Egypt has officially requested a temporary exemption from the European Union’s Carbon Border Adjustment Mechanism (CBAM), a senior government official tells EnterpriseAM. The diplomatic push is the first half of a two-pronged strategy — while Cairo lobbies Brussels for a grace period, it is simultaneously finalizing a domestic carbon tax. This ensures that if Egyptian industry must pay for its emissions, the revenue stays in the Egyptian treasury rather than flowing into the EU’s coffers.

The move comes as the 2026 deadline — now only days away — for the definitive implementation of CBAM looms. The mechanism is designed to prevent carbon leakage by taxing high-emission imports into the EU like steel, aluminum, and cement. It threatens to fundamentally alter the competitive landscape for Egyptian exporters in their largest market.

Why it matters

The financial implications of the incoming carbon border tax are sizable — non-compliance or a failure to decarbonize quickly enough could cost local manufacturers USD 317 mn a year from the additional carbon price, according to studies by the Environment Ministry seen by EnterpriseAM.

The iron and steel industry will be the worst hit, shouldering 74% of the total financial impact as it faces an estimated annual bill of USD 236 mn. The aluminum sector follows as the second most vulnerable, with a projected liability of USD 43 mn.

And that’s just the start: Other sectors could soon be affected as the EU decides which industries to include next and when. This comes as the bloc is working toward a 2030 goal of covering all sectors under the EU Emissions Trading System — an objective it has shown no sign of backing down from. Pundits expect polymers and organic chemicals will join the list in 2027, followed by downstream steel and aluminum goods like screws, bolts, and more complex parts in 2028.

If you can’t beat them, tax first

Should Brussels deny the exemption request — which it’s likely to do to maintain WTO compliance — Egypt will bring out its own domestic carbon tax, we were told. A draft of the policy has already been put together in a rework of the tax policy document for 2025-2030 and is undergoing final review, our source told us.

Under EU rules, any carbon price effectively paid in the country of origin can be deducted from the total amount due under the CBAM. “We have no intention of letting these revenues go to Brussels,” the source said. “If the tax must be paid, it will be collected locally and funneled back into the green transition of our own industries.”

By collecting the tax at home, the Madbouly government would transform a capital outflow into a steady revenue stream. The revenue could theoretically be used to subsidize the same green tech upgrades (such as hydrogen-ready furnaces or advanced carbon filters) that the EU is demanding.

Even with proceeds from a carbon border tax staying in Egypt, that doesn’t solve the issue of inflation. Egypt’s request for a grace period to transition gradually to a greener mode of production is in part driven by concerns that the cost of greening factory floors could lead to a spike in the cost of goods in the local market, our source said.

Emission reduction technologies and special filters are expensive — especially when their installation is rushed. If the state forces a compressed timeline for these upgrades, manufacturers will inevitably pass the costs to the final consumer, which could have a big impact on our construction industry and infrastructure costs, according to our source.

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