The law, objectives and scope
On 28 June 2024, the UAE Cabinet issued Cabinet Resolution No. 67 of 2024 (the Resolution) to establish a National Register for Carbon Credits (NRCC). The Resolution is expected to come into force on 28 December 2024 and will regulate the measurement, reporting, verification and trading of greenhouse gas (GHG) emissions and carbon credits in the UAE. There is a grace period for entities with “huge carbon emissions” to comply with the Resolution by no later than 28 June 2025.
The Resolution aims to (i) help the UAE and UAE entities reduce GHG emissions and achieve climate neutrality by 2050, in line with the UAE’s obligations under the Paris Agreement and the UAE Green Agenda 2030, and (ii) establish and develop a UAE carbon credit ecosystem.
Who is impacted by the Resolution?
On implementation, the Resolution will apply to the public and private sector:
(a) Entities that annually emit 0.5 million metric tons or more of carbon dioxide equivalent (CO2e) from both direct and indirect sources (Entities of Huge Carbon Emissions);
(b) Entities with emissions below 0.5 million metric tons of CO2e annually in the UAE, from both direct and indirect sources, that voluntarily register (Participating Entities); and
(c) Carbon credit trading platforms, which will be regulated by the UAE’s Securities and Commodities Authority (SCA).
For reference, the U.S. Environmental Protection Agency’s online greenhouse gas equivalencies calculator equates 0.5 million tons CO2e to approximately 116,628 petrol-powered cars driven for one year or the energy consumption of 67,148 homes for one year. Consequently, large public and private businesses in the UAE, as well as significant international businesses operating there, are likely to be impacted by the Resolution.
How will the NRCC work and what do entities impacted by the Resolution have to do?
Entities of Huge Carbon Emissions and Participating Entities need to register with the UAE’s Ministry of Climate Change and Environment (MOCCAE) and obtain approval for their carbon credits. Entities of Huge Carbon Emissions can also purchase carbon credits to offset their GHG emissions, while Participating Entities can sell approved carbon credits on designated carbon credit trading platforms.
The Resolution also requires Entities of Huge Carbon Emissions and Participating Entities to:
(a) Establish a monitoring, reporting and verification system for their GHG emissions, in line with international best practice and the Resolution; and
(b) Provide an annual emissions report to MOCCAE and to the applicable authority in the UAE emirate where they are based. Such reports will be audited and verified by a verification entity approved by MOCCAE.
What happens if the entity is not compliant?
The Resolution provides broad punitive powers to the SCA, which can impose penalties, including fines of up to AED 1 million, or suspend an entity’s ability to trade carbon credits for breaching the SCA’s resolutions, controls or circulars. Further penalties and powers are set to be published by the SCA.
Is there anything else entities need to know?
At this stage, all UAE businesses need to be aware of the Resolution and assess whether they may be impacted, or indeed want to participate in the new carbon credit trading regime. Large public and private sector businesses, such as manufacturers, construction companies and developers, airlines, energy companies, logistics companies and family groups, will need to determine if they qualify as Entities of Huge Carbon Emissions.
Bear in mind, however, that the UAE authorities have yet to clarify how the new register and regime will operate, including:
(a) The names of the verification entities that will audit and verify the annual emissions reports;
(b) The capacity and requirement of entities and service providers in the UAE to monitor, measure and report on their direct and indirect emissions, including across all of their facilities; and
(c) Whether international operations and structures, as well as emissions from such entities, are impacted by the Resolution or should be included in the reporting requirements for UAE entities.
It is anticipated that further guidance and executive regulations will be issued by MOCCAE and the UAE authorities in the coming months.
Conclusion
Businesses operating in the UAE that meet the criteria set out above should:
(a) Assess their current GHG emissions and determine whether they qualify as Entities of Huge Carbon Emissions or Participating Entities;
(b) Explore the opportunities and challenges associated with carbon credit trading, and seek legal and financial advice on the regulations and procedures applicable to carbon credit trading platforms; and
(c) Monitor developments and any updates of the Resolution and its executive guidelines and ensure compliance with its provisions.
Client Alert 2024-246
