Egypt’s Challenges and Opportunities in Climate-Related Finance and Governance

Similar to other countries in the Middle East and North Africa (MENA) region, Egypt has been struggling to adapt to climate change impacts and mitigate its risks. The country’s governance framework and economic and financial capabilities have also affected its ability to respond to green economy opportunities in the MENA region.

Since the 1970s, Egypt’s governance framework has created a space for civil society organizations and the private sector to coexist alongside state institutions and publicly owned corporations. Yet, despite gradual expansion in the last several decades, civil society and private sector activities remain limited and vulnerable to systematic interference by the state and public sector. This has resulted in the exclusion of various political and economic interests and only marginal openings for representation, transparency, and accountability.

Additional limitations have emerged due to inconsistencies in the implementation of national economic and fiscal policies. Egypt has endeavored to level the playing field legally and politically between the public and private sectors and to gradually privatize state-owned corporations. However, the public and private sectors within the Egyptian economy have struggled to fully leverage opportunities for funding climate adaptation and mitigation efforts and for launching green projects, leaving the country’s capacity for climate financing weak.

Egyptian economic capacities to respond to climate risks and embrace the MENA region’s green transition have further suffered from the country’s persistent and rising fiscal deficit. The government has relied on the domestic banking sector to finance this deficit, leading to decreased available domestic credit for public and private green projects. At the same time, a combination of domestic, regional, and international factors have caused foreign direct investment (FDI) in Egypt to decline, while the remittances of Egyptians working abroad—the majority based in the Arab Gulf countries—have fluctuated dramatically amid turbulence in the MENA region since 2011. During the height of the Gaza war, the Egyptian treasury saw its revenues from the Suez Canal shrink massively—almost 70 percent of the canal’s revenues have been lost.

Egypt’s increasingly tight investment and fiscal space is being further strained by the country’s ambitious modernization project and consequently a sharp rise in government borrowing internationally. Egypt’s foreign debt has skyrocketed to close to $160 billion. While some of this borrowing has been directed toward infrastructure and development projects, Egypt has faced significant challenges in securing sufficient investments for green energy and climate adaptation initiatives. The country’s growing reliance on international loans has put additional pressure on its relations with key green energy investors and global stakeholders.

Thus, Egypt’s vulnerability to climate change is being compounded by its economic struggles, creating a set of threat multipliers that make it difficult to adequately fund climate resilience and sustainability efforts. Egypt’s freshwater resources from the Nile River have become dramatically scarce, whereas its coastal areas along the Mediterranean Sea and Red Sea have started to face severe risks of flooding. Rising temperatures, along with low rainfall and a combination of droughts and floods, have put humans, animals, and plants in stress and led to massive changes in the agricultural sector. In sum, climate change has induced greater vulnerability in the population and reduced economic and social productivity.

In recent years, Egypt has expanded its climate strategy to be responsive to the country’s unique challenges resulting from increased vulnerabilities and opportunities in the green economy. The government has harmonized its country-level Sustainable Development Goals (SDGs) and Nationally Determined Contributions (NDCs) with a clear target to expand public and private investment in the renewable energy sector and increase its share in Egypt’s energy wallet. However, clear metrics to reach other climate targets—such as an overarching reduction of greenhouse gases (GHGs) by 2035, a green transition in industries, construction, tourism, and waste (a significant methane producer), and improvements in water preservation standards—have been lagging. Furthermore, the agricultural, land, and waste sectors have not been included in mitigation efforts. Finally, many of Egypt’s NDC targets are conditional upon receiving international support, and the fluctuation of this support has been an ongoing challenge in the global climate space. 

Beyond policy planning and other governance defects, two structural features have impeded Egypt’s capacity to foster its green transition. First, the economy is reliant on hydrocarbons—as natural gas and petroleum products represent a primary export—and much of the country’s electrical, transportation, industrial, and agricultural needs rely on fossil fuels. Second, climate-induced vulnerabilities, especially water scarcity, have challenged both the agricultural and industrial sectors, putting the country’s economy at risk and thus depriving it of the capabilities needed to launch and deploy green projects.

Some of the announced targets of Egypt’s second updated NDCs are tailored to improve the country’s climate resilience across these environmentally and economically vulnerable sectors. For example, in the agricultural and food security sectors, the government is targeting a transition to modern surface irrigation of 4 million feddans to increase the efficiency of agricultural water use by 20 percent. The NDCs also aim to introduce more climate-tolerant crops and improve soil maintenance to avoid land degradation. Another declared target is preserving and expanding the biodiversity of strategic crops and livestock varieties through government-sponsored breeding programs. The goal is to maximize production efficiency under extreme climatic conditions, which are likely given rising temperatures, increased droughts and flooding, and the reduction in rainfall. Given the possibilities of land degradation in areas affected by rising sea levels and flooding, the government has committed to reviewing existing and new land-use policies as well as its agricultural expansion program that includes the significant cultivation of desert land. In terms of addressing societal vulnerabilities, the government has adopted support schemes to enable small farmers to adapt to climate change through multistakeholder engagement, capacity building in land management, and the promotion of traditional knowledge and nature-based solutions.

NDC climate adaptation and mitigation targets also address water security concerns and flood risks. While Egypt’s government and civil society continue to seek policy solutions for the Great Ethiopian Renaissance Dam dispute and its impacts on Egypt’s Nile resources, moving beyond the country’s unilateral dependency on the Nile’s water has become a key policy concern. The government aims to rehabilitate 20,000 kilometers of irrigation canals to bolster agricultural climate resilience and avoid water waste. The government also plans to increase the amount of renewable water from desalination facilities to 4 million cubic meters daily and to expand the reuse of agricultural drainage water and treated wastewater through the construction of water treatment mega projects. 

Regarding GHGs, Egypt plans to reduce emissions from the transportation sector by 7 percent by 2030, as transportation was the second-highest sector emitter in 2019–2020. This target is to be achieved by a nationwide development of low-emission mass transportation alternatives; for example, efforts include a transition to using public buses run on natural gas, the adoption of bus rapid transit systems, and the implementation of a plan to green the aviation sector. The government is also implementing a National Road Project, which is based on introducing large infrastructural modernizations to the country’s transit system; the goal is to improve interconnections between urban centers and hence decrease commuting times and fuel consumption levels.

In the energy sector, Egypt’s NDCs foresee promoting efficiency and resilience by reducing GHGs by 37 percent and increasing the contribution of renewable energy in the country’s electricity mix by 42 percent by 2030. Currently, Egypt produces 79 percent of its electricity using natural gas, 8.2 percent with oil, and the remaining with a mix of wind and hydropower. There are plans to transition to smart grid technologies and upgrade energy transmission and distribution systems to better balance the diversifying energy sources and manage the load on the grid. Over the last several years and despite several infrastructure updates, grid disruptions created due to poor electricity infrastructure have plagued Egyptians during long heat waves. In the oil and gas sector, the national target is to reduce GHGs by 65 percent by 2030 through adopting a diverse set of strategies and tools—such as the recovery and utilization of associated gasses, the direction of clean fuel to households via the nationwide infrastructure scheme Haya Karima (or “Dignified Life”), an increase in the efficiency of natural gas and petroleum corporations, and investment in biofuels and bioethanol.

Finally, Egypt’s NDCs aim to modernize both the industrial and construction sectors by seeking to increase energy efficiency, use renewable energy sources, and reduce GHGs. A case in point is waste management. In addition to implementing urban planning practices, the government has committed to a circular urban economy through better waste management measures. Most notably, public and private sector corporations are working to improve the efficiency of waste collection from the current rate of 55 percent to 95 percent and to increase recycling and energy recovery rates. The government has announced a plan to nationally increase the waste-to-energy contribution, targeting up to 20 percent of collected waste to provide an alternative fuel source for the gigantic cement sector and up to 20 percent of biofuels to generate electric power. Also planned is the expansion of municipal and industrial wastewater treatment infrastructure by rehabilitating and modernizing existing facilities and constructing more powerful plants to produce up to 7,250 thousand cubic meters daily by 2030.

Like many other lower-middle-income countries, Egypt faces challenges that hinder advancements in national climate strategies, particularly limited access to financing. Several criteria determine a nation’s ability to mobilize enough capital for climate purposes. Importantly, countries must have strong upstream markets with favorable macroeconomic conditions, as well as sufficient institutional capacity and robust sectoral policies and regulatory environments. Indeed, there is a notable correlation between policy strength and green financing. This poses a significant problem in the Egyptian context. While the country scores relatively well in its ease-of-doing-business scores, particularly in terms of starting a business, dealing with construction permits, and electricity access, its governance indicators remain lacking. Egypt has significant room to grow regarding its accountability mechanisms and regulatory quality, which can have compounded impacts on its green economy. 

The government also needs to attain sufficient local technical expertise: beyond improving project implementation and alleviating bottlenecks due to lack of experience in project development, implementation, and scaling, adequate expertise ensures that developments in sustainable infrastructure are well absorbed by the local economy. To that end, technical assistance, capacity building, and early-stage financing to support growth are vital. Finally, a structured financial landscape must exist to mitigate risk and guarantee transparent, sizeable, and sufficiently liquid asset classes. Such a landscape requires establishing a platform to mobilize capital in the form of debt and equity guarantees, syndication, or blended financing and then catalyzing and iterating endeavors through refinancing opportunities and market growth. 

Egypt has sought to implement many of these best practices and expand its green financing tools to more efficiently attract capital toward both mitigation and adaptation projects and to grow its sustainable economy. By outlining clear priorities through national road maps such as the National Climate Change Strategy (NCCS), Egypt has proliferated climate financing initiatives across different levels of government. The National Investment Plan, drafted in collaboration with the global Green Climate Fund, builds on the NCCS and targets national-level ambitions, shifting the country away from a project-by-project model toward a systemic model for climate financing. More localized solutions, such as the National Initiative for Smart Green Projects, have also been created to build local capacity through workshops and trainings and to invest in governorate-level green projects.

At the national level, the country has set clear targets for investments, aiming for a growth in the share of public capital dedicated to green investments from 15 percent in FY2020–2021 to 50 percent in FY2024–2025. The Ministry of Planning and Economic Development has also set an ambitious target of 75 percent of its public investment to be directed toward green investments by 2030.

Egypt has thus built a regulatory infrastructure to mobilize capital for its climate goals, including through facilitating the participation of the local private sector in sustainable projects and tapping into international capital markets. It is also utilizing several fiscal tools—such as subsidy shifts, feed-in tariffs (a regulatory scheme by which utilities are mandated to purchase renewable energy at a fixed and above-market price over a fixed period of time, creating long-term visibility and accelerating investments), and tax credits—to promote clean energy projects, stimulate the green banking sector, and incentivize transparency and accountability. Finally, the country is deploying a variety of financial instruments to finance green projects: for example, debt swaps, green or sustainable bonds, concessional loans, and blended finance structures.

A debt swap is the cancellation of a portion of a country’s foreign debt in exchange for local investment in a particular project or enterprise. Often, the debt canceled is converted into local currency and committed to approved projects that further developmental or environmental goals. Egypt has long used it as a tool to refinance its national debt and finance its investment priorities; its debt-for-development program with Italy dates to 2001 and has totaled $350 million in debt converted into local investments for food security, agriculture, civil society, and wastewater treatment. Over the past twenty years, these swaps with different countries have enabled Egypt to fund over 120 projects across development fields. One such project, dating back to 2014, is the reallocation of 70.5 million Egyptian pounds (close to $5 million based on 2014 exchange rates) worth of debt into a solid waste management plant in the Minya Governorate, improving the locality’s sanitation and rates of methane emission.

The Minya Governorate is home to 4.9 million people living across nine main cities, fifty-seven villages, and 346 subvillages, producing 350,000 tons of household waste per year. The investment is directed at improving waste collection efficiency, which has reached only 60 percent due to a lack of experienced or trained staff and tight management systems. The 70.5 million Egyptian pounds were directed at the third phase of the waste management project’s development, which includes the establishment of a modern recycling plant with a capacity to process 182,500 tons of municipal waste per year from Minya city. The financing will also cover a revision of the waste management plan, as well as implementation of a framework to monitor the community’s National Solid Waste Management Program. The effort will include improving disposal and processing practices by revising and monitoring the execution of the municipal master plan, implementing public education programs to raise local awareness of waste practices, and involving the private sector in the locality’s sanitation infrastructure. Given Egypt’s high debt-to-GDP ratio—which reached 85.6 percent at the end of 2023—swaps can have substantial domestic impacts as they offer an opportunity to redirect scarce capital to support important environmental endeavors such as sustainable waste management and improved water access.

Notably, Egypt has similar debt-swap agreements with other countries—for example, one made with Germany in 2011 to redeem 240 million euros (close to $260 million) through the financing of development projects and one made with China in 2023 to redeem $220 million through the financing of climate adaptation projects.

Egypt has developed fiscal policies aimed at stimulating the green economy’s development and removing barriers to entry in sustainable projects for both local and foreign actors. A blend of subsidies and tax incentives, for example, seeks to catalyze a domestic market for electric vehicles (EVs). Through Investment Law No. 72, the Ministry of Finance has written off the taxable net profit at 30 percent of the initial investment cost for renewable energy, electrification, and local car assembly and manufacturing projects. Law No. 72 similarly writes off up to 50 percent of the projects targeting geographic areas in most need of development and currently lacking in investments.

This type of fiscal stimulation has so far been successful in creating the building blocks for an Egyptian EV supply chain for both public and private transport. For example, the El-Nasr Automotive Manufacturing Company has been collaborating with Chinese car manufacturing companies to build Egyptian-made electric cars and has set an initial target of 25,000 cars manufactured a year, each with a constitution of local components at 58 percent. The agreement with China’s Dongfeng Motor Industry Import and Export Company includes the rehabilitation of an old El-Nasr factory to accommodate its transition into electric vehicle production. Egypt also has a similar agreement with Germany’s FEV Group to develop a local EV value chain.

There has also been a proliferation of demand-side partnerships and incentives within Egypt’s EV market. For example, several large companies have issued agreements and contracts with El-Nasr to replace their transportation fleet with electric vehicles, including Danone Egypt, Mylerz Egypt, and the Hassan Allam Holding Company. The private sector has also implemented measures to support the growth of consumer demand: Abdul Latif Jameel Finance Egypt, a local branch of an international financing firm, issued a loan program with flexible repayment schemes to support the purchase of EVs.

In addition to creating subsidies and tax incentives to grow the market for green technologies, Egypt has sought to encourage divestments from carbon-intensive energy sources by progressively removing subsidies and other fiscal benefits directed at fossil fuel consumption, thus supporting national emissions reduction goals by curbing demand. Indeed, Egypt’s NDCs seek to decrease energy subsidies between 2014 and 2018 to curb consumption rates. In FY2012–2013, energy subsidies constituted 22 percent of the total government expenditure and 6 percent of the country’s GDP. By FY2017–2018 and 2019–2020, Egypt had drastically cut these subsidies, dropping them to 3.4 percent of total expenditure and 0.3 percent of the GDP. This has freed up public capital, allowing Egypt to allocate capital to other national priorities; between FY2012–2013 and FY2019–2020, the percentage of total government expenditure aimed at food subsidies and investments grew from approximately 5 and 7.5 percent, respectively, to almost 6 and 14 percent. This subsidy shift, which was supported by the World Bank/International Monetary Fund’s homegrown reform program, is credited with a 14 percent reduction in the number of cars on Cairo’s roads between 2016 and 2019, substantially decreasing air pollution levels. This trend away from individual, private vehicles will likely continue to grow as a supply of low-carbon transportation alternatives increases as well.

A third type of fiscal tool leveraged by Egypt is the feed-in tariff aimed at the renewable energy sector. The 2014 Renewable Energy Law and similar legislation such as Decree No. 1947/2014 establish several investment incentives, including a feed-in tariff granted for both solar and wind projects that extend from twenty to twenty-five years, respectively. This likely supported the proliferation of renewable energy sources across the country. In FY2019–2020, for example, a total of 3,016 megawatts powered by wind and solar plants were installed, a 340 percent increase from the 887 megawatts in FY2015–2016. The 5,848 megawatts currently powered by renewable energy sources are generated through a collection of large plants spread across the country, including the Benban (1,465 megawatts) and Kom Ombo (26 megawatts) solar plants, the Gabal El-Zeid wind plant (580 megawatts), and the Assuit hydropower plant (32 megawatts). The Benban Solar Park is a significant contributor to Egypt’s electricity production and consists of a complex of more than forty-one plants spread over 30 miles (37 kilometers), the largest project in Africa and one of the largest in the world. By producing enough power for approximately 420,000 households through the national grid, the Farm avoids an equivalent of 423,000 tons of carbon dioxide annually.

The Benban Solar Park exemplifies the use of fiscal tools to mitigate some of the risks involved in utilities and infrastructure financing. Setting a feed-in tariff creates valuable visibility in terms of future costs and potential revenue, which in turn facilitates market creation and attracts private sector participation. While subsidies, such as fuel provisions, can create possible market distortions and are costly to governments, potentially exacerbating debt distress for countries such as Egypt, these tariffs seem to have a positive impact on the country’s economic development. Importantly, the distortive effect of clean energy subsidies remains, and feed-in-tariffs include a clear end date after which market prices would apply. Additionally, the pricing stability and added competitiveness of renewables has spurred significant investments in the country’s green energy projects.

Other notable elements have promoted the Benban project’s success as well. Multilateral and development finance organizations have made significant contributions, even facilitating loan agreements. The International Finance Corporation, for example, led a $653 million transaction through a consortium of eighteen developers to support the park’s sponsorship and grow the market for renewables. Additionally, Benban and other large construction projects have benefited from a streamlined regulatory environment created through collaboration between the Egyptian government and the World Bank.

Egypt leverages various debt instruments to finance its green projects. In terms of issuance, for example, the Central Bank of Egypt released in 2021 guiding principles for the country’s sustainable finance infrastructure, establishing a general framework for the launch and implementation of sustainable finance initiatives and mechanisms with a focus on environmental and climate goals. Among the mechanisms are the country’s Sovereign Green Bonds, issued to provide sustainable funds for eco-friendly projects, particularly energy efficiency, renewable energy projects, or other projects meeting sustainable development goals.

Egypt’s Ministry of Finance can thus issue green bonds to target an SDG goal, whereby an amount equal to the net proceeds of any sustainable debt instrument will be allocated to finance expenditures qualifying under the government’s eligibility criteria, as determined by the Sustainable Finance Working Group. Sovereign green bonds are listed in the London Stock Exchange, valued at $750 million with a portfolio that ranges across Egypt’s sustainability targets, including water management and wastewater treatment, pollution reduction, and renewable energy. Egypt has also listed the bonds on the Chinese market at $500 million with a 3.5 percent annual rate and a three-year maturity, as well as on the Japanese market, valued at 75 billion yen (close to $510 million) with a 1.5 percent annual interest rate and a five-year maturity. Notably, multilateral and development banks remain involved in these financial instruments: the Asian Infrastructure Investment Bank and African Development Bank, for example, back the bonds listed on the Chinese market with credit guarantees.

Importantly, green and sustainable bonds have enabled the establishment of several developmental projects, particularly related to water. In 2021, a significant percentage of projects eligible for green bonds—53.8 percent—were directed at water management, a priority in Egypt’s national strategy. The El Dabaa Desalination Plant highlights the impact of sustainable bonds on local adaptation endeavors; that year, about $67.6 million were allocated to the project through this financing instrument, fully funding its costs. Located in the Matrouh Governorate of northern Egypt, El Dabaa increases water resources for both domestic and agricultural use by growing the desalination plant’s capacity by 40,000 cubic meters per day so that it can serve 57,260 per capita per day. Similarly, 68.5 percent of El Dabaa Treatment Plant—which will satisfy the needs of 18,155 people—was financed through sustainable bonds.

Concessional loans, commonly issued by development banks at below-market interest rates, are another debt instrument successfully used to promote green projects in Egypt. At least two large-scale transit projects are funded through loans from the World Bank: the Monorail and the Bus Rapid Transit Project. In 2022, the World Bank issued a $400 million loan to improve the railway connection between Alexandria and Greater Cairo by extending and upgrading the tracks to create a new bypass around the Greater Cairo Area, diminishing congestion around the capital. As part of its Greater Cairo Air Pollution Management and Climate Change Project, the World Bank is also financing the deployment of electric buses as part of Cairo’s public transportation fleet, further contributing to the electrification and modernization of the city’s mass transit system.

The financing of Cairo’s public transit system is part of a greater agreement with the World Bank, which approved a Country Partnership Framework (FY2023–2027) aimed at tackling goals such as enhancing resilience to shocks through better macroeconomic management and climate change adaptation. This agreement includes a budget of $1 billion through the World Bank and $2 billion through the International Finance Corporation. Egypt also has notable agreements with other development institutions globally: the European Bank for Reconstruction and Development granted Banque Misr, a commercial bank, a loan of $100 million in 2022 to stimulate green financing and lending to local small and medium-sized enterprises.

Haya Karima, which began in 2019 and is set to be completed in the next few years, stands out as a project that successfully leverages blended finance—the use of development finance to additional, including private, financing—to create a wide-scale social and developmental impact. It is a countrywide initiative that covers 60 percent of the total population and seeks to bolster governorate-level services to bridge rural-urban gaps, with a total estimated cost of $45 billion across the implementation period. 

In line with Egypt’s Vision 2030, Haya Karima involves several different stakeholders from multilateral agencies such as the United Nations and World Bank to civil society organizations and the local private sector. Indeed, several Egyptian state-owned and private companies are involved in the financing or construction and operational management of the infrastructural project implemented through Haya Karima. Targeted villages are selected based on specific criteria, such as low education rates or healthcare access, using information from the Central Agency for Public Mobilization and Statistics. The projects under this greater umbrella span both direct and indirect interventions, including in the areas of housing, water and sanitation, training and employment, and food accessibility. Notably, water access and management accounts for the bulk of the spending: for example, 36 percent of Haya Karima’s phase I budget was spent on sewage and sanitation systems. 

Regarding its financing structure, Haya Karima pools from a mix of local and international donations, al-sukuk (financial certificates similar to bonds), public investments, and green bonds and is driven by several public-private partnerships. Companies such as Orascom Construction, Borouge, Hassan Allam Holding, and Egypt-Kuwait Holding are contracted to implement the infrastructure projects. Mid-term reports issued by the Ministry of Planning and Economic Development highlight the impacts of Haya Karima and estimate that it has improved the rate of health services coverage by 24 percent, educational coverage by 12 percent, and sanitation by 46 percent. The ministry also reported that 71,000 jobs were generated across eight governorates, 11,600 houses were improved, 100 miles (160 kilometers) of roads were paved, and twenty-one youth centers and playgrounds were established. The scale of Haya Karima and its commensurate impact was likely made possible by the significant quantities of capital leveraged, a result of blended financing and the project’s ability to pool across different financing instruments and stakeholders.

Streamlined and clear national strategies can have a significant impact on the efficacy of mobilizing capital for green projects, a situation best illustrated by Egypt’s green hydrogen ambitions. Heralded by the International Monetary Fund as an exemplary model to attract FDI, Egypt adopted a single law for green hydrogen production, streamlining legal processes and facilitating both foreign and local private-public partnerships by creating a centralized and simplified regulatory environment for the new energy source.

Although the country’s green hydrogen strategy was only recently made public in mid-2023, the government has signed several memoranda of understanding, attracting up to $40 billion in investments toward the establishment of a green hydrogen value chain.  Several green hydrogen plants are currently underway: the Suez Canal Economic Zone (SCZone) will host a green-hydrogen-to-ammonia facility that will harness 778 megawatts of renewable energy to produce 50,000 tons of green hydrogen and 250,000 tons of green ammonia annually. This project, slated to be complete by 2029, is the result of collaboration between South Korea’s SK Ecoplant and China State Construction Engineering Corporation. The Emirati AMEA Power company also has plans to develop a green hydrogen plant in the SCZone primarily aimed at exporting to European markets. The Egyptian town of Ain Sokhna will see the construction of a plant using 270 megawatts of solar and wind energy. The project consists of a partnership between private groups, such as Scatec and Orascom Construction; public entities, including Egypt’s Sovereign Fund and Electricity Transmission Company; as well as development entities, such as the PtX and KfW development funds, the European Investment Bank, and the European Bank for Reconstruction and Development. A 7-billion-euro (close to $7.6 billion) agreement with France’s EDF Renewables and Zero Waste Technologies has also spurred the development of a green hydrogen and ammonia facility in the Egyptian town of Ras Shuqair. The energy company BP will be leading this project’s development and operation in collaboration with a mix of local and foreign organizations, including Hassan Allam Holding, Masdar, and Infinity Power.

Egypt’s streamlined regulatory environment has clearly led to a rapid proliferation of green hydrogen projects that leverage domestic and foreign groups and involve a range of private, developmental, and public organizations. Egypt has created regulations to clearly define institutional and national processes beyond green hydrogen, including concerning waste management (Law 202/2022); environmental, social, and governance disclosures (Financial Regulatory Authority Decrees 107 and 108/2021); and the streamlining of approvals regarding the establishment, operation, and management of renewable energy projects (Investment Law No. 72/2017, Article 11).

Egypt’s different green funding tools and policy schemes have facilitated the deployment of mitigation projects tailored to curbing demand for fossil fuel and water resources as well as to creating viable sustainable alternatives for citizens, industries, and agricultural businesses.

Most notably, improvements have been made in the transportation sector through the construction of low-carbon, mass-transit options in urban areas and across the Egyptian geography. This increase in the supply of transportation alternatives is important, as fuel subsidies are being scaled back across the country. As discussed throughout, the government has paired these rollbacks with investments in low-carbon transportation alternatives and the deployment of social protection programs such as Haya Karima and Takaful. These concerted efforts indicate some recognition of the importance of supporting lower-income communities because prices might increase due to these subsidy shifts. However, this fiscal consolidation is still having a significant impact on average Egyptians, many of whom are faced with the difficult reality of soaring prices.

The systematic reduction of energy subsidies, on the one hand, and the efficiency initiatives in the electricity consumption domain, on the other hand, have created important economic incentives that encourage a shift away from fossil fuels. But Egypt’s transportation sector remains fossil-fuel intensive despite the government’s big push toward a renewable energy transition, and load shedding—designed power outages to prevent overloading the grid—in the electricity sector continues to be high despite modernization efforts. This is testimony to the challenges the country has been facing as well as to the limitations of its policy tools.

Additionally, while Egypt has directed a notable proportion of funds for green projects toward water management and established several desalination and wastewater treatment plants to improve access, certain planning constraints have emerged in recent years concerning optimizing the use of water resources and its fair distribution among different communities and regions. For example, Egypt has improved its capabilities to use recycled water in the agricultural sector, but access to drinkable water in impoverished and rural areas has not increased. Similarly, the distribution of renewable energy projects across different communities is not uniform. While large-scale projects such as the Benban Solar Park have been developed, there is limited information on the extent to which these projects benefit rural or underserved communities.

Relatedly, the country’s allocations of funds between mitigation and adaptation projects suggest a preference for the former: for example, the NCCS outlines that Egypt aims to cover 27 percent of the estimated budget for mitigation projects compared to 16 percent for adaptation projects. Although a greater focus on institutionalized mitigation plans is not unique to Egypt, by prioritizing mitigation over adaptation, Egypt’s climate policies overlook the immediate and long-term needs of vulnerable communities who are more prone to larger-scale, extreme weather events and rising sea levels that require systemic adaptation solutions. This structural weakness is further compounded by the lack of detailed and long-term adaptation plans in all relevant sectors and domains, as well as limited government responsiveness to local community needs.

At the national level, regarding responding to the governance needs of local communities and improving standards of transparency and accountability, Egypt has achieved mixed results. Greater attempts at including local communities in decisionmaking processes pertaining to adaptation and mitigation efforts have been noted in recent years—as seen in urban planning, for example—to the extent that a trilateral framework including the government, civil society organizations representing local communities, and the private sector has become nationally relevant. Yet transparency and accountability in planning, implementing, and evaluating policy tools have been largely missing. In light of the fiscal constraints facing the government and limitations in mobilizing funds for the green transition, foreign actors—including private companies and developmental organizations—as well as the local banking sector and private investors have become essential to funding green economy projects. However, the lack of transparency and accountability regarding Egypt’s domestic and foreign debt has left all actors unclear on the resources needed to service the debt, therefore likely depriving the green economy of badly needed capital.

The limits of Egypt’s economic and fiscal constraints have compelled the country to prioritize its national developmental goals, including mitigation and adaptation priorities, within a limited budget. For example, government-funded and capital-intensive projects—including the New Administrative Capital City, satellite new cities, and grand housing projects in impoverished urban areas and rural regions—have reduced available funds for modernizing the industrial and agricultural sectors. While these large-scale projects have advanced to become an integral component in decarbonization efforts in urban spaces, lower-cost policy initiatives can significantly support national climate strategies while alleviating the trade-off between national targets. For instance, in the transportation sector, less capital-intensive efforts to remove high-emitting or inefficient vehicles from the streets of Egyptian cities can effectively reduce carbon emissions. Indeed, renewal and scraping schemes have been implemented in other MENA countries that share similar economic and social outlooks, such as Morocco and Jordan.

Another area that could be further improved is the expansion of local value chains that service green projects in the industrial sector. Although the government has utilized various funding schemes to invest in large-scale energy deployment and develop its manufacturing capacity, local industries have continued to face sustainability issues. These issues stem from exposure to environmentally harmful conditions and the economic costs associated with inefficient production processes. Sustainability concerns with manufacturing processes and long-term economic viability can be seen, for example, with the government’s national plan to localize automotive manufacturing for domestic consumption—including the revival of the legendary government-owned El-Nasr company. 

Import-substitution strategies, which aim to replace imports with locally produced goods, have had a limited success track record in the MENA region. On the other hand, export-centric industrialization policies have demonstrated greater success in integrating global value chains and fostering long-term sustainability. Furthermore, as part of Egypt’s plan is to invest in electric vehicle manufacturing, the government faces concerns about the ability of local infrastructures and ecosystems to produce market-competitive EV batteries. Prior to expanding local value chains, the government could first prioritize modernizing the electricity sector to limit waste and ensure that the local infrastructure can absorb an electrified transit system—this includes grid improvements, the modernization of power plants, and the implementation of smart-grid and other backend information technologies that can support EV charging systems.

Finally, Egypt has enormous potential for green energy development and for that development to then stimulate the local labor market across the value chain. This is, however, not happening sufficiently. There is much room for Egypt to grow by increasing local capacity and facilitating the entry of Egyptians into green jobs. To that end, regulatory environments can be improved by instituting quotas for local workers and training opportunities to service a sustainable economy. Law No. 2 of 2024 on green hydrogen stipulates that 20 percent of the projects must be derived from local materials and that the project companies can only employ foreign workers up to 30 percent of the total workforce for the first ten years. This scheme for incentivizing local participation should be extended across green projects. The government has realized the significance of skill enhancement in the local workforce and has since embarked for several decades on this path using different policy tools—the Mubarak-Kohl Initiative as a case in point. However, much more needs to be done in this regard to ensure that industrial developments are well absorbed domestically and that Egyptians can truly benefit from the country’s transition to a clean economy. Indeed, Egypt’s regulatory sphere can mandate the inclusion of a local workforce across all levels of a project’s management and implementation. But, despite a growing educated population, the country still struggles with un- and under-employment. Green projects could provide opportunities to increase high-skilled local capacity and could be a part of national efforts to address Egyptian labor issues.

Egypt has been progressively building its financial and regulatory ecosystem to grow its green economy, offering a helpful case study on how lower-middle-income countries can use various tools and local resources to drive forward a climate strategy while furthering economic development. An overview of Egypt’s advancement vis-à-vis best practices for national climate financing highlights that while the country has significant challenges ahead and areas for improvement, it has nonetheless made important progress in growing its green economy. 

As national plans and road maps have begun to outline the country’s climate goals, government institutions such as the Ministry of Finance and the Central Bank have begun to align Egypt’s financial aims to its climate strategy. This effort has included scaling up activities that advance climate targets—such as establishing tax credits and feed-in-tariffs for renewable energy projects—and redirecting finance away from activities that undermine climate resilience goals, as exemplified by the decrease in subsidies for fossil fuels.

To be sure, Egypt still faces significant fiscal constraints and is thus reliant on both development agencies and foreign agreements to harness enough capital to drive its green projects. Generally, however, implementing expenditure-generating policies (for example, subsidies and feed-in-tariffs) and nonregulatory, budget-neutral policies (for example, strategic planning and target setting) can remove barriers for FDI inflows and stimulate the deployment of foreign capital. These steps can subsequently be paired with revenue-generating policies to further buoy the country’s green economy. When benchmarked against these best practices, Egypt is on the right trajectory. For example, the country has set a goal to produce 42 percent of its electricity through renewables, which it is anticipated to exceed given the scale of solar farms being built. Furthermore, Egypt’s clear national strategy around hydrogen has drawn substantial FDI: effective diplomacy led Egypt to become one of the biggest global beneficiaries of FDI for green hydrogen projects.

Yet notable areas of improvement remain in terms of setting clear targets in other segments of the national strategy. Egypt’s climate strategies, for example, should set clear overall emissions reduction targets over the short and long term. The country, for instance, does not set clear targets for the electrification of the transport sector, the preservation of forestry, or the overall reduction of methane in its NDCs or NCCS. Creating clear benchmarks across sectors could direct green projects more strategically and improve the overall implementation of Egypt’s climate strategy. Egypt should also pair its hydrogen ambitions, which are being successfully financed, with clear ambitions and targets to move beyond oil and gas. 

In addition to pursuing alignment across strategies and national government institutions, coordination across levels of government and sectors could spur co-benefits driven by climate policy and limit loopholes or discrepancies in local or cross-sectoral regulations that could dilute the efficacy of climate policy. While the Haya Karima project is an example of this kind of coordination, there is an opportunity to better mobilize local institutions to advance the country’s climate goals. Policies that can improve the alignment of finance with climate goals include mandatory disclosure requirements applicable across jurisdictions, progress assessments with clear and transparent methodologies, and continuous revisions of policy incentives that drive investments in projects that exacerbate the climate crisis.

Carbon markets could further support Egypt’s climate financing, whereby carbon is priced, translated into credits earned from an action to reduce or remove emissions of greenhouse gasses, and subsequently traded. Egypt has developed a carbon certificate market for issuing and trading carbon, catalyzing the creation of a voluntary carbon market. While implementation of this pricing mechanism remains uneven, Egypt is refining its regulatory environment to standardize its voluntary carbon market. Although voluntary carbon markets can significantly impact climate financing, a transparent and compulsory carbon pricing system can redress market failures that fuel dependence on hydrocarbon and stimulate viable alternatives through the financing of low-carbon solutions.

Egypt has successfully deployed fiscal incentives to promote the growth of green projects. Additional policies could similarly create compounded impacts for managing demand for scarce or polluting resources. Although divesting from fossil fuel subsidies has already curbed demand for the use of private internal combustion vehicles, implementing a carbon tax could accelerate the decreasing demand for fossil fuels.