop28 climate conference next week.

The pilot will involve an integrated platform to explore the trading and use of carbon credits, which would provide a mechanism to help companies manage unavoidable and residual carbon emissions, the Dubai bourse said in a statement on Thursday.

Each carbon credit symbolises a tangible reduction in carbon emissions, with one credit offsetting a tonne of carbon dioxide-equivalent emissions, the DFM said.

“The launch of carbon credit trading represents a logical progression for DFM as a platform for ESG [environmental, social and governance]-focused themes and building on our existing track record,” said Hamed Ali, chief executive of DFM and Nasdaq Dubai.

“As the global economy accelerates its decarbonisation, the demand for carbon project financing is poised to surge and the necessity to trade credits will grow in tandem.”

Carbon credits, also known as carbon offsets, are permits that allow companies to emit a certain amount of carbon dioxide or other greenhouse gases. The proceeds from the sale of the credits are used to finance climate action projects that would not otherwise be feasible.

DFM will commence the programme for institutional investors, with trading starting from December 4-8. The offsetting period will end on January 10.

More than 17 UAE companies are expected to participate in the inaugural pilot, including the Dubai Electricity and Water Authority (Dewa), DP World, Dubai Municipality, Dubai International Financial Centre and Emirates NBD.

The carbon credits, supplied by Dewa and MyCarbon, are sourced from globally certified projects involving carbon avoidance, reduction and removal.

All projects have been verified by Verra, the world’s leading carbon standard for the voluntary offsets market, or the UN's Clean Development Mechanism.

The transactions will be executed through brokerages such as Al Ramz Capital, Arqaam Securities, BHM Capital, EFG Hermes and Emirates NBD Securities.

"Dewa is leading in this aspect, and we're delighted to play a pivotal role in DFM's pioneering carbon pilot initiative,” said Saeed Al Tayer, managing director and chief executive of Dewa.

“This collaborative effort led by DFM not only brings together issuers and key market participants, but also offers a strategic exploration of the effectiveness of carbon credit trading.”

Carbon credit markets are expected to grow rapidly in the Mena region as countries set up carbon compliance regulations as part of a broader push towards net zero.

Last year, Abu Dhabi Global Market, the UAE capital's financial free zone, teamed up with AirCarbon Exchange to create the “world’s first fully regulated” carbon trading exchange.

ADGM regulates carbon credits and offsets as emission instruments, and issues licences for exchanges to operate both spot and derivative markets.

The carbon credit market is projected to surpass $50 billion in value by 2030, according to the Taskforce on Scaling Voluntary Carbon Markets.

“Dubai Municipality’s partnership with DFM on carbon emissions reduction reflects our commitment to sustainable practices and responsible urban development,” said Dawood AlHajri, director general of Dubai Municipality.

“This commitment extends to reducing greenhouse gas emissions and carbon footprints across various sectors.”