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Egypt: Unlocking opportunities – Navigating Egypt’s new carbon trading regulations

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In brief

Since the landmark Climate Change Conference (COP 27) in Sharm El-Sheikh, Egypt has been on a mission to revolutionize its carbon trading market. This journey began with Prime Ministerial Decree No. 4664 of 2022, which set the stage for a voluntary carbon market platform within the Egyptian Stock Exchange (EGX). Recently, the Egyptian Financial Regulatory Authority (FRA) introduced a series of groundbreaking regulations to create a robust framework for the accreditation, issuance, listing, delisting, and trading of carbon emissions reduction certificates (CERs). On 13 August 2024, the FRA officially launched the first regulated voluntary carbon market. These steps underscore Egypt’s dedication to sustainable development and its ambition to lead the carbon trading market in the Middle East and Africa. In this client alert, we provide an overview on the CERs trading regulations.

In depth

1. Listing of CERs on EGX

The FRA’s Decree No. 31 of 2024 outlines the rules for listing, delisting, and trading CERs on the EGX. This decree aims to foster a transparent and efficient market, ensuring that traded certificates represent genuine reductions in greenhouse gas emissions.

  • Eligibility: CERs must come from projects registered in an FRA-accredited carbon registry and verified by an accredited body.
  • Application Process: Issuers need to submit a comprehensive application to the EGX, including verification reports and registry details as well as a evidence of the CREs with a licensed clearing and settlement company
  • Disclosure Obligations: Issuers must disclose any significant changes or events affecting their CERs.

2. Trading Rules

  • Market Operations: Trading on the EGX will follow rules that ensure transparency and efficiency, aligning with international standards.
  • Clearing and Settlement: All trades must be cleared and settled through licensed entities.

3. Delisting Procedures

  • Voluntary Delisting: Issuers can voluntarily delist their CERs under certain conditions.
  • Mandatory Delisting: The EGX can mandatorily delist CERs for significant breaches. In the event of mandatory delisting, the issuer or project financier must repurchase the CERs from affected investors.

4. Forward Contracts

The decree also allows for forward contracts tied to future CER issuances, detailing project terms, expected volumes, and delivery obligations.

5. Accreditation of Voluntary Carbon Registries

Voluntary Carbon Registries are responsible for the issuance, registration, and tracking of CERs. FRA Decree No. 30 of 2024 sets high standards on governance, data security, and transparency for accrediting voluntary carbon registries, ensuring each carbon reduction project and certificate is uniquely identifiable and fully traceable.

6. Verification and Validation Bodies

FRA Decree No. 163 of 2024 establishes standards for entities verifying and validating carbon emission reduction projects. These bodies ensure that the projects achieve genuine and measurable reductions in greenhouse gas emissions, which are then certified and made available for trading. Accredited bodies ensure the legitimacy and effectiveness of these projects.

7. Brokerage Firms

Similar to securities, trading must be made through licensed brokers. FRA Decree No. 1732 of 2024 outlines conditions for brokerage firms to trade CERs, including capital requirements, technological infrastructure, record keeping, staff training and regulatory compliance.

Implications for market participants

The launch of the carbon market marks a significant shift in Egypt’s financial, economic, and environmental landscape, presenting opportunities for businesses in carbon-intensive industries and those committed to sustainability.

  • Strategic Positioning: Businesses should align their environmental strategies with the new regulatory framework. Engaging in the carbon market early could provide competitive advantages, such as access to new investment opportunities and support achieving sustainability targets.
  • Opportunities for Sustainable Investment: The voluntary carbon market offers new investment opportunities in green projects in multiple business sectors, including energy and logistics

The Baker McKenzie team is here to help you navigate these new regulations and seize the opportunities they present. If you have any questions or need further information, please don’t hesitate to reach out. Our team is ready and eager to assist you with compliance, accreditation, or any other strategic needs you may have.

* Yara Yasser, Trainee, has contributed to this legal update.

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Updated 2023 LOGO_Egypt Helmy Hamza & Partners Cairo

© 2024 Helmy, Hamza and Partners. All rights reserved. Helmy, Hamza and Partners is a member firm of Baker & McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.

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Author

Mohamed Elharmy is a partner at Helmy, Hamza & Partners, Baker McKenzie Cairo. He has been practicing law since 2011, with a particular focus on banking, project finance, oil and gas, renewable energy and projects. Mohamed advises commercial lenders, ECAs, sponsors and borrowers. He is primarily involved in cross-border and local syndicated project finance, real estate finance, acquisition finance and asset finance. He has been ranked as a "Highly Regarded Lawyer" by IFLR1000 in its 30th, 31st and 32nd editions and a "Rising Star" by Legal 500 EMEA in 2014. Mohamed received his licence en droit from Cairo University in 2011, in addition to his master's degree in law from Cairo University in 2013 and the University of Aberdeen in 2016.

Author

Ahmed Shehata is a senior associate at Helmy, Hamza & Partners, Baker McKenzie Cairo. He practices in banking, finance and projects, with a special focus on various forms of debt finance, loan facilities and debt capital markets. He has experience in drafting facility agreements, security documents and other finance and project development documents (including offtake and grid arrangements). Ahmed has advises lenders, commercial banks, multilateral financial institutions and export credit agencies, as well as developers and sponsors, during all stages of the structuring, development and financing of major projects. He obtained a B.A in Law with honors from Cairo University's Faculty of Law in 2016. He later went on to achieve a Master 1 in International and European Business Law from Universite Paris I (Pantheon-Sorbonne) in 2015 and Professional Master 2 in Banking and Financial Law from the same university in 2017. Ahmed was admitted to the Egyptian Bar Association in 2016.

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