The Ministry of Climate Change and Environment has signed a preliminary agreement with UAE-based Industrial Innovation Group (IIG) and Venom Foundation to establish a national system for carbon credits using blockchain technology.
The pact in the run-up to the Cop28 climate summit in Dubai in November and December is in line with the UAE’s stricter carbon emissions reduction targets this decade and achieving its goal of climate neutrality by 2050, a ministry statement said on Monday.
The collaboration aims to reduce emissions and enhance sustainable agriculture, environmental health and biodiversity in the UAE.
The parties aim to develop a system that will provide the highest levels of “transparency, reliability, efficiency and security" in managing, issuing, transferring, calculating and accurate tracking of carbon credits, it said.
“The UAE believes in its ability to make a difference in this field and has pledged, through the third update of its second Nationally Determined Contributions, to reduce its emissions by 40 per cent [this decade] compared to a business-as-usual scenario, an increase of 9 per cent over its previous pledge," said Mariam Al Mheiri, Minister of Climate Change and Environment.
“This requires working according to a scientific approach based on modern technology and the highest levels of transparency to monitor carbon credits to work according to realistic data, achieve tangible results on the ground and achieve climate neutrality by 2050.”
The pact between IIG and Venom for the national system for carbon credits is an “important step”, which reflects the UAE’s determination to boost climate action “for a more sustainable future for us and future generations”, the minister added.
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 funds from the sale of the credits are then used to finance climate-action projects that would not otherwise get off the ground.
The market for the financial instrument could be worth more than $50 billion by 2030, according to consultancy firm McKinsey.
Blockchain is a shared, immutable ledger for recording transactions and tracking assets. The technology is behind secure online wallets and several other payments businesses, as well as cryptocurrencies.
The use of blockchain in the carbon credits system could help to improve the “traceability of specific carbon credits and reduce the risk of double counting of a single credit”, said Edward Bell, senior director of market economics at Emirates NBD.
Like its regional peers, the UAE, the Arab world’s second-largest economy, is developing its carbon market, a trading system in which the credits are bought and sold.
In June, a new coalition called the UAE Carbon Alliance was launched by the UAE Independent Climate Change Accelerators (UICCA), that will help develop a carbon market in the Emirates and support the transition of companies to a green economy.
The alliance’s founding members are AirCarbon Exchange (ACX), First Abu Dhabi Bank, Mubadala Investment Company, Abu Dhabi National Energy Company and Abu Dhabi Future Energy Company, in addition to UICCA.
Last year, The Abu Dhabi Global Market, the UAE capital's financial free zone, announced plans to team up with ACX to create the “world’s first fully regulated” carbon trading exchange and clearing house in the emirate.
The UAE is also investing heavily in clean energy projects such as the Barakah Nuclear Power Plant, a two-gigawatt solar factory in Abu Dhabi's Al Dhafra region and the five-gigawatt Mohammed bin Rashid Al Maktoum Solar Park in Dubai.
In July, the cabinet also approved an updated version of the UAE Energy Strategy 2050 and the development of the National Hydrogen Strategy.
Under the updated objectives of the strategy, the UAE will invest Dh200 billion ($54 billion) by 2030 to ensure energy demand is met while sustaining economic growth.
The ministry said its latest pact was focused on strategic objectives of reducing and cutting greenhouse gas emissions to achieve climate neutrality and developing agribusiness.
It also focuses on promoting responsible investment in the agriculture and sustainable food system.
The parties will co-operate on developing technological solutions for a global platform for registering and issuing carbon credits in the UAE, as well as providing a blockchain-based solution for safe and effective management of the national system.
The collaboration also aims to develop a “legislative and regulatory framework by the ministry to establish the national system for carbon credits".
“By setting up a domestic registry for carbon credits in the UAE, it can help to establish reporting standards for emissions among local corporates who can then make use of the credit system,” Mr Bell said.
“If the credits are used to support projects in the UAE, there is likely to be a more tangible connection for local corporates to see the impact in their home market.”
The preliminary agreement also covers areas such as green investment, adaptation to climate change, preparing and introducing a climate neutrality strategy and enhancing partnership opportunities with the private sector, the ministry said.