Plans are afoot to introduce a local carbon trading scheme in Egypt: Recent reports from the local press suggest that the Environment Ministry and EGX are working to set up a local carbon credit exchange. Though plans are still in their infancy and details remain scant, Enterprise spoke with several government sources and industry experts to find out more about how the platform could work and whether it could succeed in reducing carbon emissions in Egypt.

First things first: What actually is carbon trading? Think of carbon trading as a mechanism that puts a price tag on polluting activities. It’s a market-based system that allows firms to buy and sell carbon credits tied to the volume of their emissions, providing a financial incentive to reduce pollution. Companies are handed an allowance in proportion to their emissions and receive credits, each equal to one ton of CO2; they need to purchase more credits if they want to exceed their limit, while those who cut emissions can earn by selling their credits. How much a company has to pay to exceed their emissions cap depends on the market, where supply and demand dynamics determine the price of credits.

Few countries have launched nationwide compulsory emissions trading schemes since the concept was born in the late 1990s. The EU’s emissions trading scheme is the largest international system in the world, covering around 41% of the bloc’s emissions as of 2021, while China last year launched the world’s largest carbon market. Other major economies such as the US and Japan are still to set up national carbon credit markets.

From what we know so far, plans for an Egyptian carbon market follow the international blueprint: The exchange will allow entities that are undertaking emissions-reducing projects to sell certified emissions reduction (CER) credits, Moustafa Mourad, head of the Central Department of Air Quality at the Environment Ministry, told Enterprise. Each credit would be equivalent to one ton of CO2 and could be sold to both local and international buyers, he said.

But key details are yet to be ironed out: It remains unclear which industries would be covered by the scheme and whether participation would be compulsory.

This wouldn’t be the first time Egyptian companies have gotten involved with carbon credits: Egypt’s public and private sector has previously dabbled in carbon trading, but without a regulatory framework or a local platform, activities have been ad hoc and varying widely in price and offerings.

Egypt tried its hand during the early years of the CDM: One of the biggest carbon trading platforms is the UN-run Clean Development Mechanism (CDM). Unlike the “cap and trade” systems implemented in the EU and elsewhere, the CDM is a cross-border system designed to lower pollution in the developing world. The mechanism allows private- and public-sector organizations in rich nations to meet their emissions targets by purchasing carbon credits from clean projects in the developing world and trading them on exchanges. Several Egyptian projects were listed on the CDM from 2008-2013, including the 30 MW wind farm in Zafarana and initiatives to reduce N2O emissions by state-owned enterprises.

The process was long and complicated: To issue carbon certificates under the CDM, entities first have to do a number of studies to offer guidance documents for investors, UN-Habitat Basic Services and Climate Change Programme Officer Ahmed El Dorghamy told us. From there, entities request approval from the designated national authority — the Environment Ministry in Egypt’s case — before heading to the UN, which sends an auditor to further assess the project and give recommendations. This is a long process and could take up to a year in some cases, El Dorghamy adds. Once the project is certified, it’s added to the CDM platform but still remains subject to periodic audits to ensure that it is sequestering the promised amount of carbon.

The carbon credit crash: The CDM system collapsed just five years after launching in 2008 after credit prices crashed. After reaching highs of EUR 25 in its first year, policy changes in the EU and Japan combined with supply and demand dynamics to send prices tumbling to as little as EUR 0.5 in 2012. For Zafarana, which was added to the platform in 2010, the price of a carbon certificate was USD 2-4 per tonne of carbon, Ehab Ismail, vice president of the New and Renewable Energy Authority (NREA), told Enterprise. Meanwhile, other certificates were being sold at less than USD 1 each, he said.

Private-sector players such as Sekem have also given carbon credits a go: Sekem was the first private-sector player to issue carbon certificates in Egypt back in 2009 with the aim of reducing carbon emissions in the agricultural sector under the Economy of Love (EoL) framework, Thoraya Seada, a project manager at Heliopolis University’s Carbon Footprint Center, told Enterprise. EoL encourages farmers to undertake measures to reduce their carbon footprint and helps them issue carbon credits to finance the cost of their projects. The credits are priced at EGP 400 per tonne of carbon and have mostly been sold to Sekem’s network of international companies, EoL Co-Founder and Manager Justus Harm told us. The buyers come from a myriad of industries and include Europe’s Weleda, People Wear Organic, Nature Tex, Knipex, ClimaCoin as well as Egypt’s Isis, Heliopolis University, and Atos Pharma.

An Egyptian platform could increase local participation in carbon trading and generate revenue: The move will give the government regulatory oversight of the market while also being a potentially lucrative venture, Mourad said. Instead of Egyptian companies selling certificates through foreign platforms, a local trading market will help to normalize carbon trading in the country by bringing in more players while also giving the government a means of financially benefiting from the practice, he added. Governments around the world generated more than USD 26 bn in revenues by auctioning carbon credits in 2020, according to the World Bank (pdf).

But is Egypt ready to jump on the trend? “If the aim is to reduce carbon emissions, I don’t think it will,” El Dorghamy tells us. He refers back to the CDM, saying that Egypt listed very few projects on the platform compared to the rest of the world.

It’ll all depend on who participates: Whether or not a local platform can make a meaningful difference to Egypt’s emissions will depend on whether the government makes participation compulsory, he says. “In Egypt, sensitivity to the climate change issue is still low and we still haven’t reached the critical mass that would see this bottom-up change.”

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