Egypt is preparing to launch its first voluntary carbon market in the near future. The goal is to enable companies to calculate the carbon footprint of their products and establish a supply and demand for carbon certificates.
The significance of carbon certificates is increasing as the European Union initiates the first phase of a mechanism that requires imports from manufacturers belonging to the 27 parties of the United Nations Convention to meet specific environmental standards.
Mahmoud Mohieldin, the UN Climate Change Champion for Egypt, emphasizes the importance of determining the price of carbon credits in Africa to enhance its capacity to finance climate and development initiatives. Furthermore, it is necessary to foster integration between these markets and economic systems as a whole, while deciding on the nature of the carbon market and whether it should be mandatory or voluntary.
Mohamed Farid, Chairperson of the Financial Regulatory Authority (FRA), emphasized the importance of establishing and promoting a market for trading carbon emissions reduction certificates. This initiative aims to incentivize various productive entities to reduce their emissions and direct investments towards emission reduction efforts. The resources generated from these initiatives can be reinvested to achieve the ultimate goal of carbon neutrality.
Farid highlighted that reducing carbon emissions is no longer a luxury but a fundamental aspect of global trade. In line with this, the Authority has compiled a list of entities authorized to carry out verification and certification work for carbon emissions reduction projects.
Sherif El-Diwany, head of the Middle East Department at the World Economic Forum, highlighted that the European Union (EU) has established standards and maximum limits for each industry to regulate carbon emissions. The ultimate goal is to compel countries to address the issue of climate change.
El-Diwany emphasized that Egypt is among the countries that have committed to implementing a mechanism to control carbon emissions. This commitment is particularly significant for Egypt, as it has several industries, such as energy, cement, iron, and aluminum, that are subject to these regulations. Moreover, Egypt is an exporter of these industries to EU countries.
Furthermore, El-Diwany explained that companies exporting to Europe will be subject to a “carbon footprint” tax if their emissions exceed the maximum limit, especially after a three-year grace period. This tax will come into effect in 2026, with a rate of 90 euros per tonne of carbon emitted.
El-Diwany also mentioned that industries unable to reduce their emissions will be able to obtain a “carbon certificate.” The demand for these certificates will create a carbon market, which must be supported by an adequate supply.
To facilitate this process, El-Diwany stated that the Financial Regulatory Authority (FRA) is consulting with experts and international institutions to establish a carbon platform. This platform will enable companies to trade their carbon certificates. He further explained that many companies in the recycling sector have the potential to reduce their emissions.
Additionally, it is important to note that companies failing to adhere to the established standards or unable to implement them will face the risk of losing their exports to foreign markets, leading to a decline in dollar revenues.
Tarek Shahin, Chief Investment Officer at CI Capital, said that carbon certificates encourage investing in environmentally clean industries and provide an opportunity for the Egyptian industrial sector. The reason is they are still in the stages of growth, which makes it relatively easy to turn to modern production methods that allow carbon certificates.
Shahin added that sustainable financing has become closely linked to the principle of prudent investment – regardless of market conditions – because it favors the type of assets that have long-term continuity.
Ahmed Reda, General Manager of Libra Carbon, a subsidiary of Libra Capital, stated that the carbon market presents an opportunity to attract investments in Egypt and transform existing industries covered by the European Union’s carbon border adjustment agreement into environmentally friendly ones.
Reda mentioned that Libra is assessing the environmental performance of the factory in terms of clean and renewable energy, resource optimization, energy and water management, as well as waste management.
He explained that the cost of investment poses a challenge for companies issuing carbon certificates. He also highlighted that his company is undertaking efforts to authenticate carbon certificates by hiring an international investigator. Additionally, the company provides environmental and social governance training to its employees to ensure the validity of the certificates.
Reda emphasized that the company has plans to undertake various projects in the near future, aiming to enhance energy efficiency, explore green hydrogen and green ammonia, and currently, the company is focused on producing and generating new and renewable energy, for which it will issue carbon bonds.
Ahmed Rushdy, advisor to the Chairperson of FRA and Executive Director of the Regional Center for Sustainable Finance, emphasized the importance of verification and authentication certificates.
He clarified the distinction between the validation process and the verification process.
Authentication is a preliminary evaluation that occurs prior to project implementation. It ensures that the project design meets the standards required by carbon reduction registers, using approved methodologies. Once approved, the project undergoes testing and the verification process. This process rigorously confirms the quality of project implementation and the benefits achieved within a specific timeframe.
Rushdy highlighted that the certification and verification process adheres to the competence requirements specified in ISO 14064 and ISO 14065 certifications. He mentioned that two local institutions have applied for certification and verification licenses from the National Accreditation Council.
