Egypt launches Africa into carbon trading market

August 16, 2024

Egypt's Financial Regulatory Authority is overseeing the carbon trading market in partnership with the stock exchange. Seven Egyptian brokerage firms have applied for licences

Traders praise ‘smooth process’
Food companies are first buyers
Efficacy in reducing carbon is disputed

The first three trades were made on Egypt’s new carbon trading platform on Tuesday, the first of its kind in Africa.

Two local food companies, Daltex and ISIS Organic, became the first Egyptian buyers of the instruments, purchasing a combined 2,000 carbon credits. Each credit represents a tonne of carbon reduced or removed from the atmosphere.

The inauguration of a carbon trading platform opens Egyptian traders up to a growing global asset class which Morgan Stanley predicts could be worth $250 billion by 2050.

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Improved access to carbon credits could help make Egyptian exporters more attractive overseas and moves to encourage the green transition may boost the country’s overall business brand, promoters hope.

However, carbon trading’s efficacy in encouraging carbon reduction has been hotly disputed. Some studies suggest that a large percentage of the paper on the market has had no impact on combatting climate change.

Many carbon credits on offer around the world come from carbon developments, where a developer typically plants or protects a large area of trees which can count against a company’s own emissions.

VNV Advisory, a developer based in Singapore, accounted for two of the first three carbon deals conducted through the new Egyptian platform this week when it sold 4,000 credits for an agroforestry project it manages in Indian Punjab.

Agroforestry is the deliberate integration of trees and shrubs into farming systems.

Omar El Nemr, VNV’s project manager for the Middle East and Africa, said he had “nothing but good things to say about the platform”.

“The process has been very smooth,” he said. “We haven’t closed transactions this quickly in a long time.”

The developer plans to register 10 more projects on the Egyptian market, including ones based in Egypt itself. El Nemr said the company hopes “that this will also increase visibility for Mena region buyers because historically Mena region corporates weren’t the biggest buyers in the market”.

While the Middle East lags behind a lot of the world in the area of green finance, Egypt has made steps towards becoming a regional leader. In 2020 it became the first Mena country to issue a sovereign green bond in a sale that was over seven-times subscribed.

The Financial Regulatory Authority (FRA), the body overseeing the carbon trading market in partnership with the EGX stock exchange, began discussing initiatives to enter the market following Cop22 in Marrakech in 2016, according to its then-chairman Sherif Samy.

The new carbon market was announced six years later when Egypt hosted Cop27 in Sharm el Sheikh.

Samy said that purchases of carbon credits could make Egyptian companies more attractive to overseas buyers. “I’d like to see an active market because that would also tell me that we’re more export-oriented and more environment-tuned,” he said.

Seven Egyptian brokerage firms have applied for licences to trade on the carbon market, including Beltone Holding and CI Capital, which brokered the first exchanges. Under FRA regulations, a brokerage firm must be party to the transaction.

In its aim of cutting carbon emissions, carbon markets have received a great deal of criticism since they were first formulated in 1997 as part of the Kyoto Protocol.

Inigo Wyburd, a policy expert at Carbon Market Watch, said that while “the concept on paper makes a lot of sense” there are “inherent issues within the market”.

At the heart of carbon trading is the process of quantifying a tonne of carbon that has been reduced or removed from the atmosphere. There is a level of uncertainty involved in making these calculations and sellers of carbon credits are incentivised to overestimate the amount of carbon removed, allowing some unscrupulous developers to sell more credits.

“The problem is that there’s such a grey area where there are some sub par projects creating junk credits that they’re all lumped into one. And it’s quite difficult to differentiate between the two,” said Wyburd.