Climate change policy in the MENA region: prospects, challenges and the implication of market instruments

Abstract

Climate change is one of the principal challenges facing the world today. Given its harsh climate and fragile ecosystems, the MENA region is vulnerable to the physical impacts of climate change, yet, given its high dependency on hydrocarbon resources, the MENA region is also vulnerable to the impacts of climate change response measures. This paper addresses four crucial aspects in relation to climate change policy and its impacts in the MENA region. These are the rising energy/carbon intensities in the region, the impacts of climate change response measures, the mitigation potentials in the region, and the suitability of market based instrument to harness these potentials. The analysis made use of the Marginal Abatement Cost (MAC) curves and econometric techniques to assess the Green House Gas emissions (GHG) mitigation potentials in MENA and a Computable General Equilibrium (CGE) modeling to investigate the impacts of response measures and to explore the suitability of market-based instruments to harness mitigation potentials in the region. The main policy insights to be drawn from the analysis include the role of incentives to promote energy efficiency and reduce carbon emissions in the region, the potential gains from actively participating in the international carbon markets through the use of Clean Development Mechanism (CDM), the contribution of climate policy to air quality, and the role of green tax reforms and other sweeteners to improve the welfare economics of pursuing domestic carbon policies in the region.