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Carbon Credits Help Remove Old, Polluting Taxis from the Streets of Cairo

August 4, 2011

Kim Eun Yeul/World Bank

Residents of Cairo and the many tourists to that ancient city would all agree: everyone suffers from the air pollution generated by obsolete taxis still running on the city’s roads. But that has changed with the implementation of a program by the Egyptian government to scrap old vehicles and help cab drivers buy new ones. The initiative is supported by carbon revenues from a new program just registered with the United Nations Framework Convention on Climate Change (UNFCCC). 

The Egypt Vehicle Scrapping and Recycling Programme (PoA) is the first ever transport Program of Activities to be registered under the UNFCCC’s Clean Development Mechanism (CDM).  The program supports better enforcement of Egypt’s Traffic Law 121. The vehicle scrapping program by the Ministry of Finance encourages cab owners to remove voluntarily vehicles that are at least 20 years old from the roads. It gives taxi owners the financial incentives to scrap old cabs and provides them with lower prices and guaranteed financing for the purchase of new vehicles. Most importantly, the program paves the way for the sustainable and environmentally sound removal and eventual recycling of old taxis.

Instituted in 2008, Traffic Law 121 is an attempt to accelerate the rate of fleet replacement, improve air quality and overall road safety in Egypt, and reduce greenhouse gas emissions. Under the law, owners of “mass transport vehicles” such as taxis, buses, and microbuses cannot receive new operating licenses, or renew their licenses, if their vehicles are more than 20 years old. On paper, this is a strong incentive to scrap old vehicles. The law, however, was difficult to enforce and owners of old vehicles found it easier to either continue their operations, sell their vehicles to other regions where enforcement of the law is less strict, convert taxis to their own private use, or sell dismantled engines to be used in other vehicles.

Carbon credits offer strong incentives to change

This is where the Vehicle Scrapping and Recycling PoA has made a difference. By establishing a national program where taxi owners affected by the law are given incentives to surrender their old vehicles via coordinated and sustainable scrapping, the law is becoming more effective. The incentives include the payment of 5,000 Egyptian Pounds (equivalent to US$900) for a scrapped vehicle, government-negotiated discounted prices for new vehicles, and loan guarantees backed by the government. The Egyptian Ministry of Finance is the coordinating and managing entity of the program. It is also responsible for ensuring that obsolete taxis are scrapped in line with environmental regulations and standards, in order to avoid the re-use of old taxis or parts of them.

Each scrapped vehicle is expected to reduce between one and two metric tonnes of carbon dioxide per year depending on the type of vehicle, fuel efficiency, distance travelled etc. The program is unique in many ways, including the incentives that encourage the participation of vehicle owners on a voluntary basis and using carbon revenues to better enforce a law. The program is also distinctive since it involves a one-stop-shop for taxi owners, from surrendering and scrapping old vehicles to purchasing and registering a new one. The carbon credits also pay for capacity-building and data management capabilities to ensure that the processes are implemented properly.

By signing contracts to buy carbon credits from the program, the World Bank Carbon Finance Unit’s Danish Carbon Fund and Tranche 2 of the Spanish Carbon Fund are working hand-in-hand with Egypt’s Ministry of Finance to obtain greater enforcement of the traffic law.  Without the program, the enforcement of the law would have taken longer to reach its objectives. By providing the Ministry of Finance with advance payments, the carbon funds have helped to create the infrastructure, data monitoring, and management systems required.  These early funds were crucial in setting up the initial system, and future carbon revenues will help expand the monitoring system for the lifetime of the program.