Decarbonization in MENA : Energy Transition, Trade, and Labor Markets

This paper examines two key questions about decarbonization and its economic implications. First, it analyzes how environmental provisions in trade agreements affect bilateral trade flows, with a specific focus on the Middle East and North Africa region. By constructing a detailed dataset of trade agreements that include environmental provisions and applying an augmented gravity model, the study reveals that while regional trade agreements generally promote trade by reducing barriers and fostering economic cooperation, the inclusion of environmental provisions introduces complexity. Environmental provisions can enhance or hinder trade flows depending on the nature of the provisions and the economic context. Provisions related to general environmental goals and judicial enforcement tend to promote trade, whereas more stringent regulations often impose compliance costs, thereby reducing trade flows. Middle East and North Africa–specific findings suggest that while regional trade agreements may be less advantageous for countries in the region, compared to other regions, environmental provisions can counterbalance this by improving the region’s environmental standards and reputation, ultimately supporting trade growth. The second focus of the paper explores labor market consequences from rising carbon prices and the transition to renewable energy in Tunisia. The findings indicate that districts heavily reliant on fossil fuels experience significant employment declines, particularly among male workers, as carbon prices rise. The results underscore the importance of targeting policies to mitigate job losses in carbon-intensive sectors while promoting “green” job creation in renewable energy industries.