October 29, 2024

Guide to Egypt’s New Voluntary Carbon Market: A Corporate and Legal Perspective

Introduction

On August 13, 2024, Egypt took a bold step toward sustainable investment by launching its first organized voluntary carbon market (VCM). The VCM is dedicated to the registration, issuance, and trading of Certified Emission Reductions (CERs), or “carbon credits.”

This initiative was announced by the Minister of Planning, Economic Development, and International Cooperation at the Financial Regulatory Authority (FRA) headquarters. FRA’s Chairman highlighted that this market will enable project developers and financiers to issue carbon credits and trade these on an established platform. It will also increase foreign and domestic investment in carbon reduction projects, thereby supporting Egypt’s dual goals of economic growth and environmental stability.

The framework of the initiative is outlined in Prime Minister Decree No. 4664/2022 with the aim of supporting Egypt’s Vision 2030 and its National Climate Change Strategy 2050.

Egypt’s VCM is designed to attract a diverse range of investors by providing a transparent, structured platform for trading carbon credits, aligning with Egypt’s COP27 commitments.

Understanding Voluntary Carbon Markets (VCM)

A VCM enables organizations to offset their emissions voluntarily by purchasing carbon credits. These credits are generated by projects that actively reduce or remove greenhouse gases (GHG) from the atmosphere. It provides a way for companies to meet internal or industry-driven environmental targets. For businesses, participating in a VCM not only helps to meet sustainability commitments but also offers a potential avenue for compliance with anticipated future regulations.

Egypt’s Roadmap for Carbon Reduction and Environmental Goals

Egypt’s voluntary carbon market aligns with national and international objectives, including:

  1. Vision 2030: Egypt aims to develop an “integrated and sustainable environmental system” that fosters economic resilience.
  2. National Climate Change Strategy 2050: This strategy sets five primary objectives to guide Egypt’s climate initiatives, including low-emission economic growth, climate resilience, governance in climate action, financial infrastructure for climate financing, and enhanced scientific research.

Additionally, the Nexus of Water, Food, and Energy (NWFE) Program represents Egypt’s commitment to reducing emissions. Launched in 2022, NWFE’s projects aim to decrease approximately 17 million tons of CO₂ emissions annually, reinforcing Egypt’s green transition and sustainable development goals.

Global Partnerships and Support for Egypt’s Carbon Initiatives

Several international collaborations underscore Egypt’s commitment to carbon reduction and environmental responsibility:

  • World Bank Support: Through the Development Policy Financing Program and Joint Capital Market Program (J-CAP), the World Bank has been instrumental in supporting Egypt’s carbon market development, providing regulatory guidance and strengthening capital market infrastructure.
  • Zero Routine Flaring by 2030 Initiative: Egypt is a participant in this World Bank initiative, underscoring its commitment to reducing flaring in the oil and gas sectors, a significant source of carbon emissions.
  • Egyptian Carbon Center: Founded in 2022, the center supports local organizations in measuring and managing GHG emissions, as well as offering consulting on sustainability strategies, energy efficiency, and carbon trading.

Regulatory Framework for Egypt’s Voluntary Carbon Market

The voluntary carbon market in Egypt is structured under several key decrees and guidelines, providing a clear and detailed framework for compliance and market participation:

  1. Prime Minister Decree No. 4664/2022: This decree established Egypt’s voluntary carbon market, “Africarbonex” on the Egyptian Exchange (EGX). Carbon credits are defined as tradable financial instruments issued to projects that reduce GHG emissions. The FRA will oversee the issuance of these credits, while the EGX will manage trading regulations.
  2. Key FRA Decrees:
    1. Decree No. 57/2023: Outlines the structure and responsibilities of the Supervisory and Monitoring Committee for overseeing carbon credit issuance and trading.
    1. Decree No. 163/2023: Sets registration criteria for validation and verification bodies, detailing qualifications and procedures for both domestic and international entities involved in carbon projects.
    1. Decree No. 30/2024: Establishes standards for accrediting local carbon registries, enabling project registration and credit issuance on Africarbonex.
    1. Decree No. 31/2024: Provides criteria for listing and delisting carbon credits on EGX, including the ability to trade forward contracts on future credits.
    1. Decree No. 1732/2024: Specifies conditions under which brokerage firms can trade carbon credits.
  3. Supporting Regulations: FRA has also introduced rules for the settlement and trading of carbon credits and their futures and amended Egyptian Accounting Standards to account for carbon credits as assets, following Prime Minister’s Decree No. 636/2024.

Conclusion

The introduction of a voluntary carbon market is a pivotal development in Egypt’s environmental and economic landscape. It enables businesses to participate in carbon reduction efforts while also benefiting from emerging green investment opportunities. With its comprehensive regulatory framework, Egypt’s VCM promises transparency and accountability, fostering investor trust and laying the groundwork for a robust carbon trading ecosystem.

For corporations, investors, and legal professionals alike, Egypt’s VCM represents a forward-looking platform. The Platform aligns with global carbon reduction trends, offers strategic advantages and fulfills corporate environmental commitments. By investing in carbon credits and engaging with Egypt’s VCM, companies can take a proactive role in sustainability, aligning with international environmental goals while contributing to Egypt’s green economy.

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