Conference Paper
Mind the Gap: Carbon Intensity, Regulatory Quality, and Transition Risk
No.
ERF32AC_195
Publisher
ERF
Date
May, 2026
Topic
G2. Financial Institutions and Services
O4. Economic Growth and Aggregate Productivity
Q5. Environmental Economics
O1. Economic Development
This paper examines the sustainability performance of Middle East and North Africa (MENA) economies using the sustainability gap, defined as the deviation between actual GDP per capita and the sustainability-consistent income implied by ESG fundamentals. Using an annual panel of advanced, emerging, and resource-rich economies from 2000 to 2023, we evaluate how production-based and per-capita CO₂ emissions, together with financial transparency, shape both the level of the sustainability gap and its five-year momentum. The results show that high production-based carbon intensity imposes a large and significant sustainability penalty. A one standard deviation increase in CO₂ per USD 10,000 of GDP lowers the sustainability gap by 4 to 7 percentage points in non-MENA economies, and by 1.3 to 1.5 points in MENA. Financial transparency moderates this penalty outside the region, but its mitigating effect is close to zero in MENA and especially in resource-rich MENA. By contrast, per-capita emissions display only weak associations with sustainability performance and no meaningful interaction with transparency. Five-year momentum estimates show limited institutional influence and indicate slow structural adjustment throughout the region. Counterfactual simulations confirm these patterns. Raising financial transparency in MENA to advanced-economy levels improves the sustainability gap by less than 1 percentage point for most countries, while reducing production-based CO₂ intensity to global benchmarks yields improvements of 3 to 4 points for the most carbon-intensive producers. These findings highlight that MENA’s sustainability penalties are primarily structural in origin, and that credible long-term decarbonization requires substantial changes in production systems supported by, but not driven by, institutional reform.