PIF facilitates the world’s largest carbon credit auction.

Good morning, wonderful people — and welcome to another packed issue of Enterprise Climate. We have tons of stuff to talk about, so let’s jump right in:

THE BIG CLIMATE STORY- Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), has set up a regional voluntary carbon market company. It helped facilitate an auction of 1 mn tons of carbon credits — the world’s largest carbon credit auction to date, according to PIF.

ALSO- UAE’s renewables company Masdar acquired UK-based battery energy storage system outfit Arlington Energy — just the latest in a series of acquisitions and investments in European and US renewables projects by big GCC-based players.

WATCH THIS SPACE #1- It’s going to cost more to build solar plants for the next 5-7 years as high inflation and rising interest rates around the globe drive up costs faster than technology and the production of components at scale put downward pressure on the price of new builds. That’s according to Paddy Padmanathan, chief of KSA’s Tadawul-listed Acwa Power.

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MEANWHILE- Egypt expects the cost of its green hydrogen production to be at USD 2.68 per kilogram in 2025, Electricity and Renewable Energy Minister Mohamed Shaker said on Monday on the final day of the Egypt Economic Conference. Shaker sees costs falling to USD 1.70 per kilogram by 2050, adding that Egypt is looking lock supply about 8% of global green hydrogen demand, bringing in up to USD 18 bn of revenues to the country. Egypt plans to unveil its national hydrogen strategy at COP27.

REMEMBER- Green hydrogen is gaining traction as fossil-fuel-based hydrogen prices surge by 70% on the back of soaring natural gas prices. Surging demand and accelerated generation of green hydrogen could see green hydrogen priced at under USD 2 per kilogram by 2030. Some pundits think green hydrogen industry could be a USD 73 bn industry, with production being led and dominated by the global south.

The caveat(s): What we’re seeing now is akin to the Klondike or California gold rushes of the late nineteenth century. Global players (real and in their own minds) are flitting from country to country, inking MoUs and letters of intent to build new plants. Most companies have inked more MoUs than they have production capacity. None of them have put together finance packages. And the Biden administration (smartly) drilled a hole in every emerging market’s boat with production tax credits of up to USD 3 per kg, making it far and away the most attractive market for would-be producers.

Speaking of finance for climate projects: COP27 is again the BIG CLIMATE STORY GLOBALLY and looks set to remain so for much of the coming month.

THE COUNTDOWN TO COP (11 days to go)-

A showdown over climate finance is brewing in the run-up to Sharm El Sheikh: The developing world’s frustration with rich-country climate policies that have so far failed to provide financial compensation for climate change-driven loss and damage is continuing to attract coverage in the international press. Though climate finance demands are poised to take center stage in this year’s negotiations in Sharm El Sheikh, it’s the “widening chasm in policy approach that’s likely to be on display,” Bloomberg notes.

Potentially at stake? The credibility of the whole COP process. With the issue of economic compensation having gained fresh urgency after this year’s catastrophic floods in Pakistan (which displaced >30 mn people), the very real prospect that no agreement is reached between wealthier and poorer countries could “upend” the climate talks, Foreign Policy says. This could then call into question the value of COP, says director of the International Center for Climate Change and Development in Bangladesh Saleemul Huq. “If this doesn’t happen in Egypt, the whole COP process will become irrelevant, unfit for its stated purpose,” he says.

MEANWHILE- Finance firms amp up the pressure on companies to set proper emission goals: Pimco, UBS, and Credit Agricole are among a group of 317 finance firms demanding corporate carbon polluters set emissions goals using the Science Based Targets initiative, Bloomberg reports. The firms, which manage a combined USD 36 tn in assets, have asked over 1k of the world’s biggest carbon polluters to set emission reduction targets in line with the Paris Agreement’s goal of limiting global warming to 1.5°C.

Why is this important? Companies without credible emissions reduction strategies could find themselves cut off from funding, as financing becomes increasingly contingent on having credible emissions-cutting strategies. Banks and investors are increasingly pushed to consider climate change impacts when allocating capital, with some of the world’s biggest banks and lenders aiming to eliminate emissions from their portfolios by 2050, the business information service reports.

Stay tuned for more at COP27: The role of financial institutions in lowering emissions will be up for discussion at COP27 in Sharm El Sheikh next month. Khalid Hamza, head of Egypt at the European Bank for Reconstruction and Development, touched on the topic of the supply and demand mismatch in terms of securing financing in an interview with EnterpriseAM’s Going Green earlier this month.

AND- We might have a “truly global energy crisis” at our doorstep — but it could be a boon for renewables: Insufficient LNG supplies and a growing demand for fossil fuels in tandem with OPEC+ cuts could result in the “first truly global energy crisis,” International Energy Agency (IEA) Executive Director Fatih Birol warned at Singapore International Energy Week, Reuters reports. One of the few positive outcomes of the energy crisis is an accelerated drive for clean energy sources, with the IEA revising its forecast of renewable power capacity growth to a 20% y-o-y in 2022 with close to 400 GW of renewables added, up from 8% previously, according to the newswire.

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WATCH THIS SPACE #2- Green and sustainability sukuk accounted for 80% of green and sustainability bond sales from GCC-based issuers in 1H 2022, according to a report (pdf) published on Monday by Refinitiv, the London Stock Exchange, UKIFC, and GEFI.

This is part of a growing trend of ESG sukuk issuances from the region gaining steam: Cumulative total green sukuk issuances reached USD 21 bn in the first half of the year, with the GCC and Indonesia together accounting for 53% of these sales. The GCC made debut issuances in 2019, starting with the UAE’s Majid Al Futtaim’s two green sukuk issuances raising a total of USD 1.2 bn. Bahrain made its debut green sukuk issuance in 1H 2022, raising USD 900 mn for Infracorp, the infrastructure investment arm of Gulf Finance House, the report notes. Dubai Islamic Bank intends to issue green and sustainable sukuk, and recently set up a new green financing framework ahead of doing this. Turkey and Sudan also made debut issuances in 2021, the report adds.

But there’s also growth in the global ESG debt market: Global green and sustainability sukuk issuances reached USD 4.4 bn in 1H 2022, after 2021 saw a record USD 6.1 bn-worth of issuances throughout the full year. On average, these sukuk generated order books worth 4.4x their offering values, compared to 3.3x for comparable traditional sukuk, the report notes. Some 82% of annual green and sustainability sukuk have been issued in international markets since 2018, it adds.

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CIRCLE YOUR CALENDAR-

Enroot Development is hosting a conference titled Empowering the South: Green Economies and Climate Resilience today from 6-9pm CLT at the Greek Campus in Downtown Cairo, Egypt. Speakers at the conference include former Egyptian deputy prime minister Ziad Bahaa El Din, UN High-level Climate Champion for Egypt Mahmoud Mohieldin and Egypt’s International Cooperation Minister Rania Al Mashat. You can register for the event here.

Regional law firm Matouk Bassiouny and its German counterpart Freshfields Bruckhaus Deringer will hold a webinar on 2 November that will spotlight COP27’s potential impact on businesses globally. The online event will also focus on the challenges emerging economies face when unlocking financing options for climate adaptation projects, hoping to create a roadmap that would improve the quality and scale of climate-focused investments in Africa. Representatives from Taqa Arabia, Amethis and Enko Capital will participate as speakers. Register for the webinar here.

ADIPEC will run from 31 October to 1 November in Abu Dhabi, UAE. Some 40 ministers from around the world, including eight from MENA, will attend the event. Those include energy and oil ministers from the UAE, Kuwait, Bahrain, and Egypt. Discussions will partly focus on the transition toward carbon neutrality, a statement picked up by Zawya says. You can register as an exhibitor here, and as an attendee here.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

Saudi Arabia’s PIF sets up carbon market: Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), has set up a regional voluntary carbon market company, it announced in a statement on Sunday. The PIF holds an 80% stake in the new company, while the Saudi exchange, Saudi Tadawul Group, holds the remaining 20%, according to the statement.

What’s in a name: We’re not sure how the the Regional Voluntary Carbon Market Co. will brand the market itself.

The market hit the ground running with what’s being billed as the world’s largest credit auction: It helped facilitate an auction of 1 mn tons of carbon credits (the world’s largest carbon credit auction to date, according to PIF) yesterday, at Riyadh’s Future Investment Initiative. The auction offered “high-quality credits,” including CORSIA-compliant, Verra-registered certificates, the statement says. No information was given in the statement about the pricing of the carbon credits.

Egypt is also looking at setting up a carbon offset market: Egypt’s environment ministry and bourse are working to set up a local carbon credit exchange, which would allow local and international buyers to buy certified emissions reduction credits, Enterprise reported in May, following reports from the local press.

Recap: What exactly is a carbon market? Carbon trading puts a price tag on polluting activities. Companies can buy and sell carbon credits that are tied to their emissions. If a company exceeds the limit of their allowed credits, it can buy credits off another company that had cut its emissions and therefore no longer needs them. Every tradable carbon credit is equal to one ton of CO2 reduced (or the same amount of another greenhouse gas). There are two main types of carbon market: Compliance (which are created as part of a policy or regulatory requirement) and voluntary (where carbon credits are issued, bought, and sold on a voluntary basis).

Who buys and who sells? Demand for carbon credits comes from private individuals or corporations wanting to offset their emissions, or other actors wanting to trade credits for a return. Voluntary carbon credits are mainly supplied by private entities that set up projects designed to remove or reduce greenhouse gases, or governments that develop emissions reductions programs.

The global carbon market has sharply risen in value in the past two years: Global carbon pricing revenue saw a nearly 60% y-o-y increase in 2021, rising to some USD 84 bn, according to the World Bank’s State and Trends of Carbon Pricing report (pdf) published in May. Global average carbon credit prices on the voluntary carbon market rose to USD 3.82 per ton of CO2 equivalent (tCO2e) in 2021, up from USD 2.49/tCO2e in 2020, with the volume of credits traded in 2021 exceeding 362 mn, up 92% from 2020. “For the first time, the total value of the voluntary carbon market exceeded more than USD 1 bn in November 2021,” according to the report.

IN OTHER CARBON MARKET NEWS-

Singapore has entered discussions to buy carbon credits from Morocco, among other countries, in a bid to reduce its emissions, Morocco World News reported on Monday. This comes in the wake of the two countries signing an MoU that “laid the foundation for carbon trade” during the visit of Singapore’s Foreign Minister Vivian Balakrishnan to Morocco in July. In 2020, Singapore’s CO2 emissions reached 7.78 tons per capita — nearly seven times those of Morocco, which stood at 1.75 tons per capita. The Asian country is reportedly in talks with over 20 countries to set up carbon credits.

UAE’s Masdar acquires UK energy storage firm Arlington Energy: Emirati renewables company Masdar has acquired UK-based battery energy storage system (BESS) outfit Arlington Energy, the company said in a statement yesterday. No information was provided on the value of the transaction.

Tapping into Europe: The acquisition will allow the companies to develop, construct, manage, and finance BESS projects under one Masdar-Arlington platform. It will also allow Masdar to increase its offshore wind and renewables investments and scale up energy storage operations in Europe, the statement says.

What is Arlington Energy? The London-based BESS company has developed and operated over 170 MW of assets in the past two years. BESS solutions allow energy to be released from renewables during peak demand, solving the issue of energy supply during hours where the sun isn’t shining for solar panels or the wind isn’t blowing for wind turbines, for example.

Masdar is capitalizing on wind and green hydrogen projects: The company has assets in upward of 40 countries, and a combined renewables capacity of 15 GW and USD 20 bn in investments — aiming to reach 100 GW capacity by 2030, Masdar’s acting executive director for clean energy told The National earlier this month. Masdar signed an agreement with Germany’s RWE Renewables to explore wind projects last month and agreed to develop 2 GW of renewable energy projects in Tanzania in August. It also signed an agreement with Fertiglobe and France’s Engie to co-develop a green hydrogen facility in the UAE last January.

PART OF A BROAD TREND- GCC investments in western green assets are heating up. The UAE’s sovereign wealth fund Mubadala Investment Company acquired stakes in German offshore wind developer Skyborn Renewables and US offshore project Bluepoint Wind for an undetermined amount earlier this month. GCC-focused alternative asset manager Wafra also acquired a majority stake in US utility-scale renewable asset developer Mission Clean Energy, and Kuwait-based Agility Ventures made a USD 40 mn investment in US EV charging station company Loop Global.

Egypt signs PPP agreement for electric train project: The National Authority for Tunnels, El Didi Group and Gama Construction signed an MoU for an electric train project under a public-private partnership framework at the Egypt Economic Conference, cabinet announced on Monday. The agreement will see the establishment of a joint venture to build, operate, maintain, and manage the 250 km cargo-and-passengers railway project connecting key ports in the country.

Who will do what? Civil works, like bridges, stations, and fences, will be implemented by undisclosed “major national companies” while German company Siemens will implement signals, communications and electric power systems, and develop a plan to localize the railway industry in Egypt. No financial details are disclosed as of yet.

Egypt has been pivoting to electric rail lines: The World Bank approved a USD 400 mn financing agreement to boost the performance of the country’s transport and logistics sectors earlier this month. The EBRD signed off on a EUR 40 mn loan to partially finance work on the Robeiky-10th of Ramadan-Belbeis freight and passenger railway line. And of course, there’s Egypt’s USD 4.5 bn monorail, which is set for partial inauguration ahead of COP27, and implemented by a consortium of Alstom, Orascom Construction and Arab Contractors.

And is on a clear path towards more private sector involvement: Amendments to the country’s Railway Act in 2018 allowed private players to participate in developing, managing, and operating railway projects.

IN OTHER SMART INFRASTRUCTURE NEWS-

EBRD invests in Moroccan bond for green infrastructure projects: The European Bank for Reconstruction and Development (EBRD) invested MAD 400 mn (USD 36.5 mn) in a MAD 1 bn (USD 91.3 mn) municipal bond that focuses on green infrastructure projects in Morocco, according to a statement. The bond was issued by Morocco’s Agadir to support the city’s urban development program.

And formally inducts Agadir into the EBRD Green Cities programme: The city of Agadir joined an EBRD programme that stipulates member cities to create a green city action plan (GCAP), which would “identify its key environmental challenges and […] investments and policy actions required to address them,” according to the statement. Through the program, the EBRD will provide the city with a technical cooperation package for the development of Agadir’s GCAP, the statement notes.

Qatar Airways will purchase 5 mn gallons a year of sustainable aviation fuel (or “SAF” in industryspeak) from US renewable chemicals and advanced biofuels company Gevo, according to a company statement published yesterday. The agreement sets out the terms for the fuel purchase over the coming five years, subject to conditions including Gevo’s commitment to develop, finance, and construct one or more facilities to supply Qatar with SAF, the statement says. Fuel delivery is expected to begin in 2028.

This is part of a larger agreement between Gevo and airline alliance Oneworld: Oneworld alliance members signed an MoU with Gevo in March for the alliance’s airlines to buy up to 200 mn gallons of Gevo’s SAF over the coming five years. Within MENA, Royal Air Maroc, Royal Jordanian Airlines, and Oman Air are also members of the alliance.

About Gevo: Gevo produces gasoline, jet fuel, and diesel fuel considered to be renewable because it uses sustainably-grown corn as a raw material, according to their website, with the carbon itself coming from CO2 in the air, taken into the corn through photosynthesis. When burned, these fuels “have the potential to yield net-zero greenhouse gas emissions when measured across the full life cycle of the products,” it says.

French green and smart mobility group Alstom will establish its MENA office in Riyadh, according to a company statement out yesterday. A few weeks ago, the Saudi Railway Company and Alstom signed an MoU to develop hydrogen-powered train solutions for the kingdom.

SIGN OF THE TIMES- Saudi Arabia has said it will require any global company that wants to bid on state projects to set up its regional HQ in the kingdom, sending a clear message that if you want in on its economic boom, you’re going to be spending plenty of time in KSA. The move is putting particular pressure on major infrastructure and industrial players, many of whom had set up shop in the UAE during the building boom there in the past two decades.

OTHER STORIES WORTH KNOWING ABOUT THIS MORNING-

• Dubai Government Workshop (DGW) and Dubai Fishermen Co-op Association signed an agreement that will see DGW manufacture recycled fishing equipment, according to a company statement released yesterday.
• The National Bank of Bahrain, in collaboration with Mastercard, is now issuing cards made entirely from recycled plastic, it announced on Monday.

Egypt’s “green wall” company Schaduf is bringing hydroponic farms directly to supermarkets, Reuters reported earlier this month. Shoppers can open the fridge and pluck the lettuce themselves, buying lettuce reportedly grown with 90% less water compared to traditional farms. It also reduces carbon emissions from produce transportation. The produce has a longer shelf life, allowing another head of lettuce to grow in its place. Schaduf is planning on expanding into more supermarkets throughout the country.

How does it work? The closed-cycle method grows produce in refrigerators outfitted with pumping tanks for irrigation water. LED lights replace sunlight and the produce is sold without any packaging to avoid single-use plastic.