Fatima Balfaqeeh, Managing Partner of Balfaqeeh Advocates & Legal Consultancy
The UAE construction sector is booming, representing a US$41 billion industry, potentially reaching US$50 billion in 2029. However, when we examine this growth in an environmental context, we know that construction is one of the most significant contributors to global carbon emissions. Therefore, stakeholders are under increasing pressure to adopt sustainable practices and reduce their environmental footprint. With both international frameworks and national policies shaping efforts toward decarbonization, let’s delve further into the role of FIDIC contracts, UAE initiatives resulting from COP28, and the implications of the new Federal Law Number 67 of 2024.
FIDIC Contracts and Climate Change Mitigation
FIDIC has already adapted its contracts and charters in response to climate change. The Climate Change Charter delivered in 2021 places an increased focus on reducing carbon emissions (from operational and embedded sources) due to building and infrastructure projects, calling on the global engineering sector to reach net-zero emissions by 2050.
Similarly, it demonstrates FIDIC’s dedication to the same concept across its 2017 contract editions. FIDIC Red, Yellow and Silver Books Clause 4.18 — “the contractor shall take all reasonable steps to safeguard against pollution of land or sea…not exceeding such emissions as are environmentally acceptable by local standards. Contractors also must mitigate harm caused by pollution, noise and other operational impacts.” Unfortunately, this can be difficult to enforce, with disagreements often ensuing because “reasonable steps” by environmental standards are so ambiguous.
UAE Efforts and COP28
As the host of COP28, the UAE proved its growing commitment to addressing climate change. The country has set ambitious climate goals, including aiming to achieve net-zero emissions by 2050, making it the first MENA country to adopt such a target. Strategic initiatives involve reducing carbon emissions in electricity production by 70%, investing AED 600 billion in clean energy, and enhancing consumption efficiency by up to 40%.
Federal Law No. 67 of the year 2024, and its directive issued on June 10th to establish a National Carbon Credit Registry, follows some strict environmental laws that put a heavy burden of responsibility on UAE contractors, especially construction companies. This includes the requirement to establish carbon emission reduction targets, installing sustainable building materials and ensuring strict compliance with environmental impact assessments, aligned with UAE’s overall decarbonization strategy. The standards are aimed at compelling companies to go green with their construction methods and energy tools, and incorporate low-carbon principles from pre-planning through to project delivery.
The law establishes a mechanism for the monitoring, reporting and verifying of carbon units being traded, in addition to building management tools. Businesses that make the grade will be given carbon credits, giving them a new revenue stream, while those that don’t meet their targets could face fines or have to pay other companies for their “over-emissions”.
This legislative development aligns with the UAE’s evolved Nationally Determined Contributions (NDCs) and Long-Term Strategy (LTS), mandating that all buildings contribute to the nation’s carbon-neutral path by 2050. For the construction sector, adherence to this law is not only critical for business viability but also a key component in achieving the UAE’s ambitious climate objectives.
Practical Considerations and Challenges
Contractual Provisions and Enforcement:
The draft has been prepared by considering the relevance of similar clauses (such as clause 4.18) in FIDIC contracts, which provide a general framework for sustainability. However, no concrete environmental obligations have been included and it only specifies what may be required when an applicable law requires better performance than that stated within specific parts, mainly section four under termination articles. This ambiguity can lead to disputes between contractors and employers — such as confusion surrounding what happens if a contractor does not meet their safeguarding duties without any economic loss. In addition, if the expectations regarding sustainable features such as carbon reduction are not clearly stipulated in a contract then this can also create problems for contractors to hit specific environmental targets.
Risk Management and Sharing:
Another aspect that project managers must address is risk management related to incorporating sustainability into construction contracts. For example, the NEC’s Option X.29 clause offers a framework for implementing carbon reduction initiatives by linking them to contract processes. This clause includes climate change plans, performance tables, and financial incentives for contractors to meet specific sustainability metrics. It encourages shared responsibility between employers and contractors to meet environmental targets, reducing the risk of failure.
Technological and Process-driven Innovations:
Another tool that might be under-utilized in the construction field, but remains key to meeting carbon offsetting goals, is embracing new technologies and methodologies. These include, but are not limited to, sustainable materials, energy-efficient systems, and green building techniques, which are becoming central to modern projects. However, these innovations often come with higher upfront costs and increased risks. Adopting advanced procurement structures and contract revisions can help mitigate these risks while promoting environmental sustainability.
Collaboration and Knowledge Sharing
Collaboration and knowledge sharing across the industry will accelerate decarbonization. FIDIC’s Decarbonisation of the Infrastructure Sector report stresses the importance of knowledge sharing to achieve carbon reduction objectives, such as advising clients on sustainability goals, developing metrics to monitor carbon emissions, and fostering a culture of sustainability within organizations. Collaboration among stakeholders is a crucial solution to ensure that best practices are implemented.
UAE-Specific Initiatives
As a significant contributor to the country’s economy, the UAE construction sector is at the forefront of its decarbonization efforts. The government is driving technological innovations like digitalization, which improve project management, optimize resource use, and reduce carbon emissions. For example, digital tools help in remote monitoring of equipment and efficient inventory management, reducing operational carbon footprints.
The UAE is also establishing a robust carbon market through the UAE Independent Climate Change Accelerators (UICCA) established in 2023. This initiative, supported by blockchain technology, aims to create a national carbon credit system to incentivize decarbonization and promote clean development projects. The construction industry is expected to benefit from these market mechanisms by gaining access to sustainable finance and accelerating its transition toward net-zero emissions.
To conclude, the construction industry’s move towards a low-carbon economy is essential for achieving global climate goals. FIDIC contracts, the UAE’s Federal Law Number 67 of 2024, and the nation’s carbon reduction initiatives represent significant steps in this direction. That said, successfully implementing these measures will require precise contractual provisions, innovative risk management strategies, and collaborative efforts across the sector.
With the UAE committed to certain outcomes following COP28, its construction industry is positioned to lead the charge in sustainable building practices. By integrating robust sustainability measures into contracts, leveraging technological innovations, and adhering to stringent regulatory frameworks, the construction sector can be pivotal in mitigating climate change and reducing its carbon footprint.
