Navigating the green transition: Decarbonization, trade, and labor markets in MENA

The Middle East and North Africa (MENA) region is highly vulnerable to climate change, with 60 percent of its population living in areas facing severe water stress, a situation expected to worsen. Climate change may reduce rainfed crop yields by 30 percent, threatening food security and increasing dependence on imports. Rising temperatures and sea levels also put coastal cities at risk of displacement and economic loss, while more frequent and intense climate-related disasters, such as droughts and floods, further exacerbate the region\’s challenges.
 

Shift to Green Energy

The global shift to green energy and the pressure to reduce carbon emissions are reshaping both trade dynamics and labor markets in MENA, presenting unique opportunities and challenges. Our new paper, Decarbonization in MENA: Energy Transition, Trade, and Labor Markets, explores the complexities of decarbonization, particularly for developing regions like MENA.
 

Trade and Environmental Provisions: A Double-Edged Sword

As countries aim to align trade policies with global environmental standards, trade agreements with environmental provisions (EPs) are becoming more common. However, their impact on trade is mixed. Using an augmented gravity model, the study assesses how EPs influence trade flows in MENA, yielding some surprising results.

1. Regional Trade Agreements (RTAs): Generally, increase trade by reducing barriers, with a significant positive effect of 0.235.
2. Environmental Provisions (EPs): When included, the marginal effect is -0.118, indicating a reduction in trade flows due to increased compliance costs and regulatory burdens.

Nonetheless, certain types of EPs can promote trade growth:

• Category I Eps: Focused on general environmental goals, show a positive impact with a coefficient of 0.067.
• Category III EPs: Centered on judicial enforcement mechanisms, also have a positive effect, with a coefficient of 0.083.
• Category V Eps: Involving stringent environmental regulations like pollution control, have a significant negative impact, with a coefficient of -0.266.

Interestingly, MENA countries, while generally benefiting less from RTAs compared to other regions, see a positive effect from Environment Provisions. The inclusion of EPs in RTAs enhances trade flows in MENA, with a MENA-specific EP coefficient of 0.492. This suggests that stricter environmental standards could help the region improve its global trade standing by enhancing its environmental reputation.
 

Labor Market Impacts of Carbon Pricing in Tunisia

The study also examines the labor market consequences of the energy transition, focusing on Tunisia, which is aiming to increase its renewable energy capacity from 8% to 35% by 2030. While this shift creates opportunities in green sectors, it poses challenges for fossil fuel-dependent districts.

Employment Declines: Regions with greater exposure to energy price increases, like Tunis and Sfax, experience significant employment declines Table 1. The price exposure index shows a 0.5 percent decrease in overall employment, with male workers being more affected (a 0.4 percent decline) than female workers, whose employment remains statistically unaffected Table 2. This gender disparity is partly explained by men holding 70 percent of jobs in carbon-intensive industries. However, women may face challenges entering the green economy, as they are underrepresented in STEM careers critical for this transition.

Table 1: Energy intensity exposure, by district 2016

District	Energy Intensity Exposure
Jendouba	70.50
Tozeur	95.65
Tataouine	103.51
Kebili	121.98
Zaghouan	168.55
Siliana	180.05
Le Kef	230.74
Gafsa	246.97
Beja	265.67
Gabes	275.05
Sidi Bouzide	294.35
Kasserine	305.91
Manouba	373.73
Mahdia	377.60
Mednine	397.77
Kairouan	443.54
Bizerte	490.39
Monastir	583.54
Ben Arous	637.82
Ariana	639.42
Sousse	641.47
Nabeul	871.18
Sfax	914.27
Tunis	1,125.23

Note: This represents regional energy exposure district wise in 2016. The index is defined as CO2 Emissions per $1M Output, Weighted by Industry Employment.

Table 2: Results

	(1)	(2)	(3)
	Full Sample	Male	Female
Price exposure index	-0.00503***	-0.00442***	-0.00443*
	(0.00149)	(0.00154)	(0.00225)
Observations	120	120	120
R-squared	0.154	0.150	0.164
Year FE	Yes	Yes	Yes
District FE	Yes	Yes	Yes
Individual Controls	Yes	Yes	Yes

District cluster robust standard errors in parenthesis. * p < 0.1; ** p < 0.05; *** p < 0.01

Conclusion

Achieving sustainability in the energy sector is expected to lead to a net increase in jobs worldwide by 2030 compared to a business-as-usual path. This employment growth is largely due to the greater labor intensity of renewable energy production relative to fossil fuel-based power generation.

However, this positive trend comes with substantial regional disparities. While regions such as the Americas, Asia, and Europe are expected to experience net job creation, the Middle East and Africa may face net job losses, estimated at -0.48% and -0.04%, respectively, if their economic structures remain unchanged “ILO-World Employment and Social Outlook series: Greening with jobs”. Policy interventions are thus essential to mitigate these potential job losses and address the negative impacts. For MENA countries, adapting policies to encourage green transition is not just beneficial but necessary to ensure sustainable employment growth and reduce reliance on fossil fuels.

Our paper shows the intersection of environmental policy, trade, and labor markets, particularly in MENA and Tunisia. The findings highlight the need for well-designed Environment Provisions and carbon pricing mechanisms that balance environmental sustainability with economic and social objectives. Policymakers must ensure that these transitions do not disproportionately affect vulnerable workers and create opportunities for retraining and reskilling to foster a more inclusive green economy.

Source: blogs.worldbank.org