Balancing Trade and Green Goals: Decarbonization Challenges in the MENA Region

A World Bank and Texas A&M study highlights the dual impact of environmental provisions in trade agreements and labor market disruptions from the green transition in MENA, with Tunisia as a case study. It emphasizes targeted policies to balance trade, environmental goals, and socio-economic equity.

A joint effort by the World Bank's Poverty Global Department and Texas A&M University explores the pressing challenges of decarbonization in the Middle East and North Africa (MENA). This comprehensive study examines the dual impact of environmental provisions in trade agreements and the labor market disruptions caused by the transition to renewable energy. With Tunisia as a case study, the research offers crucial insights for designing policies that align environmental goals with economic resilience, ensuring a sustainable and inclusive transition.

The Trade-Offs of Environmental Provisions in Agreements

Environmental provisions in trade agreements are reshaping the global trade landscape, particularly in the MENA region. While regional trade agreements (RTAs) generally reduce barriers and foster economic cooperation, provisions related to environmental goals introduce additional layers of complexity. Some provisions enhance trade by improving global alignment and reputation, while others, especially those with stringent compliance requirements, impose costs that can hinder trade flows. This nuanced impact is especially pronounced in carbon-intensive industries. For MENA countries, however, such provisions can offset regional trade disadvantages by elevating environmental standards, signaling commitment to sustainability, and opening new avenues for sustainable growth.

Labor Market Shifts Amid the Green Transition

The transition to renewable energy, driven by rising carbon prices and global commitments to reduce emissions, is profoundly altering labor markets across the MENA region. In Tunisia, where the economy relies heavily on fossil fuels, this shift has caused notable job losses, particularly in regions dependent on carbon-intensive industries like oil and gas. Male workers are disproportionately affected, revealing a gendered aspect of these disruptions. This dynamic emphasizes the urgent need for targeted social safety nets and comprehensive reskilling programs to support displaced workers. On the brighter side, Tunisia’s ambitious target to raise renewable energy capacity from 8% to 35% by 2030 presents an opportunity to create green jobs in solar and wind energy sectors, fostering economic diversification and resilience.

Balancing Environmental Goals and Trade Growth

Employing advanced econometric gravity models, the study investigates the economic implications of environmental provisions in RTAs. It categorizes provisions into areas such as enforcement mechanisms, general environmental goals, and specific regulatory commitments, demonstrating their diverse effects on trade flows. For example, provisions offering technical and financial assistance significantly boost trade, while those requiring stringent compliance often reduce trade flows. In the MENA context, environmental provisions appear to strike a strategic balance between enhancing trade partnerships and fostering sustainability. Policymakers are urged to leverage these provisions to simultaneously drive trade growth and environmental protection.

Uneven Impacts and Policy Solutions for Tunisia

Using data from Tunisia’s National Survey on Population and Employment, the study highlights the uneven regional impacts of energy transitions. Industrialized districts like Tunis and Sfax, which are heavily reliant on manufacturing, face greater employment disruptions due to their higher energy exposure. Conversely, less industrialized areas are less affected, presenting an opportunity to implement energy-efficient practices and promote regional equity. The study also identifies a stark gender disparity in labor market impacts, with men experiencing more pronounced job losses than women. To mitigate these effects, Tunisia needs robust policy frameworks that support green job creation, invest in renewable energy infrastructure, and ensure equitable access to opportunities in emerging sectors.

Toward a Sustainable Future for MENA

This research underscores the complexity of balancing trade, environmental policies, and labor market outcomes in the MENA region. By incorporating well-designed environmental provisions into trade agreements and adopting proactive labor market policies, MENA countries can navigate the challenges of decarbonization while seizing opportunities for green growth. Aligning with global sustainability standards not only bolsters trade but also enhances the region’s environmental reputation, providing a competitive edge in international markets. The study serves as a roadmap for policymakers to achieve sustainability while minimizing socio-economic disruptions, ensuring that the green transition benefits both economies and communities.

The collaborative findings of the World Bank and Texas A&M University highlight the importance of integrating economic, environmental, and social policies to achieve a balanced and inclusive energy transition. For MENA, decarbonization is not just a necessity but an opportunity to reshape its economic landscape for a sustainable future.