Carbon Border Adjustment Mechanism (CBAM)

In line with the EU’s commitment to fight climate change, the European Green Deal set out a clear path towards achieving the EU’s ambitious target of a 55% net reduction in greenhouse gas emissions compared to 1990 levels by 2030 and to become climate-neutral by 2050. The EU’s Carbon Border Adjustment Mechanism (CBAM) is the EU’s tool to put a fair price on the carbon emitted during the production of carbon-intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. The CBAM will ensure the carbon price of imports is equivalent to the carbon price of domestic production, and that the EU’s climate objectives are not undermined. The CBAM is designed to be compatible with the World Trade Organization (WTO) rules. CBAM will apply in its definitive regime from 2026, while the current transitional phase lasts between 2023 and 2025. This gradual introduction of the CBAM is aligned with the phase-out of the allocation of free allowances under the EU Emissions Trading System (ETS) to support the decarbonization of EU industry. Egypt is one of the countries that will be impacted by CBAM due to its exports of goods in sectors at high risk of carbon leakage, including iron/steel, cement, fertilizers, aluminum, hydrogen, and electricity generation. CO2 emissions tariffs on imports implemented under the CBAM could threaten the export competitiveness of developing countries, including Egypt, in the EU market. Egyptian industries need to invest in advanced technologies that reduce carbon emissions. This includes upgrading machinery, adopting energy-efficient processes, and transitioning to renewable energy sources. The banking sector in Egypt should seek the opportunity to support the Egyptian industries in “greening” their products or decarbonizing their production.