The expected role of the carbon certificates market in the Egyptian Stock Exchange
The expected role of the carbon certificates market on the Egyptian Stock Exchange
On the twenty-fifth of last December, Dr. Mostafa Madbouly - Prime Minister - issued Decision No. (4664) of 2022, amending some provisions of the executive regulations of Capital Law No. (135) of 1993, by adding Articles (35 bis 7) and (35 bis 8), to establish and regulate a voluntary market for carbon certificates on the Egyptian Stock Exchange.
This decision came after the Egyptian government launched - during the activities of the climate conference “COP27” in Sharm El-Sheikh - the first voluntary market for trading and issuing carbon certificates, which is the first of its kind on the African continent. The new market will be regulated through cooperation between a number of bodies, including the Egyptian Stock Exchange, the General Authority for Financial Supervision, and others. This is to establish the organizational foundations and work structures to activate the role of this promising market.
Carbon Marketshelps companies and institutions from various sectors recover part of their green investments directed towards projects related to reducing the carbon footprint and greenhouse gases; Thus, the recovered funds are reinvested in working to achieve more Sustainable Development Goals (SDGs) and reach carbon neutrality.
What do we mean by carbon certificates?
By carbon credits, we mean every tradable certificate or permit that represents the right to issue a specific amount of carbon dioxide, or an equivalent amount of a different greenhouse gas. Carbon credits and carbon markets are considered a key component of national and international strategies by many countries and institutions, as part of efforts to mitigate increasing concentrations of greenhouse gases (GHGs) in the atmosphere.
One carbon certificate equals one ton of this gas, or an equivalent amount of other greenhouse gases as is the case in some markets. Carbon trading is an application of the emissions trading approach, whereby greenhouse gas emissions are capped, and markets are then used to distribute emissions among a range of sources.
The aim of these certificates is to allow market mechanisms to direct industrial and commercial operations in the direction of low emissions, or less carbon-intensive methods. Because greenhouse gas mitigation projects generate carbon credits, companies or countries are allocated a certain number of certificates and may be traded to help offset total emissions around the world.
To simplify the matter, let us assume that a factory - in compliance with the relevant laws and regulations - produces an amount of 10 tons of carbon dioxide from its industrial operations, and has undertaken a project to reduce these emissions until they reach only 6 tons; This project will result in 4 carbon certificates, each amounting to one ton. This factory can sell these certificates to other companies, so that each certificate is proof that its owner has financed the reduction of carbon emissions by one ton.
On the other hand, the final owner of this certificate will have the right to generate an additional one ton of carbon dioxide, or its equivalent in other greenhouse gases; Consequently, many companies resort to purchasing carbon certificates to allow their emissions to increase, especially those companies that operate businesses that are difficult to reduce their carbon footprint.
Regulation of Carbon Certifications
Article (35 bis 7) of Capital Law Regulations No. (135) of 1993 stipulates: “A voluntary market for trading carbon emission reduction certificates shall be established on the Egyptian Stock Exchange. These certificates are tradable financial instruments... and are issued for the benefit of any party implementing projects to reduce greenhouse gas emissions after obtaining the approval of the relevant competent authorities. Each unit represents a ton of carbon dioxide equivalent that has been reduced....”
To regulate the matter, the amendments to the regulations in Article (35 bis 8) stipulated the formation of a committee to supervise and control carbon emission reduction units, which is responsible for setting the rules for issuing carbon emission reduction certificates and making them available for circulation.
This amendment may be the cornerstone for starting the trading of carbon certificates in the Egyptian market, but so far the law regulating the mechanism of these certificates and how to trade them has not been issued. Therefore, Representative Ghada Ali submitted a draft law amending some provisions of the Capital Market Law, which was discussed and approved in the Economic Committee of the House of Representatives, which is headed by Dr. Muhammad Suleiman.
Perhaps the aim of this is to add stronger legitimacy to the carbon certificate trading market, given the strength of the laws compared to ministerial decisions, and to formulate a green financing policy in various Egyptian sectors, especially after Egypt hosted the “COP27” climate summit.
These efforts to bring Egypt into global carbon markets will have a significant impact in driving green investments and strengthening Egypt’s leadership position in the African continent in supporting projects to reduce carbon emissions, in order to achieve many Sustainable Development Goals (SDGs).
What is expected from the new legislation
The Egyptian carbon trading market has an important role in supporting the efforts of various countries of the African continent, whether at the private or governmental level. To achieve many benefits on the three basic aspects of development: economic, environmental, and social.
We will not exaggerate if we say: The announcement of a voluntary market for trading carbon certificates in Egypt is a long-awaited and historic event, as it puts the African continent on the map of global climate action. It will also allow many countries to obtain more climate financing and increase their capabilities to adapt to climate change.
The voluntary carbon market - which is the first of its kind in Africa - comes in line with Egypt’s National Climate Change Strategy 2050, which mainly focuses on increasing the efficiency and strengthening of climate financing infrastructure.
We are certainly aware that the completion of the legislative and legal framework for trading carbon certificates will take some time, but we hope in the near future that these expected results will be achieved by issuing up to 7 billion tons of domestic carbon credits within the next few years.
We expect the voluntary carbon market to contribute to transforming many sectors into sustainability, not only the agricultural and heavy industry sectors, but also various service institutions.
The final formulation of the legislative framework regulating the voluntary carbon market will have a significant impact on the emergence of a large number of Egyptian companies operating in this emerging market, and it will also be crucial to market this market appropriately, such as promotional tours in the countries of the African continent.
In conclusion, we can only express our happiness with this long-awaited step, and we also look forward to achieving a number of green achievements in the next few years. As a result of the expected support from the voluntary carbon market, and in line with the National Climate Change Strategy 2050.
