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 of the CERs trading regulations.
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.
- 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.
