Egypt is only four months away from having to abide by Carbon Border Adjustment Mechanism (CBAM), a tax that will apply to goods imported from outside the European Union (EU).
It imposes a charge on the embedded carbon content of imports — defined as carbon emitted during the production of carbon-intensive goods — equal to the charge imposed on goods produced within the EU.
With the January 2026 deadline for the implementation of the CBAM closing in, the government has been mobilising efforts to enable exporters to face the challenges posed by the new tax.
The state is keen to take steps to enhance the readiness of the Egyptian industrial sector to keep pace with international environmental changes, particularly in the light of the application of the CBAM, Deputy Prime Minister for Industrial Development and Minister of Industry and Transport Kamel Al-Wazir said during a meeting last month with Minister of Planning and International Cooperation Rania Al-Mashat.
According to Ahmed Rushdy, advisor to the Egyptian Stock Exchange (EGX) for Sustainability and Environmental Markets, starting in 2026 EU importers of products like steel, aluminum, fertilisers, cement, electricity, and hydrogen will have to buy CBAM certificates that reflect the carbon emissions from their production.
This is a direct challenge for Egyptian exporters because the EU is Egypt’s largest trading partner. Egypt’s annual exports to the EU amount to around $14 billion, Magdy Al-Nabrawy, head of the Business Development Sector at the General Authority for Investment and Free Zones (GAFI), said during a conference aimed at raising awareness of the CBAM.
Egyptian exports include products from sectors to which the CBAM will apply, namely steel, aluminum, and fertilisers, which are energy-intensive industries with significant emissions. “If Egyptian exporters do not act quickly to reduce their carbon footprint, they will face additional costs at the EU border,” Rushdy said.
These costs could significantly reduce the competitiveness of Egyptian products, he explained.
Rushdy said exporters must start measuring and reporting their emissions, because the failure to do so will result in the EU applying high default values. Companies must also invest in cleaner production technologies to lower emissions in the long term.
“The CBAM is not just an environmental regulation. It is an economic game-changer that demands rapid adaptation from Egyptian industries.”
Egyptian firms should have got ready to adapt to the CBAM a long time ago, Osama Henein, the founder and CEO of Hydrogen Intelligence-Egypt, told Al-Ahram Weekly. The CBAM came into effect in 2023, starting with a transitional phase that runs until the end of 2025.
Henein said the fertiliser industry could be the quickest to adapt to the new rules, but its factories will need some retrofitting to be able to use green hydrogen for fuel instead of natural gas.
While this could cost between $30 million and $50 million and would need around a year, it would be cheaper and require less time than the construction of greenfield ammonia plants, he explained.
On another positive note, most steel plants built in Egypt in the past 15 years utilise direct reduction of iron technology, a process that produces metallic iron from iron ore without smelting, representing 60 per cent of Egypt’s steel production capacity.
The plants can be easily adapted to utilise green hydrogen instead of natural gas or other fossil fuels, thus reducing carbon emissions, he said.
Green power: Henein said that Egypt should also have a dedicated green corridor for green electricity.
Currently, all the energy produced from clean sources is transmitted via the national electricity network, he explained, adding that around 12 to 15 per cent of the 60 Gigawatts produced annually is from renewable sources.
Having a dedicated green corridor would make it easier for producers to produce green hydrogen and calculate their carbon footprint.
Factories could also build their own renewable energy network, but vacant land nearby is not always available, he noted. A second option, he suggested, could be a shared mini or micro smart grid whereby adjacent factories could build a green electricity network that serves them all.
Until factories get their operations in order, they could export to other markets that do not apply the CBAM, Henein said, but this could mean risking losing their market share in Europe.
According to Henein, Egyptian fertilisers are in demand in the European market because of their high quality, encouraging European importers to pay a premium above the market price.
For Egyptian products to enter the EU, EU importers will need to purchase carbon credits certificates or International Renewable Energy Certificates (IRECs) to cover the carbon price that would have been paid if the products were produced in the EU.
If the non-EU producer has already paid a carbon price for producing the imported goods in a third country, that cost can be deducted from the CBAM obligation subject to the carbon price of the third country.
This should encourage the government to impose a carbon tax domestically, Henein said, because firms will be paying it anyway — if not in Egypt, then in the EU.
In the process towards compliance with the CBAM financing can be a problem. According to Rushdy, financing is often the biggest barrier to change. Retrofitting a steel plant, switching to green hydrogen, or modernising fertiliser production lines can cost tens of millions of dollars. Many companies, especially smaller ones, simply cannot shoulder these investments alone.
A July 2025 research paper titled “Is Egypt ready for the EU Carbon Border Adjustment Mechanism (CBAM)? Evidence from FirmLevel Data” authored by Yasmine Kamal, Mahmoud Mohieldin, and Myriam Ramzy found that financial constraints negatively impact a firm’s investment in machinery and vehicle upgrades, which are capital intensive.
According to focus group discussions and surveys with firms making steel, fertilisers, and cement, the researchers found that a lack of funds was a top challenge for their decarbonisation plans.
Al-Mashat said during her meeting with Al-Wazir in July that the two ministries were coordinating to launch the first national platform to mobilise financing and technical support for the industrial sector.
“We are working to maximise the industrial sector’s benefit from international partnerships to increase the competitiveness of Egyptian exports and reduce carbon emissions,” she said.
CBAM ready: According to Rushdy, this would be a highly significant and welcome development.
By officially committing to a national climate finance platform, the government is signaling that CBAM-readiness is a strategic economic priority, not just an environmental concern, he said.
Modeled on the success of programmes like the Nexus for Water, Food, and Energy (NWFE), the platform would be central hub that connects Egyptian industries with the funding, expertise, and partnerships they need to decarbonise and remain competitive in the EU market, he explained.
The platform could connect companies with concessional loans, grants, and blended finance arrangements from international climate funds, development banks, and private investors. By lowering the cost of capital and de-risking projects, it would make large-scale decarbonisation achievable, he noted.
Cherine Khallaf, director of Government Affairs and Public Policy at Lynx Strategic Business Advisors, agrees. This financing is likely to speed the concerned sectors’ decarbonisation and enhance their compliance with EU regulations, safeguarding Egypt’s export markets and helping the country benefit from an increased market share, she told the Weekly.
Moreover, including small-scale industrial projects in the supply chain can help modernise the industrial sector and encourage innovation to leapfrog towards green technologies, she added.
Khallaf suggested a multi-tiered system whereby financing can target both brownfield and greenfield projects. Brownfield finance would focus on retrofitting, carbon offsetting, and resources efficiency measures, while greenfield projects would benefit from the funding of renewable energy and de-risking green hydrogen, eco-design, and circular economy measures.
Equally important is the technical support side, Rushdy said. Many exporters are still unfamiliar with how to measure their emissions, comply with EU reporting requirements, or verify their data through accredited bodies. He explained that without technical know-how, companies cannot develop accurate emissions data or identify the most effective decarbonisation strategies.
Rushdy praised steps already taken by the government, pointing out that the Cabinet approved the national CBAM implementation plan in December 2024, sectoral roadmaps and timelines are being finalised, and a permanent National Committee for Carbon Reduction is in place to oversee progress.
According to the research paper, both firms and the government have a role to play in improving the competitiveness of Egyptian exporters of CBAM products in the EU market. Firms need to identify their financial need and seek green financing, especially loans and grants that are offered through international partnerships that need to be expanded in both volumes and firms coverage.
Firms also need to grasp the opportunities provided by Egypt’s voluntary carbon market, which was first launched in August 2024, the paper said.
The development of this market could facilitate the green transition of firms, as the issuers of carbon credits, resulting from their reduction of emissions, can mitigate their decarbonisation costs by mobilising funds, and the buyers of these credits can use them to offset their carbon footprints.
However, according to the paper, it remains uncertain whether the CBAM regulations will recognise the use of such credits.
Meanwhile, government bodies should provide financial and technical assistance and capacity building to firms, especially in carbon measurement. The government should also establish and identify the national institutions that are specialised and accredited in providing green technical assistance to firms, the paper said.
It should assist firms, especially small and medium-sized ones, in securing the financing of the green transition. That assistance could be in the form of tax incentives or investment subsidies to finance green investments, the researchers suggested.
* A version of this article appears in print in the 21 August, 2025 edition of Al-Ahram Weekly
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