AFRICARBONEX: Egypt’s Trading Market For Voluntary Carbon Emissions Reduction Certificates

Climate, Energy &
Utilities Focus

AFRICARBONEX: Egypt’s Trading Market For Voluntary Carbon Emissions Reduction Certificates

Nouv Salama
Associate,
Corporate Commercial

On the 17th of July 2024, Egypt launched the first voluntary market for trading carbon emissions reduction certificates in Africa (“AFRICARBONEX”), as part of its commitment to promote sustainability in Africa. AFRICARBONEX is a regulated voluntary market enabling the trade of Carbon Emission Reduction Certificates (“CERC”), on the Egyptian Exchange (“EGX”) under the supervision of the Financial Regulatory Authority (“FRA”). The establishment of AFRICARBONEX is a vital move towards promoting sustainable financing, managing climate-related risks, and achieving net zero emission in Egypt and Africa. Introduction Since the execution of the Paris Agreement, the global efforts to reduce our carbon footprint led companies and individuals to be more conscious of the climate change and impact thereon. In theory, to effectively reduce one (1) ton of Carbon Dioxide emissions, one would need to plant fifty (50) trees, for a year. In reality, not all individuals and companies will be able to reach their Carbon Dioxide emission goals and thus the introduction of CERC trading by companies and individuals has been recognized to help reach their Carbon Dioxide emission goals. What is AFRICARBONEX? Established by EGX’s Decree No. 795 of 2024, AFRICARBONEX is the first Pan African Voluntary Carbon Market. Projects that voluntarily implement Carbon Dioxide or Greenhouse Gas (“GHG”) emission reduction in Egypt and Africa are eligible to obtain CERCs and trade them on AFRICARBONEX. AFRICARBONEX enables projects to monetize their de-carbonization efforts while achieving sustainable economic growth objectives. AFRICARBONEX is open an open market for all investors. AFRICARBONEX connects buyers and sellers of CERC through licensed brokers. What is a CERC? FRA Decree No. 31 of 2024 (“CERC Listing Rules”) define CERC as “Tradable financial instruments representing units of reduced greenhouse gas emissions. Each ‘unit’ represents one (1) ton of carbon dioxide equivalent emissions. These credits are issued in favour of the project developer after the completion of verification and validation procedures conducted according to internationally recognized carbon emission reduction standards and methodologies, which are carried out by verification and validation bodies, whether local or international, listed in the database prepared by the FRA or the EGX for this purpose”. CERCs were recognized as financial instrument in September 2022, by virtue of Ministerial Decree No. 4664 of 2022, which also set the first legal ground for the establishing AFRICARBONEX. Since the inception of AFRICARBONEX Egypt has witnessed an increased level of demand, not only in the number of project developers, but also the issuing as well as the Verification and Validation Bodies. Issuance and Registration of CERC CERC Listing Rules govern the issuance, registration and listing of CERCs on AFRICARBONEX. CERCs are issued by internationally recognized accredited organizations to project developers, who demonstrate that their projects contribute to the reduction or removal of Carbon Dioxide or other GHG. CERC Listing Rules provide that a CERC must be first validated by an FRA accredited “Verification and Validation Body” before being approved by the FRA for listing on AFRICARBONEX. Once a CERC is approved by the FRA, the CERC is then registered on one of the registries established for said purpose in accordance with the CERC Listing Rules (“CERC Registries”). The CERC Listing Rules organize the set up and operations of CERC Registries. CERC Registries aim to track ownership of the CERC as well as to maintain records of the information relevant to the CERC.

To ensure transparency, supervision and control, the CERC Registries report to the Ministry of Environment on monthly basis. Further, the CERC Registries must comply with a list of comprehensive requirements including obtaining ISO certifications as well as other governance, information and technology requirements. There is an ongoing disclosure obligation on the holder of a CERC. The holder shall disclose to the AFRICARBONEX all material information that may have a significant effect on the trading of the CERC as well as any information about their project and/or any changes or updates to the information pertaining to the CERC. CERC TradingEGX Decree No. 795 of 2024 governs the trading of CERCs on AFRICARBONEX (“CERC Trading Rules”). CERC Trading Rules allow several trading mechanisms including the auction system, continuous trading as well as the execution of pre-arranged deals by means of forward contracts as well as settlement mechanisms. All trading transactions shall be executed through brokers that are trained and licensed by the FRA for this purpose. CERCs may be traded prior to their issuance by means of forward contracts. Pursuant to the CERC Trade Rules, the AFRICARBONEX allows for the trade of forward contracts of CERCs. As per the official website of AFRICARBONEX, the platform currently, has fourteen (14) registered projects, ten (10) brokerage firms and three (3) CERC Registries. Trading CERCs on AFRICARBONEX is not only an effective tool to help projects meet their environmental obligations and reduce their carbon footprint but also a superior tool enabling multinational corporations operating in Egypt to safeguard their carbon footprint in comparison with other counties from which they operate. Regulated Market Trading CERCs is now regulated in Egypt under the supervision of the FRA and the EGX. The voluntary market for CERCs is expected to grow and accordingly additional regulations may be implemented to regulate the different aspects, from issuance to trading of CERCs. Thus, CERC holders and investors should closely follow up the market updates as AFRICARBONEX is expected to grow in the coming few years in response to the global calls for reduction Carbon Dioxide and GHG emissions. Conclusion Egypt is prepared and is surely on the right track to support the global effort in achieving carbon neutrality in line with international standards and Egypt’s 2030 vision for sustainable development. It is yet to be seen if other competing CERC trading markets will be established in Africa or AFRICARBONEX will continue to lead as the first CERC trading platform in the Africa.

For further information,
please contact Nouv Salama.

^{Published in}^{December 2024}