Egypt: Unlocking opportunities - Navigating Egypt's new carbon trading regulations

29 Aug 2024    3 minute read
Sustainability Energy Transition

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.

Contents

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.

* * * * *

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.

Contact Information
Mohamed El Harmy
Partner
Cairo
Read my Bio
mohamed.elharmy@bakermckenzie.com
Ahmed Shehata
Associate
Cairo
Read my Bio
ahmed.shehata@bakermckenzie.com

Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.