Mapping out COP27

February 27, 2022


During the 26th United Nations Climate Change Conference of the Parties (COP26) in Glasgow, many were skeptical about commitments to hold global warming to 1.5 degrees Celsius above pre-industrial levels by 2030. “We have kept 1.5 degrees alive … but its pulse is weak,” said Alok Sharma, president of COP26, during concluding remarks last November. According to the Intergovernmental Panel on Climate Change’s 2018 report, warming above 1.5 degrees would result in irreversible and increasingly severe crises

During the “Building Momentum to U.N. COP27” forum held Jan. 24-25, U.S. Chamber of Commerce President and CEO Suzanne Clark said COP26 had “unfinished business.” As host of COP27, Egypt and other attendees hope the conference will focus on meeting COP26 pledges, such as reducing the use of coal.

COP27 likely will emphasize finance and investment opportunities across various sectors, and the January forum suggested it might be a “private sector COP.”

View from above

“Egypt intends to utilize its incoming COP presidency and leadership on global climate action,” said Prime Minister Mostafa Madbouly in his opening remarks. The aim will be “to enhance public-private partnerships, sustainability, green growth and achieve a just transition toward a green economy.”

The government has undertaken several structural, legislative and policy reforms since 2016 to attract eco-friendly investment. “Our efforts have contributed hugely to developing an enabling environment [for] the private sector,” said Madbouly. That includes new laws that opened previously inaccessible sectors, such as the national electricity grid and waste management.

Another focus for Madbouly is that all government projects have an environmental dimension, despite Egypt contributing only 1% to global greenhouse emissions. “We aim to make the government’s budget 100% green … by 2030,” he said. The government and Commercial International Bank (CIB), a private bank, issued the Middle East and North Africa’s first green bonds to “offer new and innovative financing for green projects, waste management, green transport and renewable energy, among others,” he said. “Local banks now have specialized departments dealing with [eco-friendly] finance.”

The prime minister stressed the importance of capitalizing on solid partnerships with the United States to realize Egypt’s goals. “We look forward to further cooperation with the American private sector to materialize ambitious policies into projects and programs that will contribute to sustainable development while addressing climate change.”

For American investors, there should be plenty of opportunities in Egypt. U.S. Special Presidential Envoy for Climate John Kerry noted the “huge amount of good [that] came out of Glasgow,” yet the world is still “in trouble.” However, he said it is “trouble we can get out of” if the world can keep global warming at 1.5 degrees.

If that is not possible, the world will face catastrophes. “All [have] seen the devastating consequences of neglect we are all responsible for,” said Minister of Foreign Affairs Sameh Shoukry. The significant takeaways from COP26, he noted, were the momentum it created and the political will demonstrated. COP27 aims to maintain that momentum, capitalize on it and “raise ambitions.”

Private businesses are vital partners in achieving those objectives. “They [can] be a validator of good choices,” said Kerry. That makes them critical for climate transformation because they create jobs and products that can reduce the carbon footprint of everyday life. The world sees “spontaneous, proactive leadership” from businesses leading by example, he said.

Kerry said businesses could provide financing beyond any government’s budget. “The business community can help do the single most important thing here … help to structure the finance for this transition,” he said, adding that six of the biggest U.S. banks have announced they will allocate a total of $4 trillion for eco-friendly investments over the next 10 years. The government’s role will be to create incentives and lower legal barriers.

Shoukry’s aim during COP27 will be to flesh out Africa’s needs: “We will be listening carefully to the needs and priorities of African and other developing countries that have suffered greatly from the negative effects of climate change.”

The financing issue is fundamental because of “deficiencies that exist” in most developing countries, noted Shoukry. He stressed the private sector and NGOs are key.

What Egypt needs

Minister of Environment Yasmine Fouad, who will be Egypt’s envoy to COP27, sees the goal of this year’s conference as “raising the ambition” and “involving the private sector.” “We aim to build implementable, realistic, yet ambitious … green partnerships,” she said.

Egypt has many opportunities for eco-friendly investors. The Intergovernmental Panel on Climate Change says the country is highly susceptible to climate change, classifying the Nile Delta as “extremely vulnerable.” “Water is the essence of everything, impacting food security, agriculture, manufacturing and land use,” said Fouad. “It could also destroy settlements and infrastructure.”

President Abdel Fattah el-Sisi in 2019 formed the National Council for Climate Change, headed by the prime minister. Its first decision was to approve Fouad’s five-pillar strategy: lowering carbon emissions, making Egypt more resilient to climate change, enhancing climate actions, creating a “green financing” ecosystem and investing in R&D.

The government would have to partner with the private sector to realize its targets. According to Fouad, the energy sector — oil and gas, fuel for automobiles, and electricity generation — holds the most promise as it accounts for 64% of Egypt’s greenhouse emissions. Agricultural activities contribute 14%, industry 12%, and waste management and disposal 8%. “The more opportunities that we open, the more likely we will realize our [climate] ambitions,” she said.

In 2015, the government passed feed-in tariffs to incentivize solar and wind energy generation projects. Now, there are similar payment arrangements for waste-to-energy and sludge-to-energy operations. Another opportunity for the private sector is in managing those clean energy facilities, noted Fouad.

Those opportunities will only increase as Egypt aims for clean energy sources to account for 42% of energy production by 2035. That includes using cleaner fuels such as natural gas, blue hydrogen produced from carbon and eventually green hydrogen from renewable sources.

Other opportunities for companies involve protecting shorelines, seaside settlements and agricultural land, particularly in coastal governorates from Alexandria to Damietta. Fouad also noted the importance of water-related projects, with the government acknowledging Egypt’s water poverty status since 2018. As a result, opportunities exist in wastewater management and recycling, irrigation, low-water crops, industry and recycling. The government also wants to increase the fresh water supply by promoting desalination projects, she said.

Lastly, the automotive industry should attract more private investments than ever. The government is replacing 20-year-old cars with new ones that use natural gas and building electric vehicles with local components.

According to Fouad, the key is to make projects “bankable.” Tarek Tawfik, AmCham Egypt’s president, said private sector involvement will be contingent on policies and profits, describing them as “inseparable.”

Decarbonizing water, agriculture

The first public-private partnership projects should target water and agriculture supply chain inefficiencies. “Waste in supply chains, logistics, cold storage and other parts is between 30% and 35%,” said Tawfik. “Reducing it to between 5% and 6% in line with international standards would greatly increase [water] delivery efficiency.”

The following steps should boost freshwater supplies through desalination projects, wastewater recycling, new irrigation techniques, and canal upgrades to prevent seepage, increase arable land, and modernize agricultural infrastructure, said Tawfik.

All solutions must address the needs of farmers, raise awareness and be easy for them to operate, stressed Natasha Santos, vice president and head of stakeholder affairs and strategic partnerships at Bayer’s Crop Science Division. “The aim is not just to reduce emissions,” she said, “but also remove carbon from the air and increase environmental resilience.”

Ultimately, those solutions would reshape Egypt’s crop mix, and land and water use noted Tawfik. “Improving the agriculture value chain would add 2% to GDP,” he said.

The U.S. private sector should play a significant role in that development. Jim Andrew, executive vice president of Beyond the Bottle businesses and chief sustainability officer at PepsiCo, highlighted some of his company’s technologies and initiatives that could benefit agriculture in Egypt.

Last year, the company launched its PepsiCo Positive campaign to reach net-zero emissions by 2040. It focuses on sustainable agriculture throughout its supply chain, building an inclusive circular value chain with zero waste or byproducts and sustainable packaging.

In April, PepsiCo also launched the Soil and Water Outcomes Fund to finance eco-friendly ideas that promote regenerative agriculture. Additionally, the company is developing responsible potato farming practices in South Africa and offers a reverse credit system for garbage collectors in Egypt. “Those are part of a bigger campaign titled ‘Recycle for Tomorrow,'” said Andrew. “It is not just good for business. It is good for all of us.”

However, securing foreign direct investments in green projects will prove challenging, as most other emerging markets compete for capital and financing, particularly water projects. “Water is the vector through which climate change will cause the most suffering,” said Albert Cho, senior vice president and chief strategy and digital officer at Xylem, a water technology company.

Eco-fueling the future

One of the biggest challenges facing climate goals is decarbonizing the oil and gas sector. According to the Central Bank of Egypt, oil and gas account for 13.4% of total investments in the country.

Tarek El Molla, minister of petroleum and mineral resources, highlighted his ministry’s decarbonization strategy through 2035, co-developed with the Ministry of Electricity and Renewable Energy. It aims to ensure Egypt’s energy security, financial sustainability and sector governance. “Monetization and a focus on sector-wide decarbonization are our main focuses,” he said. “That extends to our partners, and local and international companies.”

The first decision was the 2019 “price correction” for all petroleum products and implementing an index system that adjusts gasoline prices every three months. The second step was to promote natural gas use. According to the U.S. Energy Information Administration, it is the least polluting fossil fuel.

El Molla said petroleum consumption dropped 30% between 2014 and 2020, while natural gas increased by 35%. Last year, natural gas accounted for 65% of Egypt’s fossil fuel mix.

Secondly, the strategy promotes efficiency. “We’ve implemented projects worth $1.5 billion, organized two conferences and provided support to energy companies,” Molla said, estimating $50 million total in fuel savings due to upgrades and new facilities.

The third pillar of the ministry’s 2035 strategy is investing in clean and sustainable fuels. El Molla pointed to a new Egyptian Natural Gas Holding Co. (EGAS) department that promotes carbon-free fuels.

In addition, the ministry is part of a World Bank initiative to reduce emissions from flaring oil rigs by 2030. “We also are working with partners to expand recovery” of waste, said El Molla. “Those agreements cover all upstream and downstream activities.”

Another initiative is the ministry’s participation in the International Energy Agency carbon capture, utilization and storage program, implemented with the help of the U.S., El Molla said. He is also working with Eastern Mediterranean Gas Forum members on decarbonizing extraction and natural gas liquefaction.

El Molla stressed the government wants “realistic [solutions] that can be implemented on the ground. [Therefore] we have not set a time [frame] to reach any decarbonization milestones.”

U.S. oil and gas companies see the opportunities the ministry is creating. “The government’s vision to modernize the … oil and gas sector has [allowed] us to … modernize our concession agreements, unlock opportunities to develop, advance and invest in technology to reduce emissions,” said John Christmann, Apache’s CEO and president. Driving the company’s decarbonization strategy is its adoption of U.N.’s environmental, social and governance (ESG) criteria. “We set aggressive short-term targets within our control,” said Christmann, “and we can deliver.”

For example, Apache eliminated routine flaring from its U.S. plants in 2021. The company could work with the Egyptian government to adopt similar technologies to reach the same goal by 2030, noted Christmann. Apache also uses national gas or solar power at all its Egypt-based facilities.

Another possible U.S. partner is Houston-based Baker Hughes, which announced its net-zero pledge in 2019. “We are an energy technology company,” said Lorenzo Simonelli, president and CEO. “Our role in the ecosystem is to [offer] solutions and technologies that allow a roadmap to net zero.”

He emphasized that the world still needs fossil fuels. “We see a world where the use of hydrocarbons will continue for decades. So it is important to lower emissions … We have to take a pragmatic approach,” said Simonelli, suggesting that existing technologies could lower fossil fuel emissions by 40%.

Applying carbon capture, utilization, and storage technologies could reduce emissions by 20% more than the 2015 Paris Agreement targets, said Simonelli. “Technology is not what could stop us …. it is policy,” he said.

Such technologies could prove vital, as Simonelli expects demand for liquefied natural gas to double by 2030. In the MENA region, Egypt and Saudi Arabia could be producing blue hydrogen by then. “We see an addressable hydrogen market worth $25 billion by 2030,” said Simonelli.

The Sovereign Fund of Egypt (TSFE) is already reaching out to investors to discuss eco-friendly opportunities. “We have built a pipeline that is biased toward manifesting where our green agenda can be exemplified,” said fund CEO Ayman Soliman. At the top of the list are green hydrogen and green ammonia projects. “This is a future avenue for how we can transform renewable energy into an exportable medium of green fuel.”

Egypt can produce renewable energy at competitive prices, said Soliman, with the country’s energy infrastructure and proximity to Europe increasing export opportunities. Meanwhile, with about 15% of global shipping traffic passing through the Suez Canal, private investors could boost the canal’s competitiveness by turning it into a worldwide hub for supplying ships with green fuel, he said.

However, hydrogen is in the early stage of development, with some provisional deals signed and pilot studies underway. In October, Abu Dhabi-based Fertiglobe partnered with Scatec and TSFE to develop green hydrogen as feedstock for ammonia production at Ain Sokhna on the Gulf of Suez.

In July, Eni signed a deal with the Egyptian Electricity Holding Co. (EEHC) and EGAS to assess the feasibility of producing green and blue hydrogen by storing carbon emissions in depleted gas fields. And in August, Siemens signed a memorandum of understanding with the EEHC to co-develop a hydrogen facility with export capability.

Green power

With a global move toward renewable energy to combat climate change, Egypt has the potential to become Africa’s hub for these projects, harnessing its considerable solar and wind resources. The goal is to achieve more renewable sources of electricity to meet sustainability goals and continue grid expansion.

Mohamed Shaker, minister of electricity and renewable energy, said the administration started to seriously promote wind and solar projects a few years ago. Shaker said Egypt allocated more than 7,500 square kilometers of land to solar and wind farms that could generate up to 90,000 megawatts of electricity and has “started to utilize this to a great extent.”

The government’s Integrated Sustainable Energy Strategy launched in 2019 lays out plans for renewables to account for 42% of energy production by 2035. In addition to allocating land, Shaker plans to disclose all information concerning wind and solar power to investors and hold customs below 2% on imported materials related to renewable energy. “We are relying to a great extent on private investments in this direction,” he said.

Stuart Jones, president, regions and corporate relations at Bechtel Corp. said companies like his see opportunities, particularly in “projects that require new technologies and approaches, and where there may be an international component.” That might include pump storage, carbon capture, battery storage and hydropower, noting Bechtel supplied a plant in Minya.

Khaled Hashem, president – North Africa for Honeywell International, said his company recognizes the potential and momentum “triggered by COP27 and [Egypt’s] will to invest in sustainability programs.” He added that Honeywell is negotiating with the government on several projects, including an initiative that sees the company “recycling plastic for parts that can’t be recycled through mechanical methods.”

Another goal is to make power grids more resilient against risks such as extreme weather disturbances, cybersecurity and growing demand for electrification, Roger Martella, chief sustainability officer for General Electric (GE), said. GE focuses on providing “technology and substations that support Egypt’s growing wind and solar generating capacity.”

However, Hashem sees a significant challenge. “We know [sustainability] is a mandate; we all have to do it. The challenge, in most of the cases, is that it’s not economical,” he said, adding that is where Honeywell excels.

Ahead of COP27, Martella emphasized the feasibility of achieving decarbonization goals while making the energy sector more resilient. “We’re passionate about making sure that as we’re decarbonizing, we’re making electricity reliable, sustainable and affordable at the same time,” he said.

With such ambitious goals, companies are expanding their renewable energy portfolios. “As we grow renewables,” said Martella, “you always want to create more opportunities for renewables to succeed.”

With ongoing projects by General Electric, Honeywell, Bechtel, and others, Egypt’s electricity ministry hopes to realize its ambitious plans for COP27 in November. The next challenge will likely be maintaining initiatives through 2035 and onward to more renewable options.

Building the tech ecosystem

The COVID-19 pandemic has accelerated technology adoption, from e-commerce and augmented reality to one-to-one personalization and live streaming. As a result, Internet use globally jumped about 78% in the past year alone, and the tech industry accounts for 3.5% of harmful emissions.

Lawrence Berkeley National Laboratory in California has estimated electricity consumed by U.S. data centers is enough to power 6 million homes. By 2030, the ICT sector will require 21% of global electricity consumption, up from 5% to 9% now.

“Technology and the environment have a bit of a love-hate relationship,” said Golestan Radwan, adviser to the minister for artificial intelligence at the Ministry of Communications and Information Technology (MCIT).

On the one hand, electrical equipment depletes natural resources like rare earth elements and precious metals, generating e-waste as new devices replace older ones. And the computing power needed to mine digital currencies, train artificial intelligence systems and other applications has a large energy footprint. But on the other hand, technology provides crucial data to address global environmental challenges, noted Radwan.

As a result, ICT companies are trying to slow greenhouse gas emissions. “We have an important role to play in reducing our … impact on the planet … continuously develop[ing] solutions that can drive progress to a resource-efficient future,” said Louise Koch, global social impact director at Dell Technologies. “We set a goal of reducing … emissions by 50% by 2030. We’ve also committed to purchasing 75% of our electricity from renewables by 2030 and 100% by 2040.”

Dell is working with suppliers to reduce the carbon footprint of their products by 60% by 2030. The company also is “reducing the energy intensity of our entire product portfolio by 80%,” Koch added.

However, the ICT sector faces challenges finding the right indicators to measure the impact of decarbonization efforts, said Lloyd Treinish, Distinguished Engineer and Chief Scientist for Environmental Modeling, Climate, Weather and Deep Thunder at IBM. He blames the long-term nature of such investments and uncertainty over the effects of climate change.

One example is buildings with green rooftops and green spaces. “Such a design can … reduce heat impacts on a population, but one should also look at … how that might affect the propagation of pollution and the effect of air quality and water availability,” Treinishsaid. “We need models that can … look at the impact of certain trade-offs during the lifetime of infrastructure and then help … decision-makers choose what optimizations make the most sense.”

Governments can’t apply climate solutions blindly. “Egypt needs refined studies nationally and regionally to match the scale of what decision-makers need to understand,” said Treinish.

Involving academic institutions and advocacy groups in public-private partnerships could prove crucial for Egypt to achieve its climate ambitions and protect the most vulnerable communities.

Those efforts are a must as the government pushes digital transformation. It aims to grow the economy “in a fast and sustainable way by modernizing villages and transforming urban communities into smart and sustainable cities,” Radwan said.

The first step is expanding optic fiber network coverage, Radwan noted. In addition to higher data transfer speeds, they emit less harmful emissions and are more energy-efficient. The MCIT also wants mobile network operators to share transmission towers to reduce power use and emissions. “We’re also working on using solar panels for telecom sites along with [Telecom Egypt’s] transmission network,” she added.

The ministry is working with the Swiss government to promote sustainable and e-waste recycling investments. “We also are working to establish a dedicated center for the collection and recycling of old electronic devices,” Radwan said, adding that artificial intelligence will be used in waste management for automatic sorting.

That could create new opportunities for both the government and private sector, she said, including startups, small businesses, universities, and research institutes.

Meanwhile, the government has digitized more than 130 services, reducing the need for citizens to commute. The first milestone is to make all government operations and transactions in the New Administrative Capital paperless.

The government offers farmers new AI-powered tools, such as Hudhud, a smart farmer assistance program launched in September, and Kenana, an online portal for agricultural communities. The government is also developing digital tools to ration groundwater use in irrigation based on crop types, growth stages, weather, soil moisture and other factors, said Radwan.

Finally, the ICT ministry is working with the Egyptian Meteorological Authority on AI-enabled forecasting, early warning systems and mapping climate change-related risks, said Radwan.

Financing challenges

Securing financing for green projects in Egypt and other emerging markets is critical. Rania Al Mashat, minister of international cooperation, said Egypt’s development portfolio exceeds $25 billion.

To significantly increase that investment, conventional lending won’t be suitable given many developing countries’ “non-investment grade” ratings. Al Mashat said Egypt and similar markets need innovative financing tools to attract the private sector to eco-friendly projects. She also noted the need for new skills and capacity-building to establish and operate eco-friendly projects, stressing those topics would be a focus of COP27.

At present, Egypt is leading the way in securing climate finance. In November, the European Bank for Reconstruction and Development (EBRD) said it would extend $100 million to Banque Misr to accelerate climate change mitigation and adaptation projects. “We at EBRD help structure … technically challenging innovative financing … to leverage the more risk-averse private banks,” said Heike Harmgart, EBRD’s managing director for the Southern and Eastern Mediterranean.

Citing the bank’s role in Benban, where it financed solar projects producing a total of 750 megawatts, Harmgart said the next stage is to engage the private sector in more sophisticated investments, including energy storage, grid digitization and green hydrogen.

The U.S. International Development Finance Corp (DFC) is also eyeing eco-friendly Egypt projects. “We stand ready to help finance this transition [given] the tremendous gap in financing and the need for the private sector to come in and engage in these areas,” said Dev Jagadesan, DFC’s acting CEO.

The DFC provides both development capital and tools, Jagadesan said, noting a $60 billion budget limit. Available tools include technical assistance, grant writing, equity financing, debt, project finance, loan portfolio guarantees and political risk assurance. “The portfolio of applications coming from Egypt [includes] projects in the electric mobility space to larger infrastructure projects,” he said. “We are eager for more.”

U.S. investment banks can also help finance Egypt’s green transition. Jay Collins, vice chairman for capital markets, banking and advisory at CitiGroup, said, “We are now offering carbon credits as a new value tool, which should be structured into many upcoming green projects. Green investment cannot come solely on the back of Egypt’s or emerging markets countries’ balance sheets.”

CitiGroup also provides green export financing and grants, which it can blend into many green projects, including public-private partnerships. “The use of these tools is complex. Each risk has to go to the pocket that can take it,” Collins said. He added that future versions of these tools must be simplified and scaled as much as possible to accelerate private sector involvement. At the same time, the developing world needs to build the skills and capacity to meet the enormous demand for innovative financing tools.

Al Mashat said the lack of standardized benchmarks for economic, social and governance metrics for private sector companies constrains eco-friendly FDI. “These metrics need to come into place so [investors] see that doing projects in Africa is similar to other places,” she said.

Nonetheless, Egypt has an advantage over most emerging markets, with more than 10,000 scientific publications addressing environmental issues and the economic impacts of climate action. “That really matters because we need basic research to create the pathway to [convert] applied research into policy,” said Márcia Balisciano, global head of corporate responsibility at RELX, a London-based information and analytics company.

COP27 and U.S. partnerships

America’s foreign policy will likely play a significant role in realizing Egypt’s climate ambitions. In 2021, U.S. President Joe Biden announced an increase in the climate finance budget from $2.3 billion to $11.6 billion. “That signals that climate change mitigation, prevention and adoption are a priority for this administration,” said Moataz Zahran, Egypt’s ambassador to the United States. Currently, Zahran is promoting a pipeline of green projects from the government worth $1.9 billion, including renewable energy, transport, water and wastewater management, and pollution prevention and control.

In November, Egypt created a climate working group with U.S. partners to attract American investors. There also will be a “green economy trade mission to Egypt in 2022 … in addition to several events at the Egyptian Embassy from now until November,” said Zahran, adding that Egypt is engaged within similar groups of “like-minded countries.”

Jonathan Cohen, U.S. ambassador to Egypt, stressed that COP27 should be an ideal platform for attracting the U.S. private sector. He noted the Biden administration would support Egypt’s efforts to stop “environmental degradation, shoreline erosion, desertification, air pollution, and water quality degradation.” That would include embassy involvement in securing financing and training for the Egyptian government.

Failure to attract sufficient eco-friendly investments would have “very severe … economic consequences,” said Cho of Xylem. “The World Bank estimates the Middle East and North Africa could see the world’s biggest economic losses … associated with climate change [ranging from] 6% to 14% of GDP.”

AmCham President Tawfik stressed in his concluding remarks that “Egypt is very serious about policy reforms, actionable initiatives and commitment to investments.” So far, the government has invested $3 billion on green projects. “More will come as [the country] embarks on its second wave of reforms to restructure the economy and eliminate bureaucracy,” he said.