Egypt’s Path to Sustainability: New Carbon Trading Rules

In recent years, Egypt has embarked on a transformative journey in environmental sustainability. The 2022 UN Climate Change Conference (COP 27) in Sharm El-Sheikh significantly boosted climate action. Egypt launched a voluntary carbon trading market on the EGX via Prime Ministerial Decree No. 4664 of 2022.

By August 2024, Egypt launches its first regulated voluntary carbon market, thanks to the FRA’s new regulations. But what does this all mean for businesses and investors?

Egypt’s Bold Step into Carbon Markets

At the heart of Egypt’s efforts is the voluntary carbon market. Unlike mandatory markets, this system allows companies to voluntarily trade Carbon Emission Reduction Certificates (CERs). These certificates represent actual greenhouse gas reductions and serve as tradable assets that align economic interests with environmental responsibility.

FRA’s role has been pivotal in shaping the structure and transparency of this market. On 13 August 2024, new regulations were introduced for accrediting, issuing, listing, and trading CERs on the EGX. These regulations aim to create a strong, efficient market framework, similar to established international carbon markets

The Path to Carbon Trading: Crucial Rules

Egypt’s FRA carbon market regulations are comprehensive and designed for transparency and accountability.

1. Listing of CERs

   The FRA Decree No. 31 of 2024 governs the listing of CERs on the EGX. Projects must be registered in a carbon registry that has been approved by the FRA in order to be eligible for participation. Additionally, recognized organizations must authenticate CERs. Issuers must undergo a rigorous application process, presenting verification reports and registry details to the exchange. Moreover, continuous disclosure is required, ensuring market participants are aware of any significant changes.

2. Trading Transparency

   Trading rules under the new framework ensure all transactions align with global standards. Licensed brokerage firms handle the buying and selling of CERs, while all trades are cleared and settled through approved entities. This framework not only ensures smooth transactions but also bolsters confidence among participants.

3. Delisting Procedures

   Both voluntary and mandatory delisting processes are outlined to maintain the market’s integrity. If a project breaches certain regulations, it can be forcibly delisted, and the issuer is obliged to repurchase the CERs from investors, safeguarding their interests.

4. Forward Contracts for Future Projects

   An exciting aspect of the regulations is the allowance for forward contracts tied to future CER issuances. Businesses and investors can agree to terms on projects still under development, offering opportunities to secure future emissions reductions ahead of their completion.

5. Accreditation of Carbon Registries

   The FRA’s standards for voluntary carbon registries ensure that each CER is uniquely identifiable and traceable. This transparency provides confidence to investors that the CERs they purchase represent real and verified emission reductions.

6. Verification and Validation Bodies

   A crucial pillar of the market is the verification process. Entities responsible for validating emissions reductions must adhere to strict guidelines, ensuring that the projects generating CERs are legitimate and that their reductions are measurable. This process is essential in maintaining the integrity of the market.

7. Brokerage Firms

   Trading in CERs is not unlike trading in traditional financial markets. FRA Decree No. 1732 of 2024 sets out the conditions under which brokerage firms can operate in the carbon market. These firms must meet capital requirements, ensure their staff are properly trained, and invest in technological infrastructure to handle the complexities of CER trading.

What Does This Mean for Businesses?

For Egypt’s businesses—particularly those in carbon-intensive industries—the launch of the carbon market presents both opportunities and challenges. By aligning their environmental strategies with the new regulatory framework, companies can not only contribute to Egypt’s emissions goals but also unlock new avenues for sustainable investment.

1. Strategic Positioning
   Companies that engage with the carbon market early can gain competitive advantages. By participating in carbon trading, businesses can showcase their commitment to sustainability, enhance their reputations, and access new investment opportunities that prioritize environmental responsibility.
2. Investment in Green Projects
   The voluntary carbon market offers fresh opportunities for investment in green projects across various sectors, including energy and logistics. With investors increasingly seeking to support sustainable ventures, companies involved in the carbon market stand to attract interest from both domestic and international players.

A Future Built on Sustainability

Egypt’s introduction of regulated carbon trading is a critical step toward a greener future. The launch of the voluntary carbon market sends a clear message: sustainable development is no longer an option, but a necessity. As Egypt moves forward, businesses and investors alike must adapt to this new reality, finding ways to thrive in a market that values not just profit, but environmental progress.

This journey is just beginning, and Egypt’s commitment to sustainability positions it as a leader in the region’s efforts to combat climate change.