UAE businesses must act now ahead of climate change law

In a significant move towards addressing the global climate crisis, the UAE has enacted Federal Decree-Law No (11) of 2024 - titled “On the Reduction of Climate Change Effects”. The UAE was the first country in the Middle East to commit to a net zero target which was announced in 2021 with the objective of achieving net zero by 2050.  This is the first piece of specialised legislation to follow this policy announcement which, albeit at a high level, aims to help mitigate the impacts of climate change and promote sustainability across various sectors.

The law, which comes into effect on 30 May 2025, sets out to manage greenhouse gas (GHG) emissions, enhance resilience of ecosystems and economic sectors, and support innovation and research in climate-related fields. Being Federal in nature it will apply universally to all Emirates and will require local authorities to coordinate with the Ministry of Climate Change and Environment.

Interestingly, the law is applicable to public and private entities, including free zones. This is significant as quite often free zones are provided with some flexibility as to how to apply legislation or regulations. However, the new law underscores the importance of a united front, with public, private, and free zone entities all required to contribute towards reducing emissions and global net zero efforts.

While the law comes into effect in May 2025, with a further one-year period to allow for implementation, it is crucial for businesses to act now. Businesses will be required to align their operations with the new rules. At this stage, the core objective of the law is to obtain information from organisations about their emissions and overall climate impact. The law calls for the sharing of data, starting the process of reporting and recording emissions, with organisations obliged by reporting requirements ahead of targets being set in the future. These targets are likely to be addressed through additional legislation, giving organisations specific goals regarding emissions.

The law outlines several critical measures designed to reduce GHG emissions and enhance climate resilience. The law mandates management of GHG emissions within the UAE, including the establishment of a national carbon credit registry and implementing carbon offsetting mechanisms. Given that carbon registries are currently dealt with by a variety of different entities in the region, this can be expected to lead to some standardisation which will be vital, given global commitments as part of the United Nations Framework Convention on Climate Change, which was hosted by UAE in December 2023, and helps align UAE’s actions with requirements of the associated Paris Agreement.  The law highlights that the UAE will continue to update and implement its nationally determined contributions (NDCs) under the Paris Agreement, focusing on both mitigation and adaptation strategies.

The legislation also focuses on adaptation and resilience, with emphasis on strengthening the capacity of ecosystems, economic sectors, and society to adapt to climate change impacts. This involves developing long-term strategies for reducing emissions and enhancing climate resilience

The establishment of climate action boards or committees at federal and local levels will be required to oversee the implementation of climate policies and ensure compliance.

The law also emphasises the importance of research, development, and innovation in climate-related technologies. It encourages collaboration between the public and private sectors in a bid to drive sustainable solutions, promoting the use of moder technology to support mitigation and adaptation of efforts. The ministry of climate change and environment is set to provide incentives for organisations working to adopt related technologies and methods. This is expected to include facilitating carbon offsetting activities, emission trading, and adopting shadow prices of carbon, along with additional related policies and mechanisms. Fines are stipulated for non-compliance with reporting requirements, so this is not a matter to be ignored by any entity. 

While large businesses may already have measures in place to record or even reduce emissions, smaller firms are likely to have some catching up to do in order to ‘future proof’ projects, thinking about how they are going to lower emissions in their particular sector.  It is inevitable that the initial focus will be on the big emitters, such as large firms in the oil and gas industry. However, other industries, and even small businesses, will have a crucial part to play. For example, firms across the infrastructure sector must open up discussions now to make buildings greener or ways in which to deal with refurbishment using less carbon emissions.  It also raises potential challenges as to the future viability of delivering conventional power projects via the private sector through the well-established Independent Power Plant (IPP) model the contractual tenor of which would now be expected to extend beyond 2050.  Some recent projects in the region have attracted sole bidders. 

By taking proactive steps to comply with the law, organisations can not only contribute to the UAE’s sustainability goals but also position themselves as leaders in the global transition to a low-carbon economy. As the enforcement date approaches, it is crucial for all stakeholders to work together to ensure a sustainable and resilient future for the UAE.

Co-written by Louisa Lynch of Pinsent Masons.