Few regions can match the EU’s dedication to lowering the carbon footprint of products sold in its markets. According to the European Environment Agency, as of December, the bloc had 3,519 policies and measures focused on decarbonizing greenhouse gas emissions and promoting renewable energy.

That determination has allowed the bloc to set a “binding intermediate climate target for 2040 of a 90% reduction in net greenhouse gas emissions compared to 1990 levels,” said the Council of the European Union. “This new target is a crucial step toward the EU’s long-term goal of achieving climate neutrality by 2050.”

The Carbon Border Adjustment Mechanism (CBAM) is one of three measures affecting foreign companies trying to establish a presence in the EU market. According to The Economist Intelligence Unit, CBAM “has two primary aims: to increase the global pressure to reduce emissions in carbon-intensive industries and to improve the competitiveness of EU-based producers, which currently face far higher regulatory costs than competing imports.”

The unit noted the mechanism “will have an adverse effect on exports from resource-rich countries in Africa and the Middle East, as well as economies with large industrial bases. “For these countries, the implementation of carbon border taxes in 2026 will make CBAM product exports less competitive in EU markets.”

Egypt lags significantly behind the EU in carbon emissions regulations, and more than a quarter of the country’s exports go to the EU.

Wael Aboul Magd, assistant minister of foreign affairs for climate change, environment, and sustainable development, told AmCham Egypt members in February, “Mechanisms [and] green standards are going to become the trend, and they’re going to intersect with trade with great implications for [Egypt’s exports]. CBAM compliance is not only about the EU.”

CBAM

In essence, CBAM is a unilateral tax imposed on EU importers who bring in products that don’t meet the mechanism’s environmental requirements. The duty amount is determined based on each country’s climate regulations, not the carbon footprints of individual companies or sectors.

“CBAM is both a multilateral climate debate … and a cost line in the balance sheets of how companies,” said Aboul Magd. “Balance sheet costs” will come from “the amount of carbon in the product, whether explicit or embedded in the pricing; reporting and verification costs; and “contractual uncertainties … as a lot of issues are still being ironed out.”

To stay competitive, affected vendors may increasingly shift toward products exempt from CBAM.

To accelerate adoption, the EU “streamlined procedures, reducing the administrative burden for 90% of European importers,” Nermine Abulata, senior adviser to the vice prime minister and national coordinator of the CBAM ministerial committee, told AmCham Egypt members in February. The bloc also “delayed collections from 2026 to 2027.” Nevertheless, she stressed, “there are still many gray areas.”

Unfair, but effective?

Aboul Magd said Egypt and other emerging economies are negotiating vigorously with the EU over CBAM implementation deadlines and penalties to ensure the principle of “common but differentiated responsibilities” is upheld.

That principle states that “while every country in the world has a responsibility to make a contribution to the overall global effort, it’s a differentiated [obligation] because there is a historical duty on industrialized countries that, over two centuries, have exploited resources with unchecked emissions,” Aboul Magd explained.

A second issue with implementing CBAM is it might conflict with the U.N.’s Nationally Determined Contributions (NDCs). “Under the Paris Agreement, there are no obligations to meet specific climate targets at a predetermined deadline,” he said. “Every country makes its own determination based on its national capacities and circumstances.”

In its current form, CBAM imposes the same standards on imports from poor and middle-income nations as on products from advanced nations. It also violates NDCs by forcing a decarbonization pace on all other nations.

Aboul Magd said these two policies are the focus of Egypt’s negotiations with the EU to help facilitate CBAM compliance. The main goal of the talks is to “highlight the injustice inherent in some of these standards,” he said.

The ideal outcome of negotiations would be “the EU pausing [CBAM] implementation [to] think about accommodating and helping mitigate the impacts without necessarily departing from their original plans,” Aboul Magd said.

Currently, Egypt and the EU have agreed to hold three rounds of negotiations over the next three years — until 2028 — to find a middle ground that ensures market access while speeding up decarbonization efforts in emerging markets.

“We don’t expect anything groundbreaking, but at least we want to signal our partners that CBAM’s current setup is a serious issue and show them facts and figures on the actual impact on our industries,” Aboul Magd said.

On the positive side, he told AmCham Egypt members he believes the European side is open to the possibility of “verification flexibility… a very important topic.” This would allow verifiers in Egypt and other emerging markets to be licensed by EU-based CBAM accreditation bodies, thus lowering compliance costs.

Another potential easing measure would be CBAM climate auditing for individual companies, not entire countries, when setting the CBAM tax amount, said Aboul Magd. He added the EU is considering exempting, either fully or partially, companies that pay for their carbon emissions in their home countries from CBAM levies.

Aboul Magd emphasized that these negotiations are “not solely targeting the EU. It just so happens that the European Union is the first to implement climate regulations,”

Industry angle

To enhance Egyptian companies’ competitiveness in the EU under CBAM, Abulata from the CBAM ministerial committee mentioned the creation of a cross-ministry working group on industrial development in mid-2024.

This group includes relevant ministers, governors, the private sector, representatives from the Federation of Egyptian Industries, and various chambers of commerce and export councils.

“It meets every week and takes immediate decisions under discussion,” Abulata noted. She stressed the decision-making process takes less than a week. Topics under discussion include land, labor, capital, technology, eco-friendly and sustainable industries, transportation, and challenges CBAM presents to local exporters.

The committee divided CBAM into three categories: decarbonizing manufacturing processes; greening energy sources and expanding renewable energy; and maintaining the sustainability of raw materials and logistics.

Abulata stated that each category involves “multilevel governance systems involving the government, private sector, international organizations and partners, and civil society.”

These three categories will influence “28 priority sectors including engineering, chemicals, agro-business, and others,” she said. CBAM will mainly impact iron and steel, aluminum, fertilizers, and cement, as they are Egypt’s top exports to the EU.

Abulata stressed CBAM’s impact will vary by industry. For example, steel exports will be affected in the short term, with the impact increasing over time. Conversely, fertilizers will have more time to adapt to CBAM regulations.

Green hydrogen and renewable energy “are in the pipeline” to become key exports to the EU, noted Aboul Magd.

Feasible compliance?

CBAM is likely to hit Egypt-based exporters hard, as the country has no climate-related regulations. Worse, Abulata said, implementing carbon taxes will be challenging.

Firstly, Egypt already has low emissions of harmful gases. “We account for 0.6% of total global emissions,” he said, “and that percentage is decreasing as the government pushes for more renewable energy.” This would make a carbon tax difficult to administer financially.

The second obstacle to enacting environmental legislation is that “the EU has imposed carbon taxes for over 20 years,” said Abulata. “We cannot impose it within … months.”

Currently, the Egyptian government is still researching how such legislation would affect the economy. “We are [still] getting to know what we are getting into,” Abulata said. “The Information and Decision Support Center, collaborating with the private sector and government, is preparing a report on the pros and cons of imposing a carbon tax on the four [heavily CBAM-affected] sectors.”

Nevertheless, Abulata mentioned that the Egyptian General Accreditation Council is the first Arab or African nation to be recognized by the European accreditation body.

The government is also developing an “industrial environment registry” and an “industrial energy registry,” scheduled to launch in 2026 in cooperation with the ministries of environment, industry, and energy. “It is very important to have a baseline for carbon emissions,” said Abulata. “We cannot target or support any part of the private sector without one.” The energy registry will include data on electricity, fossil fuels, and renewables.

However, the government is taking its time to align with CBAM, whose regulations are still evolving. “EU environmental regulations introduced two years ago have significantly changed, which required a new wave of negotiations with the bloc,” Abulata noted.

Multilateral player

While not directly involved in CBAM or the government’s negotiations with the EU, the U.N. Development Programme (UNDP) will play a significant role in helping Egypt and local companies comply with EU environmental regulations.

Ghimar Deeb, the UNDP’s deputy resident representative, told AmCham Egypt members, “The UNDP and other U.N. agencies, including UNIDO and other relevant agencies, will be on standby to provide solution-oriented approaches for these issues. From our perspective, CBAM is simply a compliance requirement, reflecting a broader global shift toward greener trade and more competitive industrial systems.”

He highlighted three ways the UNDP is supporting Egypt’s transition to the green era, regardless of CBAM’s implementation status. “First is the energy efficiency part,” said Deeb. “This is where we see the fastest and most cost-effective solution to protect export competitiveness.”

The second is producing energy from sustainable sources, noted Deeb. “Renewable energy is now cheaper, way cheaper than fossil fuel in most global markets, and this cost advantage is widening every day.”

The third point, “the most relevant for this stage, is the UNDP’s support to the government,” he said. “This is where we see a reduction in business risks in the long run.”

Aboul Magd and Abulata agreed the government is under pressure to speed up its green transformation. “We are on an irreversible path to decarbonize,” said Abulata.

A crucial part of that path will be compliance with current and future climate regulations. “While we are arguing against CBAM, we’re aware that CBAM is a reality and we have to contend with it,” said Aboul Magd. “For us, we have to find the right balance of managing risk while preserving competitiveness.”