Sustainability.
Strategy.
Impact.
Lighthouseconsultancy.org
In 2024, the United Arab Emirates (UAE) passed Federal Decree-Law No. (11) of 2024 on the Reduction of Climate Change Effects, signaling a transformative step in regional climate governance. Scheduled to take effect on May 30, 2025, the law mandates businesses to report greenhouse gas (GHG) emissions, marking a significant commitment to achieving climate neutrality. This initiative aligns the UAE with international sustainability goals and reflects its ambition to lead the Gulf Cooperation Council (GCC) in climate action.
"UAE’s new climate law mandates emissions reporting, shaping corporate sustainability"
The decree requires comprehensive measures for emissions tracking, reporting, and mitigation. Its introduction follows the UAE’s broader objectives under its Nationally Determined Contributions (NDCs) to the Paris Agreement and underscores its target to achieve net-zero emissions by 2050. For businesses, the law introduces obligations that could reshape corporate strategies, ensuring accountability while fostering innovation. This article examines the law’s implications for the UAE, explores lessons from Europe, particularly Sweden, and discusses how such frameworks can shape the future of carbon pricing and emissions regulation in the UAE.
Understanding Federal Decree-Law No. (11) of 2024
The new climate law sets out key objectives to reduce the UAE's carbon footprint while aligning with international climate standards. Central to the law are three pillars:1. Mandatory Emissions Reporting: Entities must measure and document emissions, maintain records for five years, and submit regular reports to the Ministry of Climate Change and Environment and local authorities. This emphasis on transparency reflects a serious commitment to environmental accountability.
2. Sector-Specific Targets: Industries face annual reduction goals tailored to national climate neutrality objectives. Companies must demonstrate progress in areas such as clean energy adoption, waste management, and carbon offsetting.
3. Verification and Penalties: A robust system for verifying emissions data will be implemented. Non-compliance could result in fines or mandatory operational adjustments, with repeat offenses incurring steeper penalties.
This regulatory framework provides businesses with clear pathways for compliance, including participation in the National Carbon Credit Registry, which facilitates emissions offsets and carbon capture initiatives.
Lessons from Sweden: A Pioneer in Climate Policy
Sweden’s history offers valuable lessons for the UAE. Early recognition of climate risks led Sweden to introduce a CO2 tax in 1991, one of the world’s first and most ambitious carbon pricing systems. Initially met with resistance, the tax became a driver of technological innovation and energy efficiency. Over the years, it has helped Sweden reduce its emissions by 29% since 1990, while its GDP has grown by more than 78% during the same period.
This dual achievement—economic growth alongside emissions reductions—was made possible by fostering green innovation. Companies were incentivized to develop and adopt low-carbon technologies, which spurred Sweden’s emergence as a global leader in renewable energy and environmental technologies.
In addition to the CO2 tax, Sweden’s sectoral approach to environmental governance, implemented through targeted regulations and public-private collaboration, has been instrumental. Businesses have embraced these policies not just as compliance measures but as opportunities to enhance their competitiveness in global markets.
"By learning from Sweden and the EU, the UAE is positioning itself as a climate leader while balancing economic growth and sustainability"
The EU’s Emissions Trading System: A Market-Driven Solution
On a broader scale, the European Union’s Emissions Trading System (ETS) provides another model for integrating environmental accountability into business operations. Launched in 2005, the ETS imposes a cap on emissions while allowing businesses to buy and sell permits within that cap. This market-based mechanism has reduced emissions by 43% in regulated sectors compared to 2005 levels.
The ETS also illustrates the economic potential of environmental policies. By creating demand for emissions permits and incentivizing reductions, the system has driven investments in renewable energy, carbon capture technologies, and other sustainable innovations. European companies have not only adapted to stricter regulations but have also capitalized on new opportunities, such as exporting green technologies to global markets.
Implications for the UAE
The UAE’s climate law mirrors several aspects of Sweden’s and the EU’s approaches, particularly in its emphasis on transparency, sector-specific goals, and market-based solutions. The establishment of a National Carbon Credit Registry sets the stage for a potential Emissions Trading System (ETS) tailored to the UAE’s unique economic and environmental context.
Business Adaptation For companies operating in the UAE, compliance will require significant shifts in strategy, particularly in industries like energy, construction, and transportation. Investments in energy-efficient technologies, renewable energy sources, and carbon capture solutions will become essential. These changes, while initially challenging, present opportunities to innovate and align with global sustainability trends.
Economic Opportunities As seen in Sweden and the EU, strong climate policies can stimulate economic diversification. The UAE’s investments in green technologies and sustainable industries could position it as a regional hub for clean energy and climate solutions. By embracing these regulations, businesses can enhance their competitiveness and access emerging markets for low-carbon products and services. Future of Carbon Pricing While Federal Decree-Law No. (11) of 2024 lays a foundation for emissions reporting and compliance, the adoption of direct carbon pricing mechanisms in the UAE remains uncertain. The law introduces concepts like a shadow price of carbon and the National Carbon Credit Registry, which could evolve into market-based systems, such as an Emissions Trading System (ETS). However, any move toward formal carbon pricing will depend on further policy development, market conditions, and stakeholder readiness, making it an area to watch rather than a guaranteed next step.
