EU-Egypt climate cooperation can help boost both decarbonization and growth

14 / 02 / 2024

By Gerassimos Thomas, Director-General for Taxation and Customs Union at the European Commission - -

The economic relationship between Egypt and the EU has never been stronger. Bilateral trade quadrupled from €8.6 billion to €37.2 billion over the last twenty years, and the EU accounts for 22% of Egypt’s overall trade flows.

In this era of grave challenges, Egypt and the EU also agreed this January to intensify joint efforts in a range of strategic areas – including climate change. Egypt’s role as a regional leader can inspire others towards decarbonization and demonstrate that green investment can go hand-in-hand with economic stability and growth.

In Europe, having already reduced greenhouse gas emissions by a third between 1990 and 2022, we are working towards an interim target of a 55% emissions reduction by 2030. Last week, the European Commission outlined further pathways to reach a 90% reduction by 2040 compared to 1990. And the EU has legally committed to achieving carbon neutrality by 2050.

As part of that commitment, we identified carbon pricing as an important and efficient instrument to spur the drive to net zero, in line with the polluter pays principle. We welcome that over 50 jurisdictions around the world also use some form of carbon pricing and that an ever-growing number are considering carbon taxation options.

Global decarbonization requires significant changes for society and all industry, in particular energy intensive sectors. In the past, we helped EU industry adjust by issuing free allowances to certain energy intensive sectors under our Emissions Trading System. These allowances are now being phased out at a faster rate, in particular for the most energy intensive sectors where they will be completely phased-out by 2034.

But if our own mitigation tools are to continue performing, emissions shouldn’t simply be reproduced elsewhere. We must avoid the risk of carbon leakage. That’s where the EU’s Carbon Border Adjustment Mechanism (CBAM) comes in.

Europe is a net importer in the sectors covered by CBAM – cement, iron and steel, aluminium, fertilizers, electricity, and hydrogen – and demand is expected to grow, with more sustainable products inevitably finding their way to EU markets. Egypt’s exposure to CBAM is high – almost 20% of exports to the EU are covered, with some sectors highly exposed. For example, 79% of aluminium exports go to the EU.

Now in its transitional phase, CBAM will apply financially to imports from 2026, with effective carbon prices or taxes paid in Egypt deductible from the price paid on import. Such measures can also generate significant revenues to help incentivize investment in clean technologies and fund climate action and social support.

As Egyptian producers become more aligned with international carbon standards – for example through those emerging from the relevant international fora such as the G7 Climate Club of which we are both member – they increase their attractiveness to EU and other markets. International Financial Institutions also find it easier to finance investment in sustainable companies and projects.

Not all countries and businesses have the same starting point. We’re engaging with partners and industry, including this week in Egypt, to explain CBAM and its added value. We are ramping up climate support and capacity building, such as through bilateral programs with Egypt where 50% of funding already goes to climate-relevant projects.

We will deliver refined methodologies for calculating embedded emissions and assess the extension of CBAM to more products and indirect (so-called ‘scope 2’) emissions by mid-2025. We are happy to welcome an Egyptian observer to this work.

All countries have a role to play in fighting global climate change. Through international cooperation, we can perfect – together – the tools we use to achieve sustainable industry that supports sustainable, modern, economies.