Tunisia Country Climate and Development Report

MIDDLE EAST AND
NORTH AFRICA
Tunisia
World Bank Group
November 2023
i
Tunisia Country Climate and Development Report
© 2023 The World Bank Group
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i
Contents
Executive Summary..................................................................................................................................................................IX
1.How Tunisia’s Economic, Social, and Climate Change Challenges Interact.................................................................. 1
1.1.Economic and Social Challenges.............................................................................................................................. 1
1.2.Climate Change and Development Challenges........................................................................................................ 3
1.2.1. Water scarcity..................................................................................................................................................... 6
1.2.2.Sea-level rise and flooding................................................................................................................................. 8
1.2.3.Dependence on fossil fuel imports................................................................................................................. 11
2.Climate Change Strategies, Policies, and Institutions....................................................................................................15
2.1.An Ambitious Climate Change Agenda with Opportunities and Challenges......................................................... 15
2.2.Challenges to Integrated and Inclusive Climate Governance............................................................................... 18
3.Key Objectives for Resilience and Decarbonization........................................................................................................20
3.1.Addressing Water Scarcity....................................................................................................................................... 20
3.1.1. The costs of inaction on water resources....................................................................................................... 20
3.1.2.How to solve the water crisis........................................................................................................................... 22
3.1.3.Summary........................................................................................................................................................... 26
3.2.Enhancing Resilience to Flooding and Sea-level Rise........................................................................................... 27
3.2.1.The costs of inaction of sea-level rise and flooding....................................................................................... 27
3.2.2.How to prepare for sea-level rise and flooding............................................................................................... 30
3.2.3.Summary........................................................................................................................................................... 35
3.3.Decarbonizing the Energy Sector............................................................................................................................ 36
3.3.1.The costs of inaction in the context of a decarbonizing world...................................................................... 36
3.3.2.How to decarbonize energy supply and demand in end-use sectors........................................................... 36
3.3.3.Summary........................................................................................................................................................... 45
4.Building Macroeconomic, Financial, and Human Capital for Climate Resilience.......................................................47
4.1.Macroeconomic Impacts of Climate Inaction......................................................................................................... 47
4.1.1. The economic costs of inaction....................................................................................................................... 47
4.1.2.The economic benefits of actions to mitigate and adapt.............................................................................. 49
4.2.Financing Climate Action......................................................................................................................................... 52
4.2.1.Fiscal policies.................................................................................................................................................... 52
4.2.2.Promoting public investment........................................................................................................................... 57
4.2.3.Green finance................................................................................................................................................... 58
4.2.4.The role of the private sector........................................................................................................................... 60
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4.3.Financial Stability in the Face of Climate Risks..................................................................................................... 62
4.4.Empowering People in the Climate Transition........................................................................................................ 63
5. Summary of Solutions........................................................................................................................................................ 65
Bibliography .......................................................................................................................................................................... 70
List of Figures
Figure 1 : Summary of development and climate challenges........................................................................................XI
Figure 2 : Water supply and demand under RCP 8.5 with no action...........................................................................XII
Figure 3 : Likelihood of flooding under different RCP scenarios.................................................................................XIII
Figure 4 : The economic costs of climate inaction.......................................................................................................XIV
Figure 5 : Recommended high-impact actions with near-term benefits for a green,
resilient, and inclusive transition...................................................................................................................XX
Figure 6 : Recommendations for a “whole of government” and “whole of society” approach
or a green, resilient, and inclusive transition...............................................................................................XXI
Figure 7 : Tunisia’s economic growth has slowed since 2011 (GDP per capita, constant 2016 US$)....................... 1
Figure 8 : A tale of two public expenditures: wage bill versus capex (as a percent of GDP)........................................ 2
Figure 9 : Under a worst-case.......................................................................................................................................... 4
Figure 10 : Under a worst-case climate change scenario, precipitation decreases
between 1 percent and 14 percent until 2050, and between 18 percent and 27 percent until 2100..... 4
Figure 11 : Summary of economic development and climate challenges...................................................................... 5
Figure 12 : Coastal erosion in the Mediterranean (1984 to 2016 average)................................................................... 8
Figure 13 : Comparison of brent price (in US$ per barrel and TD per barrel, left axis)
and subsidies (in percent of GDP, right axis)................................................................................................ 12
Figure 14 : SOE debt is mounting due to need to absorb energy subsidies (TD million)............................................. 12
Figure 15 : Energy emissions (C02 equivalent) by sector.............................................................................................. 12
Figure 16 : Final energy demand by sector..................................................................................................................... 12
Figure 17 : Assessment of Tunisia’s climate change governance functions................................................................. 16
Figure 18 : Water supply and demand under RCP 8.5 with no action, ........................................................................ 21
Figure 19 : Soil erosion at Siliana watershed in 2020 (left) and 2100 under SSP3 scenario (right, projected)........ 22
Figure 20 : Possible mix of seawater desalination and wastewater treatment capacity in Tunisia, ........................... 24
Figure 21 : Distribution of coastal areas that could be affected by erosion and marine submersion
due to climate change (as a percent of the total area threatened by 2050)............................................. 28
Figure 22 : Share of tourism-related assets in areas that could disappear due to coastal
erosion and marine submersion................................................................................................................... 28
Figure 23 : Likelihood of flooding under different RCP scenarios................................................................................. 28
iii
Figure 24 : Tunisia road network links most exposed to direct risk of 100-year flood
(RCP 8.5 scenario), 2050 median................................................................................................................ 29
Figure 25 : Tunisia road network links most exposed to indirect risks of 100-year flood
(RCP 8.5 scenario), 2050 median................................................................................................................ 29
Figure 26 : The expected cost of funding average, 1-in-10-year, and 1-in-20-year losses over
the next year under each of the modeled illustrative disaster risk finance strategies.............................. 34
Figure 27 : Levers for achieving carbon neutrality in the energy sector........................................................................ 37
Figure 28 : Final energy demand by sector..................................................................................................................... 38
Figure 29 : Final energy demand by sources.................................................................................................................. 38
Figure 30 : Total electricity demand under the net zero scenario (Scenario C)............................................................ 41
Figure 31 : Installed capacity (Gigawatts)....................................................................................................................... 42
Figure 32 : Power generation mix.................................................................................................................................... 42
Figure 33 : The distributional impacts of adaptation and mitigation measures........................................................... 52
Figure 34 : Tunisia’s energy subsidies (as a percent of GDP)........................................................................................ 53
Figure 35 : Comparison of fossil fuel subsidies and environmental taxes: Tunisia versus global
(percent of GDP in 2018–2019)................................................................................................................... 54
Figure 36 : Implicit and explicit fossil fuel subsidies versus environmental taxes (as a percent of GDP).................. 55
Figure 37 : Recommended high-impact actions with near-term benefits for a green,
resilient, and inclusive transition.................................................................................................................. 65
List of Tables
Table 1 : Macroeconomic impacts of decarbonization scenarios (percent deviation from baseline)....................XVII
Table 2 : Costs of investment and operations until 2050 (in US$ million)..............................................................XVII
Table 3 : Current disaster risk finance instruments in Tunisia................................................................................... 10
Table 4 : Costs of investments to address water scarcity until 2050 (in US$ million)............................................. 26
Table 5 : Interventions by zone type under an ambitious adaptation scenario........................................................ 31
Table 6 : Costs of investments to increase resilience of coastal areas until 2050 (in US$ million)....................... 35
Table 7 : Costs of investment and operations to decarbonize energy sector until 2050 (in US$ million).............. 46
Table 8 : The macro and fiscal impacts of climate damage scenarios (percent deviation from baseline)............. 48
Table 9 : Macro impacts of decarbonization scenarios (percent deviation from baseline)..................................... 50
Table 10 : The macroeconomic impacts of adaptation and mitigation (percent deviation
from RCP 8.5 inaction scenario unless otherwise indicated)..................................................................... 51
Table 11 : The impacts of financing climate action through fiscal policy
(percent deviation from RCP 8.5 inaction scenario unless otherwise indicated)..................................... 57
Table 12 : Recommendations for a green, resilient, and inclusive transition............................................................ 66
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List of Boxes
Box 1 : About this Climate Change and Development Report........................................................................................X
Box 2 : Difference between Shared Socioeconomic Pathways and Representative
Concentration Pathways scenarios..................................................................................................................... 5
Box 3 : Policies and strategies to address water scarcity............................................................................................ 18
Box 4 : Policies and strategies to enhance resilience of urban and coastal zones................................................... 19
Box 5 : Policies and strategies to develop renewable energy and improve energy efficiency................................... 19
Box 6 : Strengthening workforce capacity to address water scarcity.......................................................................... 26
Box 7 : Illustrative disaster risk finance analysis.......................................................................................................... 34
Box 8 : Strengthening workforce capacity to enhance resilience of urban and coastal zones................................. 35
Box 9 : Strengthening workforce capacity to develop renewable energy and improve efficiency............................. 45
Box 10 : Combining models to estimate the economic impacts of climate change and climate action.................... 47
v
Acknowledgements
This Tunisia Country Climate and Development Report (CCDR) is a collaborative effort of The World Bank, the
International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). It was produced by
a team led by Massimiliano Cali, Tu Chi Nguyen, Marcelo Acerbi, and Katharina Ziegler. Contributions and comments
were received from Adeel Abbas Syed, Afef Tlili, Ahmed Zairi, Alastair Charles Norris, Amira Klibi, Amos Abu, Andrea
Mariel Juarez Lucas, Anis Oueslati, Aymen Belgacem, Brett Rayner, BRL Ingénierie, Carole Megevand, Christian Berger,
Craig Meisner, Derek Ensing, Dina Ranarifidy, Ellen Olafsen, Emily Weedon, Euijin Jung, Fadila Caillaud, Federica Alfani,
Francois Lesage, Geoff Handley, Georges Ghorra, Habib Zitouna, Harika Masud, Hasan Dudu, Himdat Bayusuf, Ibrahim
Mbaidin, Insaf Fradi, Iryna Sikora, Jawhar Abidi, Jean Michel Marchat, Laura Zoratto, Lorenzo Bertolini, Mahmoud
Harb, Maksym Chepeliev, Marc Gerard, Marc Navelet, Mariem Malouche, Maryla Maliszewska, Memory Machingambi,
Mena Cammett, Michaela Mei Dolk, Michiel Van Acoleyen, Mihasonirina Andrianaivo, Mikhail Matytsin, Monia Braham,
Monica Vidili, Nadege Mertus, Narjes Jerbi, Nobuhiko Daito, Olfa Khelifi, Olivier Vidal, Othman Khaled, Paul Brenton,
Phoebe Girouard Spencer, Rajesh Advani, Raoudha Gafrej, Reda Aboutajdine, Riadh Ammari, Rihab Bellakhal, Safia
Hachicha, Samar Louati, Samuel Heroy, Sandrine Jauffret, Sara Sakha, Silvia Pariente-David, Stephane Hallegatte,
Thibault Bouessel du Bourg, Tijen Arin, Ulrike Miglo, Wei Zhang, and Yosra Bouaziz. Modeling exercises were carried
out by Charl Jooste and Florent McIsaac.
Detailed feedback, suggestions, and comments were received from the internal peer reviewers Abedalrazq F. Khalil
(Lead Specialist), Helena Naber (Senior Environmental Specialist), Martin Heger (Senior Environmental Economist),
and Yunziyi Lang (Climate Change Specialist).
The CCDR initiative was presented during a meeting of the Ministerial Council in Tunis on December 16, 2022. The
preparation of the CCDR benefited from important contributions from the Government of Tunisia. In particular, the
CCDR team held exchanges with the following ministries and agencies during meetings and a technical mission in
February and July 2023: the Ministry of Agriculture, Water Resources and Fisheries; the Ministry of Economy and
Planning; the Ministry of Education; the Ministry of Environment; the Ministry of Equipment and Housing; the Ministry
of Employment and Vocational Training; the Ministry of Finance; the Ministry of Higher Education and Scientific
Research; the Ministry of Industry, Energy and Mines; the Ministry of Public Health; the Ministry of Transport; the
Ministry of Vocational Training and Employmentthe Secretary-General of Maritime Affairs; the Agency for the Protection
and Management of the Coast; the National Agency for Energy Management; the Tunisian Society for Electricity and
Gas; the Agency for the Promotion of Agriculture Investments; the Tunisian Society for the Exploitation and Distribution
of Water; the National Institute of Statistics; the Central Bank of Tunisia; the Capital Markets Authority; the Fund for
Deposits and Consignments; and the Banking and Finance Council. The team also received important contributions
from private sector stakeholders and representatives from civil society organizations during consultation sessions
held in May 2023.
The CCDR was prepared under the guidance of Ferid Belhaj (World Bank Vice President for Middle East and North
Africa); Sérgio Pimenta (IFC Regional Vice President for Africa); Ethiopis Tafara (MIGA Vice President and Chief Risk,
Legal, and Administrative Officer); Meskerem Brhane (World Bank Regional Director for Sustainable Development);
Jesko Hentschel (Country Director for the Maghreb and Malta); Alexandre Arrobbio (Tunisia Country Manager); Paul
Noumba Um (Regional Director of Infrastructure); Nadir Mohammed (Regional Director for Equitable Growth, Finance,
and Institutions); Keiko Miwa (in her former role as Regional Director for Human Development); Cheick-Oumar Sylla
(IFC Regional Director for North Africa); Merli Baroudi (MIGA Director of Economics and Sustainability); Lia Sieghart
(Practice Manager, Environment, Natural Resources, and Blue Economy—Middle East and North Africa Region), Husam
Beides (Practice Manager, Energy—Middle East and North Africa Region); and Eric Le Borgne (Practice Manager,
Macroeconomic, Trade and Investment—Middle East and North Africa Region). The report has been edited by Jennifer
Stastny and designed by Tarik Mesbahi. The report integrates results from reports and analyses supported by the
PROBLUE, the Global Program on Sustainability, and the Climate Support Facility trust funds.
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Acronyms and abbreviations
ANME Agence Nationale pour la Maitrise de l’Energie (National Agency for Energy Management)
BAU Business as usual
capex Capital expenditure
CBAM Carbon Border Adjustment Mechanism
CCDR Climate Change and Development Report
CCS Carbon capture and storage
CMIP Coupled Model Implementation Project
CO2 Carbon dioxide
CPAT Climate Policy Assessment Tool
CRDAs Regional Commissions for Agricultural Development
DRF Disaster risk finance
FNAC National Forum of Climate Change Adaptation Actors
GDAs Agricultural development groups
GDP Gross domestic product
GHG Greenhouse gas
GoT Government of Tunisia
ICZM Integrated coastal zone management
kWh/m3 Kilowatt-hours per cubic meter
LPG Liquefied petroleum gas
LT-LEDS Long-term low GHG greenhouse gas emission development strategy
m3 Cubic meters
MFMOD Macroeconomic and fiscal model
Mm3 Million cubic meters
MoE Ministry of Environment
ONAS National Sanitation Office
PV Photovoltaic
SOE State-owned enterprise
SONEDE National Water Works and Distribution Company
SSP Shared Socioeconomic Pathway
TD Tunisian dinars (currency)
vii
TVET Technical and vocational education training
MARHP Ministry of Agriculture, Water Resources, and Fisheries
MRV Monitoring, review, and verification
MW Megawatt
MWh Megawatt-hours
NAP National Adaptation Plan
NDC Nationally Determined Contribution
PPP Public-private partnership
RCP 4.5 Representative concentration pathway of 4.5 (stabilized emissions scenario)
RCP 8.5 Representative concentration pathway of 8.5 (worst-case climate change scenario)
SMEs Small and medium enterprises
SDGs Sustainable Development Goals
SNBC&RCC Stratégie Nationale Bas-carbone et Résiliente au Changement Climatique
(National Low Carbon Strategy and Climate Resilience Strategy)
STEG Société Tunisienne de l’Electricité et du Gaz (the Tunisian Company of Electricity and Gas)
STIR Société Tunisienne des Industries de Raffinage (the Tunisian Company of Refining)
UGPO-CC Unité de Gestion par Objectif–Changements Climatiques
UNFCCC United Nations Framework Convention on Climate Change
VAT Value-added tax
WWTP Wastewater treatment plant
viii
Executive Summary
Tunisia can reconcile a new economic model with the foundations for a durable, resilient development
to accelerate economic recovery, secure jobs, and livelihoods in line with the government’s strategies.
Tunisia is navigating a delicate economic situation amidst a changing political context. The political reforms that
followed the 2011 revolution led to a lack of economic reforms and support to tackle pervasive barriers to investment,
innovation, and economic activity. A series of negative shocks—including the conflict in Libya, terrorist attacks, and,
more recently, the COVID-19 pandemic and commodity price increases linked to the Russian invasion of Ukraine—
exacerbated this fragility. As a result, economic growth slowed (averaging 1.4 percent between 2011 and 2022,
down from 3.5 percent between 2000 and 2011), and progress on reducing poverty slowed. Rising unemployment
and inflation exacerbated social demands and political instability, eventually leading to political changes in July 2021
that include a new constitution and the introduction of a presidential system. With a stagnating economy, Tunisia
has increasingly relied on recurrent public expenditures to meet citizens’ needs without sufficiently tackling the root
causes of economic problems. This rapid rise of recurrent expenditures, exacerbated by recent shocks, has led to
growing fiscal and current account deficits as well as a mounting stock of debt that is increasingly difficult to finance.
Tunisia’s economic challenges have been compounded by an increasing vulnerability to climate change. The
country’s location makes it one of the most exposed to climate change in the Mediterranean region, with temperature
increases expected to be accompanied by reduced and more variable precipitation; a rising sea level with saltwater
intrusion; an increase in forest fires; and escalating extreme weather in the form of floods and droughts. These
climate-linked effects will deplete natural resources, exacerbate water scarcity, and drive losses of agriculture and
coastal infrastructure. Some of these effects are already taking a toll. Four years of drought conditions culminated
in a significant drop in Tunisia’s agricultural production in 2022/23. Vulnerability to increasingly frequent and severe
extreme weather events (especially flooding) and sea-level rise will also increase, as will the costs of coping with
these risks. Some of these issues will drive energy demand (for example, for desalination, pumping, and cooling),
resulting in higher emissions and air pollution while increasing dependency on imports.
This Climate Change and Development Report (CCDR) establishes the case for a new economic model to address
Tunisia’s challenging economic and social context and vulnerability to climate change. Building on extensive
analyses and consultations (see Box 1 for our approach), the CCDR calls for a new model that emphasizes the role
of the private sector in generating most jobs, while the state focuses on its regulating function, funding expenditures
with the highest social and economic returns, and directing resources to interventions that are both economically
and environmentally sustainable. The proposed model would involve major changes, such as using pricing to
rationalize the consumption of resources and creating economic conditions that support private investments in
climate adaptation and decarbonization. It would also involve a shift from recurrent public expenditures to public
investments in adaptation and decarbonization.
ix
Box 1: About this Climate Change and Development Report
This Climate Change and Development Report (CCDR) explores the relationship between Tunisia’s development
goals and climate change, in terms of both risks and opportunities. Building on a body of quantitative and qualitative
research as well as on modeling exercises, it analyzes the interplay between the country’s development goals
and climate change, examining the risks that climate change poses to development, as well as the opportunities
stemming from the global trend toward decarbonization. Finally, it explores public policy and investment options
that could achieve both climate and inclusive development objectives in a synergistic manner. The scenarios and
policy options presented in the CCDR are informed by, but may differ from, national energy and climate policies and
strategies. For example, the CCDR reference scenario for the energy sector is based on a least-cost optimization
scenario that shows more ambitious results than the national strategy objectives.
This CCDR adopts an inclusive approach. To develop a better understanding of the on-the-ground effects of climate
change already experienced in Tunisia today, the team engaged with a broad pool of stakeholders including the
government, civil society, and key segments of the private sector. These engagements highlighted the potential
benefits, impacts, and trade-offs for ecosystems and the most vulnerable pockets of society. They also validated
the need for a two-pronged approach towards climate change resilience, adaptation, and mitigation that includes
strengthening the legal framework to address Tunisia’s needs in the energy, water, and urban sectors, and improving
tangible and effective coordination between institutional, private, and civil-society actors.
The multisectoral engagements helped the team identify and verify the assumptions underlying the climate and
development scenarios modeled in this report. The assumptions consider national and local economic and sectoral
conditions (including financing options and the availability of technical skills); existing climate strategies, initiatives,
and technologies; and opportunities emerging beyond Tunisia’s borders in the context of a decarbonizing world.
Alignment with and contribution to country strategies
Implementation of the
Nationally Determined
Contribution (NDC)
TUNISIA CCDR
Development Plan 2023-2025, Strategy for the ecological transition

recognizes the need for Objective 1: Establish systematic, cross-sectoral and territorial
institutional governance, and provide appropriate and accessible
- An economic transition in the context of climate change,
financing mechanisms.
- An accelerated energy transition,
Objective 2: Strengthen the adaptation and resilience capacities
- Adaptation to climate change, of sectors, environments and populations, and reduce carbon
- Sustainable management of natural resources. Intensity to achieve neutrality by 2050.
Source: Country Climate and Development Report
The Government of Tunisia has been developing high-level strategies to address climate change and foster an
ecological transition, but the implementation of these strategies remains elusive. The country recently launched its
National Strategy for Ecological Transition (SNTE, 2023/35/50), which seeks to implement a resilient, sustainable,
socially fair, and inclusive development model that changes existing ways of consuming, producing, working, and
living while promoting conservation, carbon neutrality and circularity. In addition, Tunisia’s 2023–2025 Development
x
Plan recognizes the need for economic transition in the context of climate change, identifying the investment that
will be needed to achieve the transition (TD 6.7 billion, or US$2.2 billion).1 Tunisia has further committed to the
ambitious goals of reducing unconditional 2030 emissions intensity by 27 percent and conditional emissions by 45
percent (against a 2010 baseline). Despite these commitments, funding shortages, frequent changes in government,
public sector constraints, and an escalating fiscal deficit (driven in part by the limited efficiency in the energy public
spending) have restricted state implementation of climate action.
Water scarcity, coastal erosion and flooding, and the energy sector’s dependence on fossil fuels are
Tunisia’s most important development and climate challenges. Failing to address them would be costly
for the economy in the near term.
Failing to take urgent and decisive action on the above objectives could result in significant socioeconomic, political,
and humanitarian repercussions (summarized in Figure 1).
Figure 1: Summary of economic development and climate challenges
Objective: Secure sufficient water Objective: Enhance resilience to Objective: Decarbonize energy
resources flooding and sea-level rise supply and demand
Challenge: The water scarcity si- Challenge: Tunisia’s vulnerability Challenge: Tunisia’s increasing
tuation will likely deteriorate as cli- to coastal erosion and disaster im- dependence on fossil-fuel im-
mate change progresses, leading pacts will put people and infrastruc- ports undermines its macro-fiscal
to a ripple effect for ecosystems ture at risk, which could lead to the framework. energy security, afforda-
and across all sectors of the eco- destruction of assets and business bility for households, and competi-
nomy, especially in agriculture, with disruption. tiveness for companies.
consequences for food security.
Objective: A “whole of society” and “whole of government” approach for a just transition
Challenge: Climate change has profound impacts on the people of Tunisia. Vulnerable groups (such as
the poor, youth, and women) will be particularly affected due to limited access to resources (financial, food,
and water), and limited economic capacity to withstand shocks. Climate change is also a driver of migration
and internal conflict. Marginalized and economically disadvantaged populations, especially those in rural
areas, will be particularly affected, triggering migrations to urban centers in search of better opportunities.
In North Africa, it is estimated that 19 million people will move for climate reasons.
Water scarcity is already impacting almost every aspect of Tunisia’s socioeconomic development. Water demand
has increased in recent years due to urban growth, a rising population, and increased irrigation needs. By 2050,
a simultaneous increase in the frequency and the intensity of climate change-induced extreme weather events is
expected to drive a decline in water availability, with demand outstripping supply by 28% under a representative
concentration pathway of 8.5 (RCP 8.5), which is the worst-case climate change scenario (Figure 2).2 In all climate
change scenarios, water quality and the storage capacity of dams decrease, while the incidence of water-borne
diseases increase. Agricultural losses, especially in Tunisia’s main agriculture systems (olive, oasis, cereal,
and livestock), also increase, as do the incidence of disease, with the poor being the most vulnerable to these
compounding impacts.
1
See the preliminary version of the development plan 2023-2025.
2
While long-term greenhouse gas emissions under an RCP 8.5 scenario are widely considered overly pessimistic, the Coupled Model Implementation Project (CMIP) climate
change scenarios with RCP 8.5 (CMIP 5) provides a useful (and not implausible) high-warming forecast that is consistent with continued GHG emissions and high climate-
change sensitivity or positive feedback from the carbon cycle.
xi
Figure 2: Water supply and demand in 2018 (no drought conditions) and under RCP 8.5 with no action
5,000
4,574
4,500
Water volume (Mm3/year)
4,117
4,000
3,500 3,239
2,978
3,000
2,500
2,000
1,500
1,000
500
0
2018 2050 under RCP 8.5
Water demand Water supply
Source: World Bank staff estimation.
A significant share of Tunisia’s land is exposed to climate-induced risks of shoreline erosion, permanent submersion
from sea-level rise, and flooding. Climate change is expected to drive greater variability of precipitation, which
increases the likelihood of catastrophic floods and associated asset damages as a one-in-1,500-years flood becomes
a one-in-163-years flood under RCP 8.5 (Figure 3). Under both Shared Socioeconomic Pathway 2 (SSP2) and SSP3,
0.4 percent of the total land area in Tunisia—which includes 24 percent of the populous linear coastal distance—are
likely to be affected by sea-level rise by 2050. Land losses3 due to sea-level rise could amount to US$1.6 billion
(SSP3), although this figure may reduce to US$44 million under SSP1 while adopting a strong integrated coastal zone
management approach.
3
Land losses have been evaluated using the discounted unit cost/coastal land market price (without considering the value of the lost economic activities on the land). The
valuation has been done for each type of land use using different sources, including Heger and Vashold 2021, cited in Heger et al 2022.
xii
Figure 3: Likelihood of flooding under different RCP scenarios
(%)
2.00
1.80
Damage (% of exposed assets)
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
0 500 1,000 1,500 2,000
Return period
RCP 8.5 RCP 4.5 RCP 2.6 No additional warming
Surface area loss will result in pronounced indirect losses, with the tourism sector being among the worst affected.
Assuming no adaptation measures are taken to protect the tourism sector in coastal zones, the direct and indirect
consequences of surface area loss by sea-level rise would cost the Tunisian economy up to 6.9 percent of 2020
GDP by 2050 due to cascading impacts on hotel, restaurant, and catering activities; public revenue; tourism-related
economic activities; and jobs.
If Tunisia does not urgently address these climate change-related risks, particularly water shortages, the economy
could shrink by 3.4 percent of GDP by 2030 (close to TD 5.6 billion a year [US$1.8 billion] in net present value).
Our modeling suggests that, compared with a baseline based on past trends, unaddressed water shortages, coastal
erosion, and flooding could reduce real GDP by 3.4 percent in 2030 (under RCP 8.5). These annual losses could grow
to 6.4 percent of GDP by 2050, or TD 10.4 billion (US$3.4 billion) in net present value terms. A large share of these
losses is driven by the impacts of water shortages. The agricultural sector would therefore be particularly affected,
with its value added expected to fall by 15 percent by 2030 (and by 29 percent by 2050). A decline in agricultural
production would reduce net exports, while imports would increase to bridge the resulting supply-demand gap.
Under this scenario, the current account deficit could deteriorate by more than 6 percent in 2030. This would
exacerbate Tunisia’s already fragile external balance. In addition, by 2030 the poverty rate would increase to 21.3
percent, which is a 1.5 percent increase relative to the baseline scenario.4
4
Based on the official poverty line calculated in the 2015 Household Budget Survey of Tunisia’s National Statistics Institute.
xiii
Figure 4: The economic costs of climate inaction
(Percent deviation of the scenario if no action is taken to reduce climate stressors in a business-as-usual scenario)
t
un
Percent deviation relative to the baseline.
o
a cc
nt
re
P ry
GD s re ce
ltu
st ice r
al du Cu alan
icu
rv
Re In Se
r
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Ag
0
-5 -1.8 -3
-3.4 -3.4
-6.4 -7.1 -6.5
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-9.4
-15
-14.9
-20
-25
-28.6
-30
2030 2050
Decarbonizing the energy sector, which is 99 percent fossil-fuel based, would enhance Tunisia’s energy security
and consequently reduce its current account deficit, making it less vulnerable to international price fluctuations.
The CCDR analysis indicates that energy import dependency would be reduced from 50 percent in 2022 to 2 percent
in 2050 in a “deep decarbonization” scenario (see scenarios discussion under “Decarbonized energy supply”,
below). Decarbonizing the energy sector would help to reduce energy costs, making energy more affordable for
households and companies while supporting Tunisia’s ambition of becoming a regional energy hub for clean energy
trade between African countries and Europe. Failing to decarbonize the energy sector, which accounts for 58 percent
of the country’s greenhouse gas (GHG) emissions, would make it difficult for Tunisia to comply with its Nationally
Determined Contribution (NDC) obligations. The country’s current account deficit and financing conditions would
limit its ability to import the energy it needs to meet growing demand, and economic activity would be stifled.
Addressing water scarcity, enhancing the resilience of urban and coastal areas to climate stressors,
and decarbonizing the energy sector would yield substantial developmental gains for Tunisia in the
near term.
Enhanced water management and increased water supply
Managing water demand and improving efficiency are essential for maximizing existing conventional water
resources. The country would benefit from prioritizing, among other measures, the regulation of water demand and
targeted awareness campaigns. Iinstitutional reforms and establishing a water-monitoring and early-warning system
would further enhance water governance and management. Strengthening the technical and financial capacities of
institutions—including professional organizations and those in rural areas—will likely be critical for the effectiveness
of water policies. Since water-related challenges in rural areas particularly affect women, this group should play a
more active role in making decisions relating to the management of water resources.
Tunisia would benefit from drawing on non-conventional water sources to cope with demand-supply imbalances.
Conventional water resources are almost fully utilized, and the development of additional built water storage will
require thoughtful and purposeful design. Combining desalination with wastewater reuse could increase water
supply by 693 million cubic meters (Mm³), according to Tunisia’s Water 2050 strategy.5
5
Tunisia’s Water 2050 strategy is available here: http://www.onagri.tn/uploads/Etudes/ITES-eau2050.pdf
xiv
Increased resilience and efficiency of the agricultural sector including through nature-based solutions
As the main consumer of water, the agriculture sector has an important role to play in improving irrigation efficiency
to reduce water demand. The implementation of nature-based solutions can further increase water availability.
To protect rural areas from climate-induced income stress, smallholder farmers (including herders) would benefit
from upgrading their operations with climate-smart practices to increase productivity and promote more resilient,
rainfed agriculture. Nature-based solutions—especially those that support the recharge of groundwater reservoirs by
conserving and restoring forests, watersheds, wetlands, and oases landscapes—will play a crucial role in mitigating
the anticipated decline in surface water.
Coastal zones defended against sea-level rise

Targeted interventions to protect coastal zones and their economic activities may help prevent some of the
damage that could be caused by sea-level rise. The type of intervention depends on the coastal zone. For natural
areas with assets (such as beaches), primary interventions would usefully focus on soft defense measures like
adding sediment or sand along the shoreline (beach nourishment), conserving dunes, or implementing nature-based
solutions such as increasing vegetation cover to stabilize soil. Developing a diversified tourism value chain—that is,
one that offers year-round tourism that takes advantage of unique inland landscapes and heritage assets as well as
coastal attractions—would further reduce risks to the tourism sector.
Critical infrastructure protected against flooding and sea-level rise

Tunisia would benefit from investing in enhancing multimodal transport to increase the resilience of the transportation
network. Increased investment in railways would strengthen Tunisia’s transport network resilience because having
multiple modes of transport introduces alternatives into the overall transportation system. Seaports play a critical
role in importing essential goods and present opportunities to improve resilience by upgrading infrastructure and
strengthening connectivity with land transport, particularly railways. Resilience could be integrated into transport
policies and mainstreamed in investment planning, programming works, the design and engineering of infrastructure
assets, and the operation and maintenance of facilities, including when this is done by public-private partnerships.
Institutional mechanisms could usefully ensure that climate change risks are systematically included in
infrastructure, land use, and urban planning. Tunisia has taken significant steps to improve its resilience to
disasters, including publishing the 2030 National Disaster Risk Reduction Strategy and its Action Plan. Nonetheless,
opportunities remain to improve its resilience, including updating and enforcing building codes and design standards,
especially of key public infrastructure. Improving infrastructure resilience involves strengthening the capacity and
authority of local institutions to manage and protect assets. Integrated coastal zone management (ICZM) has proven
to be a successful tool for managing coastal erosion.
Social protection enhanced and insurance schemes developed

Improving the financial resilience of households, farmers, and businesses can protect the population’s well-being
in the face of climate risks. Disaster risk financing and insurance can address residual risk after disaster risk
reduction efforts have reduced the impacts of disasters. Updating the social registry of the country’s main social
assistance program, AMEN, to include all vulnerable households would help with the issue of early warnings and
would support a speedy response to potential future climate shocks.
Decarbonized energy demand in end-use sectors

An “avoid-shift-improve” framework is useful when considering decarbonization measures for the transport sector.
“Avoid” refers to meeting mobility needs with fewer vehicular travels (for example, by digitalizing services, reforming
the trucking industry to encourage the consolidation of demand, or by urban planning). “Shift” refers to switching
from the currently dominant model of using private cars to more sustainable modes of transport that include walking,
cycling, and using public transport or rail. “Improve”, meanwhile, refers to improving the energy efficiency of vehicles
and promoting electromobility and the integration of green hydrogen. Concrete policies and initiatives would send
clear signals to the market to encourage the transition to a sustainable transport system that uses less fossil fuel
and more clean energy.
xv
For the industrial sector, cost-effective measures include improving production efficiency; increasing the use of
alternative, cleaner fuels (including renewable energy through electrification and green hydrogen); reducing waste
along product lifecycles; and using carbon capture and storage (CCS). Despite being aware of climate mitigation
requirements, few companies demonstrate climate preparedness. Decarbonization would require scaling up energy
audits and energy management systems; implementing new regulatory and innovative finance models to increase
energy efficiency investments; and adopting new approaches to electricity demand management, including the use
of demand-side response, behind-the-meter battery storage, renewable energy self-generation, and co-generation.
Greening the building sector requires scaling up and strengthening existing government programs, including those
that focus on rooftop solar photovoltaic (PV) panels and solar water heating for poor and vulnerable households.
Existing programs, while promising, experience financial, technical, and communication-related challenges that
prevent them from reaching their full potential. The most important decarbonization measures for the building sector
would focus on improving energy efficiency through better insulation and the use of natural cooling and heating
techniques as well as more efficient appliances for lighting, cooking, heating, and cooling.
Decarbonized energy supply

Given the importance of electrification and green hydrogen in achieving net-zero emissions in the energy sector,
decarbonizing electricity supply through renewable energy is highly recommended. This report explores potential
pathways through three scenarios:6 an “unconstrained optimized” scenario where electricity demand is assumed
to follow a business-as-usual (BAU) trajectory (Scenario A), a scenario with imposed net-zero emission target in
the electricity sector by 2050 (as Scenario B), a scenario with the same emission target as in Scenario B and
the decarbonization of demand in the end-use sectors with increased electrification and the deployment of green
hydrogen in the building, industrial, and transport sectors, which displaces the use of fossil fuels.
All scenarios entail a massive switch from natural gas to renewables, with solar and wind being the least-cost
solutions for electricity production. A decline in thermal generation would reduce the need for natural gas, with
positive outcomes for energy security and the trade balance. Due to the large penetration of renewables in the
power sector, which are cheaper than thermal generation, and improvements in the efficiency of power plants, the
average cost of electricity generation would decrease significantly in all scenarios. The current renewable power
generation capacity of 467 MW is far from both the government of Tunisia’s target of 4,800 MW and the optimal
capacity of 5,900 MW (Scenario A) by 2030. The rapid expansion of renewable energy depends on initiating an
integrated reform program that restores the sector’s financial viability, including reforming public energy spending
and financially restructuring and improving the performance of the Société Tunisienne de l’Electricité et du Gaz
(STEG, the Tunisian Company of Electricity and Gas) to regain investor confidence.
Decarbonizing the energy sector would generate significant economic gains by helping Tunisia address its external
imbalance and reducing energy costs, while driving large emission reductions. These mechanisms are captured in
the results of macroeconomic modeling for the three scenarios (presented in Table 1). All scenarios lead to economic
gains relative to the baseline inaction scenario, with the economy expected to be larger by between 1.1 percent
(Scenario A) and 1.7 percent (Scenario C) by 2030. The GDP impact of Scenario C is largest in the short run (GDP
1.7 percent larger by 2030) because end-user sectors benefit from enhanced decarbonization, resulting in lower
energy costs.
6
The three scenarios were selected to investigate the cost of decarbonisation in the electricity sector. The assumptions used do not necessarily match those of Tunisia’s
National Energy Strategy and its Low Carbon Strategy. One of the scenarios is a “least-cost solution with no carbon constraint”, to be able to compare results with a scenario
of decarbonization of the electricity generation sector (with and without increased electricity penetration and the introduction of hydrogen). The present analysis focuses
on the electricity sector as a critical sector to reach carbon neutrality and does not assume overall carbon neutrality of the energy sector or the whole economy.
xvi
Table 1: Macro impacts of decarbonization scenarios (percent deviation from baseline)
Scenario C: Deep decarbonization Scenario B: Green Scenario A: Least-cost
2030 2050 2030 2050 2030 2050
Real GDP 1.1 1.4 1.1 1.4 1.7 1.4
Private 0.5 1.2 0.9 0.9 3.1 7.9

consumption
Agriculture 0.3 0.9 0.3 0.8 3.2 5.6
Industry 1.2 1.7 1.3 1.7 1.8 1.2
Services 1.1 1.4 1.2 1.4 1.5 0.9
Total investment needs by 2050

This CCDR presents solutions for three key objectives and estimates the total investment needed to achieve a resilient
and net zero7 Tunisia by 2050 in net present value terms. Ultimately, the impact of the transition will depend on
how these investments are financed and, more broadly, on the macroeconomic policy choices that will be made in
the years and decades to come. Table 2 presents the costs related to sectoral interventions, where estimates were
available.
Table 2: Investment and cost of operations until 2050 (in US$ million) 8
Investment cost Investment costs Total
Engagement dimension Public or private
up to 2030 2030-2050 investment costs
Public 3,069 10,505 13,574

Addressing the water crisis
Private 683 2,798 3,481
Enhancing resilience to
Public 1,536 785 2,320
flooding and sea-level rise
Public 4,427 8,683 13,110

Decarbonizing the energy
sector
Private 7,383 14,183 21,567
Public 9,032 19,973 29,004

Total costs
Private 8,066 16,981 25,048
Source: Compiled by World Bank staff.
7
The CCDR analysis focuses on achieving net zero in the energy sector, which is expected to contribute 59 percent of projected emission reductions to achieve net zero by
2050. It does not include investments required to reduce emissions in other areas such as agriculture, forestry and land use, industrial processes, and waste.
8
Further information on how the investments were estimated, including assumptions and discount rates can be found in Chapter 3 of this CCDR.
xvii
The economic and poverty reduction gains of climate adaptation and decarbonization would be substantial…
Actions and investments to address climate change and decarbonize the electricity sector could increase GDP by 9
percent, reduce poverty by 12 percent, and slash energy emissions by 80 percent by 2030. Macroeconomic modeling
suggests that actions to adapt to potential water shortages, flooding, and coastal erosion while decarbonizing energy
demand and electricity supply would yield huge benefits to the economy. If all the recommended adaptation and
mitigation actions are implemented, GDP could be 8.8 percent larger than in the inaction scenario as soon as 2030.
Moderate poverty could be reduced by 2.5 percentage points, a 12 percent reduction relative to the level in the
inaction scenario (21.3 percent). These results suggest that there is no trade-off between reducing emissions and
maintaining economic growth because decarbonizing the energy sector would allow the country to largely address
the external imbalance, generating large emission reductions along with economic gains.
...but the gains crucially hinge on financing the large investment needs of climate action
While the economic and environmental benefits of climate action are clear, identifying how to finance such action
is crucial given Tunisia’s limited access to international financing. While most of the funding for adaptation and
decarbonization will likely come from private or concessional sources, public investments would also need to play
a key role. Given the constraints to debt financing, fiscal policies—especially those that aim to reduce expenditure—
could help finance the public investment needed for Tunisia’s climate actions.
Financing climate investments would require repurposing recurrent expenditures, making public
spending more efficient and removing barriers to private investment
Repurposing recurrent expenditures (including energy expenditures) and taxes on carbon and capital income
represent the most significant opportunities to fund public investments in adaptation and decarbonization. Tunisia
has one of the highest levels of energy public spending relative to GDP in the world, coupled with a relatively low
level of environmental taxes. Its public spending on energy generates more negative environmental externalities
(such as local pollution and global warming) than those it internalizes through taxation because environmental taxes
represent a mere 6 percent of total tax revenues. Modeling suggests that repurposing public energy spending and
increasing taxes on carbon and capital income would yield significant economic gains. Such fiscal policies would also
prevent the country from needing to resort to costly debt financing for adaptation and mitigation investments. The
combined adaptation and full decarbonization scenario, which is funded by improving the efficiency of public energy
spending and increases in carbon and direct taxes, yield large economic gains by 2030 (+8.2 percent of GDP) while
ensuring the sustainability of public debt. This fiscal policy could also help fund the decarbonization of the economy,
achieving both economic and emission reduction benefits.
Tunisia’s actions to better integrate climate indicators into public financial management are useful, but more
is needed to secure sufficient public climate financing. The Ministry of Environment (MoE), in coordination with
the Ministry of Finance’s Budget by Objectives Unit, has initiated preparatory work to integrate climate indicators
(emanating from national climate policies and targets) into the performance indicators of objective management
units in key sectors. However, to effectively attract public finance for climate initiatives, Tunisia would benefit from
developing a climate project database and a methodology to prioritize climate projects. Climate change considerations
have also not yet been systematically included in Tunisia’s public finances, fiscal risk statements, public investments,
or procurement. State-owned enterprises are not yet required to report on climate risks, or to have formulated plans
to address them. Even with decisive government action, attracting private, bilateral, multilateral, and international
market financing remains key to meeting Tunisia’s large climate investment needs. These needs are recognized in
the NDC and could take the form of concessional lines of credit, grants, foreign direct investment, debt swaps or
innovative financing via carbon markets.
Private funding will be crucial for ensuring sufficient climate investments. However, the challenging macro-financial
and -economic environment is a key barrier to developing Tunisia’s green finance market. Tunisia’s macroeconomic
difficulties and debt sustainability concerns have made it increasingly difficult for the country to access international
capital markets. This has increased concerns of capital outflows, which have further limited the convertibility of the
local currency. Tunisia’s public and private sectors have limited instruments to unleash green finance, and there is
a lack of eligible, bankable projects. Tunisia would benefit from a national climate finance strategy that accurately
xviii
assesses its climate investment needs and provides the market with certainty around regulatory changes. Addressing
these issues requires concerted and decisive efforts by both the government and the financial sector. Dismantling
rigorous restrictions to investments and competition would also revitalize the private sector and accelerate the
climate transition. Decarbonizing key export sectors and integrating into green value chains would be important for
ensuring future international competitiveness. The country’s new public-private partnerships (PPP) framework may
help the private sector partner with the state to develop the infrastructure needed for the climate transition.
Besides providing financing, the private sector is also crucial for developing the technologies and skills required
to implement climate actions. This highlights the need to tackle constraints blocking its potential, which are often
of regulatory nature. The private sector is likely to be instrumental in making production processes more climate
friendly; in developing and maintaining activities that are resilient to the new climate conditions; and in developing
the skills and inputs needed for the transition to a more sustainable path.
Human risks and opportunities

Tunisia’s people need to be prepared for new climate realities. Tunisia could usefully leverage its existing
social protection systems and build capacity to ensure a quick response to climate stressors and shocks. Such
responsiveness would minimize the impacts of on people without exacerbating existing vulnerabilities. Emergency
preparedness, including prepared health systems, would help maintain basic services while minimizing the negative
impacts of quick-onset climate shocks. These measures would play a crucial role in mitigating distributional impacts.
However, it is imperative to prioritize vulnerable groups and women. Strengthening social protection systems and
ensuring equitable access to resources, health systems, and education would provide a strong foundation for those
who are likely to be most affected by climate change.
Tunisia’s people also need to be equipped for the jobs needed to realize a green and circular economy. Developing
appropriate skills will be important as the country decarbonizes. The current education system appears to favor
higher-level “green” skills, with relative gender parity in renewable energy-related programs. However, there is a
substantial capacity gap when it comes to medium or low “green” skills, particularly at the technical and vocational
education training level. Tunisia would benefit from making a concerted effort across education and training
institutions—which should ideally be closely linked to private sector demand to promote quality and relevance—to
ensure that there is a suitably qualified workforce to do the jobs required to meet its climate goals.
Policy recommendations
This CCDR makes recommendations to address three main climate and development challenges in Tunisia: water
scarcity, sea-level rise and flooding, and decarbonization of the energy sector. It proposes specific sectoral actions
as well as horizontal actions to address human capital gaps and create the right macro-financial conditions to finance
the needed investments. Figure 6 summarizes these recommendations, framing them through a “whole of society”
and a “whole of government” approach that aims to address institutional and political economy constraints. A “whole
of society” approach mobilizes all actors and resources in united action while addressing the concerns and needs
of vulnerable stakeholders. A “whole of government” approach is needed to tackle the level of complexity that the
climate challenge represents. Responsibility for implementing Tunisia’s NDC is currently fragmented between several
institutions.9 Greater cooperation across institutional boundaries at both the national and local levels, supported by
greater clarity on roles and responsibilities, would support actions to address the three challenges listed above.
In light of Tunisia’s current macro-financial constraints, the CCDR also proposes a condensed package of urgent
actions that are affordable while delivering high impacts in the near term. The package is built around two key,
urgent objectives for the Tunisian economy: addressing water shortages and transitioning the energy sector from
fossil fuels to renewables. Because Tunisia cannot currently expand its debt, the country would also need to urgently
pursue a third objective: creating the right macro-financial conditions for public and private investments to fund
these objectives (Figure 5).
xix
Figure 5: Recommended high-impact actions with near-term benefits for a green, resilient, and inclusive transition
Transitioning energy Creating the right

Addressing macro-financial conditions for
water scarcity supply from fossil fuels to
renewables public and private investments
• Control water demand • Enhance coordination and • Redirect recurrent public

through pricing and streamline the development expenditures (including
metering methods. of renewable energy, including expenditures on fuels and
coordinating approvals at the electricity) towards the most
• Modernize, rehabilitate, Council of Ministers level, limiting urgent public adaptation
and extend water networks the number of authorizations investments.
to reduce water losses required, establishing clear
and waste, and improve procedures for land access, • Enhance private sector entry
network monitoring and securing financing and for green activities, including
management through guarantees for better risk- eliminating preventative
digitalization of the water sharing, and restoring the prohibitive authorizations,
sector. financial viability of the sector. sectoral specifications (cahier
de charges), capital outflow
• Incentivize (for example • Develop adequate technical restrictions and non-tariff
through subsidies and and market conditions to barriers; simplifying
tax incentives) and provide flexibility services investment authorizations,
invest in protection to facilitate large-scale especially around clean energy;
and rehabilitation of renewable energy integration, and reducing the regulatory
ecosystems, especially including storage, demand- power of the
watersheds, oasis side response, regional sectoral incumbent.
ecosystems, forests, and electricity market integration,
wetlands. and transmission network
reinforcement where required.
In the medium to long term, the priority actions summarized in Figure 5 would need to be accompanied by other
actions (Figure 6) to fully achieve the three identified objectives while also adapting Tunisia to the other climate
stressors. Recommendations with high impact and near-term benefits (featured in Figure 5) are in bold in Figure 6.
9
These institutions include the Ministry of Environment; the Ministry of Industry, Energy and Mining; the Ministry of Agriculture, Water Resources, and Fisheries; and their
affiliated bodies.
xx
Figure 6: Recommendations for green, resilient, and inclusive transition
“WHOLE OF GOVERNMENT” AND “WHOLE OF SOCIETY” APPROACH

ADDRESS WATER SCARCITY
Increase water supply and enhance water management Increase the resilience and efficiency of the agricultural
sector and leverage nature-based solutions
• Control water demand through pricing and metering
methods. • Incentivize (for example through tax incentives) and
• Modernize, rehabilitate, and extend water networks to invest in protection and rehabilitation of ecosystems.
reduce water losses and waste, and improve network Scale sustainable land-use planning, water-
monitoring and management by digitalizing the water management practices, and agroforestry.
sector. • Develop and promote usage of, and research into,
• Strengthen the quality and distribution of non- climate-smart agriculture and animal husbandry.
conventional water sources such as desalinated water, • Fight food loss and waste all along the agriculture,
including through public-private partnerships. fisheries and livestock value chains.
• Protect water and groundwater against misuse and
agricultural pollution, including by establishing safeguard
zones and by revising and implementing the new Water
Code.
• Improve water management by developing contingency
plans during droughts and by carrying out a water
withdrawal inventory.
ENHANCE THE RESILIENCE OF URBAN AND COASTAL AREAS

Defend coastal zones against Protect people and infrastructure Enhance social protection and
sea-level rise and flooding develop risk-based insurance themes
• Prepare and implement • Develop asset management • Advance disaster risk financing
participatory integrated coastal systems for essential infrastructure (DRF) by building capacity,
zone management plans. Protect that incorporate climate risks and formalizing DRF strategy,
coastlines through soft and nature- optimize lifecycle costs. implementing public finance
based defense solutions. • Transfer governance of disaster risk mechanism, and enabling local
• Freeze construction in affected management to municipalities. private insurance sector to provide
natural space and urbanized areas. • Identify critical infrastructure for coverage.
If needed, protect urbanized areas retrofitting or upgrades. • Strengthen access to financial risk
through additional sustainable protection and ensure linkages
breakwaters. between social registry and
• Develop sustainable coastal insurance eligibility. Maintain
tourism and a diversified tourism sufficient emergency contingency
offering. resources to quickly respond to
climate-related shocks.
• Strengthen early warning
systems and reinforce emergency
preparedness and response plan.
xxi
DECARBONIZE THE ENERGY SECTOR
Decarbonize demand in the end-use sectors Decarbonize supply: focus on electricity generation
• For all sectors: Encourage the use of renewable energy, • Enhance coordination and streamline the
enforce the existing legal framework for energy efficiency/ development of renewable energy.
conservation, and implement energy conservation/ • Develop adequate technical and market
efficiency programs with demonstrable effects. conditions to provide flexibility services to
• Transport: Promote alternatives to road and private facilitate renewable energy integration.
vehicle transport to reduce congestion, enforce emission
• Prepare a roadmap for green hydrogen and
standards, retire aged fleet, and establish incentives and
establish an intersectoral Green Hydrogen Council
infrastructure for electric vehicles.
to implement it.
• Industry: Enforce and scale up energy audits, energy
management programs, and energy certification for • Invest in and promote traceability-testing-
energy-intensive sectors, accompanied by capacity- certification systems, including for green hydrogen
building and financing mechanisms (including the and electricity for exports.
Energy Transition Fund). Pilot innovative decarbonization • Adopt a whole-system approach for planning and
technologies and accelerate the self-generation and co- operating the electricity system, including sector
generation program. integration and coupling.
• Buildings: Scale up rooftop solar photovoltaic and solar
water heating, and the appliance replacement and
retrofitting programs.
Enhance human capital Improve institutions and engagement Create macro-financial conditions to
support investments
• Expand skilling, re-skilling and • Establish an intersectoral National
up-skilling and on-the-job training Climate Council chaired by the head • Redirect recurrent public
programs, especially on the energy of government and adopt climate expenditures towards urgent
transition. change legislation covering existing adaptation investments.
• Higher education and vocational gaps. • Include climate-related and green
training: Expand climate-related • Adopt climate indicators to measure criteria for public investment projects.
programs; involve industry in adaptation progress for publishing Adopt methodology for integrating
developing curricula to ensure on the government’s climate climate indicators in program budgets
relevance. portal. Starting with SOEs, adopt and launch a green taxonomy
• Raise awareness about climate international best practice on process.
change and green practices in the reporting and disclosure standards. • Support private sector entry for green
national curriculum. Train teachers • Establish climate focal points and activities by, for example, eliminating
and educators. provide support for community- prohibitive authorizations. Simplify
• Strengthen the capacity of primary based program investments in investment authorizations around
health facilities to implement municipalities. clean energy. Reduce the regulatory
surveillance systems to improve • Engage with affected stakeholders, power of sectoral incumbent.
climate responsiveness. including through organizing iterative • Assess the financial sector’s
outreach campaigns on climate exposure to climate risk and build
change and setting up a national capacity to diversify funding sources.
level multistakeholder network • Create an enabling platform to
on climate change public policy accelerate procedures for climate
planning and monitoring. investments and to aggregate
projects into bankable portfolios for
concessional funds and blended
finance and provide climate finance
offering for vulnerable groups.
• Boost private participation, including
by developing a regulatory framework
for adopting new technologies.
Incentivize green certification.
xxii
1. How Tunisia’s Economic, Social, and Climate
Change Challenges Interact
1.1. Economic and Social Challenges
Tunisia is navigating a difficult economic and political context. The political reforms that followed the 2011 revolution
led to a fragmented political situation characterized by a high turnover of Cabinet Ministers and a fractured,
polarized parliament.10 These changes were not accompanied by economic reforms to tackle the pervasive barriers
to investment, innovation, and economic activity that were prominent during the regime of Zine El Abidina Ben Ali.11
A series of negative shocks compounded this fragility, including conflict in neighboring Libya; terrorist attacks; and,
more recently, the COVID-19 pandemic and commodity price increases linked to Russia’s invasion of Ukraine. As a
result, economic growth slowed, and the country struggled to fulfill the revolution’s aspirations.
Stalled economic and social progress, together with a decline in public trust, created conditions for the introduction
of a new constitution and a presidential system in 2021. Yearly gross domestic product (GDP) growth declined to
1.4 percent on average since the revolution (2011 to 2022), down from 3.5 percent between 2000 and 2011.
This slowdown has translated into an actual reduction in GDP per capita since 2014 (Figure 7). The employment
rate—measured as the people over the working age population who are employed—also declined, from 40.3 percent
in 2014 to 38.2 percent in 2022, compounding the pressure stemming from a high structural unemployment rate
(15.5 percent on average in 2022). Vulnerable groups have been particularly affected by this decline, with 35.7
percent of young people (aged 15 to 24) and 23.6 percent of working-age women unemployed in 2021. Capitalizing
on mounting public frustration, in 2021 the president suspended the parliament, changed the government, and
drafted a new constitution. A referendum in 2022 approved the new constitution, which introduced a presidential
system with a 94 percent approval rating and a voter turnout of 30 percent.
Figure 7: Tunisia’s economic growth has slowed since 2011 (GDP per capita, constant 2016 US$)
4,300
4,100
3,900
3,700
3,500
3,300
3,100
2,900
2,700
2,500
2000
2021
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: World Bank staff estimates based on World Development Indicators and National Statistics Institute (Tunisia) data.
10
Aliriza 2023.
11
World Bank 2014.
1
With a stagnating economy, Tunisia has increasingly relied on public expenditures to meet citizens’ aspirations
without tackling the root causes of poor economic performance. Slowing economic growth and employment creation
have prompted successive governments to increase public expenditure to try to deliver on its social contract with
citizens. The public wage bill is a case in point: after a slight decline as a share of GDP, the public wage bill increased
significantly from 10 percent on the eve of the revolution to well above 14 percent since 2016 (Figure 8). This is one
of the highest shares in the world and was the result of large increases in public employment and in nominal wages.
Other recurrent public expenditures followed similar trajectories, including untargeted consumer subsidies (notably
for food and energy products), transfers to state-owned enterprises (SOEs), and social transfers. These measures
may have helped many poor and vulnerable households at the early stages of the transition.12 However, they did not
tackle the causes of low economic growth and popular discontent,13 including the quest for dignity and jobs for the
Tunisian youth, which was at the heart of the revolution in 2011.14 At the same time, these measures crowded out
public investments, which declined from more than 6 percent of GDP during the pre-revolution years to 3 percent
in 2022 (Figure 8). The declining capital expenditure (capex) weighs down on future growth and—as argued below—
climate change preparedness.
Figure 8: A tale of two public expenditures: wage bill versus capex (as a percent of GDP)
Public Wage Bill
13%
11%
9% Public Capital
Expenditures
7%
5%
3%
2000
2021
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: World Bank staff estimates based on World Development Indicators and National Statistics Institute (Tunisia) data.
The rapid increase of recurrent expenditures, exacerbated by recent shocks, has led to unsustainable fiscal and
external deficits and a mounting stock of debt, which are increasingly difficult to finance. Expanding public recurrent
expenditures caused the rapid escalation of fiscal and current account deficits. The COVID-19 pandemic (which
brought with it costly response measures and a lowering of tax receipts) and the war on Ukraine (which has resulted
in rising international prices of energy and food) have aggravated these deficits and boosted public debt. The latter
increased from 40.7 percent of GDP in 2010 to 79.3 percent of GDP in 2022.
12
The upscaling of the National Assistance Program for Families in Need was associated with a reduction in poverty from 20.3 percent in 2010 to 15.2 percent in 2015
(World Bank 2022).
13
See World Bank (2014) and the forthcoming Tunisia Country Private Sector Diagnostic for detailed analyses.
14
See Global Indicators for Regulatory Governance: Tunisia at https://rulemaking.worldbank.org/en/data/explorecountries/tunisia
2
Without a reform process to place the economy on a sustainable track, Tunisia lost access to international
capital markets, aggravating the economic crisis. Insufficient reforms, along with the aggravating deficits, have
prevented the country from accessing international capital markets since 2020. The ensuing difficulty in securing
the necessary financing, particularly external financing, has aggravated the ongoing difficult economic situation. This
became evident in 2022 when a hike in energy imports expanded the current account deficit to 8.5 percent of GDP,
up from 6 percent in 2021. In the absence of capital market financing, this eventually led to the drawdown of foreign
exchange reserves. With declining reserves and increasing SOE debt, the rising current account deficit translated
into shortages of basic products including fuels, cereals, sugar, dairy products, coffee, and pharmaceutical products.
This has contributed to the slowdown of Tunisia’s post-pandemic economic recovery, which has been one of the
slowest among countries in the MENA region, with 2022 real GDP still below the level in 2019. The decline in poverty
in the early part of the 2010s has also been reversed, with the poverty rate increasing to 16.6 percent in 2021 from
an estimated 13.8 percent in 2019. 15
Tunisia needs a new economic model to accelerate economic recovery, secure jobs, and livelihoods, and lay the
foundation for durable, resilient development. A new model would need to rely more on the private sector to create jobs
and generate income for the population. This would require creating a more conducive environment for investments,
particularly in new sustainable activities, by lowering barriers to entry for new businesses, and to new operations for
existing businesses. At the same time, the public sector would need to focus more on public investments and less
on untargeted recurrent expenditures such as in the energy sector. A reorientation of expenditures would allow the
public sector to better protect vulnerable households as the structure of the economy evolves.
A new economic model would ideally also reverse Tunisia’s historical over-exploitation of land and water resources.
Tunisia’s historical approach to natural resources has driven a decline in the country’s biocapacity,16 which has
been in deficit since 1974 and declined since, reaching -1.33 global hectares17 per capita in 2018. To accelerate
economic recovery and ensure the well-being of Tunisia’s population, it is imperative that this economic paradigm is
revised. This entails emphasizing the role of the private sector, rather than the state, in generating most jobs, while
focusing the role of the state on expenditures with the highest social and economic returns that also use resources
sustainably, both from an economic and an environmental point of view.
1.2. Climate Change and Development Challenges

Tunisia’s economic challenges are compounded by its increasing vulnerability to climate change. Due to a
combination of political, geographic, and social factors, Tunisia is one of the countries most exposed to climate
change in the Mediterranean. The main direct climate risks confronting Tunisia are temperature increases; reduced
and more variable precipitation; rising sea levels and saltwater intrusion; and escalating extreme weather phenomena
such as floods and droughts, but also forest fires (Figure 9, Figure 10). Some of these issues drive demand for
energy (for example, for desalination, pumping, and cooling), resulting in higher emissions and air pollution. Climate
change is therefore associated with key indirect economic costs and risks in Tunisia’s economy. These risks include
susceptibility to global energy prices, water scarcity and agriculture loss, health deterioration, depletion of natural
capital,18 coastal infrastructure and tourism losses, losses in labor productivity, and vulnerability to disasters.19
Changing weather patterns will also increase migration flows, particularly agriculture-dependent regions, with
families forced to abandon their lands to seek alternative means of income. This would place additional pressure on
Tunisia as a transit hub and urban areas.20 As the effects of climate change intensify, so too will the costs of coping
with these risks.
15
The 2021 figure is based on the 2021 national survey on the budget, consumption, and standard of living of households. The 2019 figure is an estimate based on the
2015 household budget survey, inflation, and economic growth data.
16
Biocapacity refers to ecosystems’ capacity to produce biological materials used by people and to absorb waste material generated by humans, under current management
schemes and extraction technologies.
17
“Global hectares” is the accounting unit for biocapacity accounts, allowing researchers to report on both the biocapacity of the Earth or a region and the demand on
biocapacity. Global hectares are productivity-weighted, meaning they account for different land types with different productivities.
18
Climate change is expected to accelerate loss of biodiversity, including of non-timber forest products that the poor depend on for livelihoods.
19
World Bank 2022.
20
Tunisia is a place of transit from Sub-Saharan Africa, with Italy as its first destination due to its geographical proximity. Between 2020 and mid-2021, migration from and
through Tunisia rose to levels not seen since the 2011 revolution (Il Sole 24 Ore 2023).
3
Figure 9: Under a worst-case climate change scenario21 Figure 10: Under a worst-case climate change scenario,
temperature increases by between 2°C and 2.3°C until precipitation decreases between 1 percent and 14
2050 and between 4.1°C and 5.2°C until 2100 percent until 2050, and between 18 percent and 27
percent until 210022
Source: World Bank. Source: World Bank.
Tunisian people are likely to be strongly affected by climate change, particularly vulnerable groups. Poor and
low-income households in particular are exposed to natural hazards and climate change due to limited access to
resources (financial, food, water, and non-timber forest products); limited economic capacity to withstand shocks;
and increased physical vulnerability (due to densely populated dwellings and substandard housing quality).23 Some
climate-related risks may also exacerbate territorial disparities, for instance, in the case of water scarcity. Access to
drinking water and sanitation is more limited in rural areas in the center and north-west of the country.24,25 , Children
and the youth in interior regions also tend to have even poorer human capital outcomes. The Early Grade Reading
Assessment shows learning outcomes are better in coastal regions than in the interior, and children in the southwest
region are twice as likely to be stunted relative to the national average.
This report identifies securing water availability, ensuring resilience to sea-level rise and flooding, and decarbonizing
the economy as the most economically impactful climate-related objectives for Tunisia. Without urgent and decisive
action by the government and broader society in these areas, there could be significant socioeconomic, political, and
humanitarian repercussions. Figure 11 summarizes the interaction between development and climate challenges
and how they will intensify.
Properly addressing these risks will help bring about the much-needed change in Tunisia’s economic model. The
goals of enhancing water availability, reconstructing capital stock lost to inundation, and decarbonizing the energy
sector with strong private sector participation could generate new jobs and provide financing. Each of the three goals
would focus public expenditure on investments with particularly high economic and social returns. Pursuing these
goals would also entail the more sustainable use of water, land, and energy resources; a reduction in wastage that
uses pricing to rationalize consumption; and leveraging Tunisia’s large renewable resource potential. Implementing
these policies through a “whole of society” 26 approach that mobilizes all actors and resources in united action and
addresses the concerns and needs of vulnerable stakeholders will ensure that rights are protected, so facilitating a
just transition. Such changes in Tunisia’s economic model have the potential to put the country on track for inclusive,
resilient, and sustainable growth.
21
A worst-case scenario assumes emissions would result in a representative concentration pathway of 8.5 (RCP 8.5). While this scenario is considered increasingly unlikely,
it is not implausible.
22
Figures differ depending on the data source and methodology used. According to an official government website (https://climat-c.tn/INM/web/precipitation) precipitation
could decrease by 6 percent under an RCP 4.5 scenario and by 9 percent under an RCP 8.5 scenario by 2050. Temperatures could increase by 1.6°C under RCP 4.5 and
1.9°C under RCP 8.5 by 2050.
23
World Bank 2021.
24
World Health Organization 2015.
25
International Labor Organization 2022.
26
A “whole of society” approach includes and establishes rights and responsibilities for all elements and levels of society, builds wider understanding and ownership of
climate problems and transitions, includes vulnerable communities that are most affected, and establishes broad societal commitment and action.
4
Figure 11: Summary of economic development and climate challenges
Objective: Secure sufficient water Objective: Enhance resilience to Objective: Decarbonize energy
resources flooding and sea-level rise supply and demand
Challenge: The water scarcity si- Challenge: Tunisia’s vulnerability Challenge: Tunisia’s increasing
tuation will likely deteriorate as cli- to coastal erosion and disaster im- dependence on fossil-fuel im-
mate change progresses, leading pacts will put people and infrastruc- ports undermines its macro-fiscal
to a ripple effect for ecosystems ture at risk, which could lead to the framework. energy security, afforda-
and across all sectors of the eco- destruction of assets and business bility for households, and competi-
nomy, especially in agriculture, with disruption. tiveness for companies.
consequences for food security.
Objective: A “whole of society” and “whole of government” approach for a just transition
Challenge: Climate change has profound impacts on the people of Tunisia. Vulnerable groups (such as
the poor, youth, and women) will be particularly affected due to limited access to resources (financial, food,
and water), and limited economic capacity to withstand shocks. Climate change is also a driver of migration
and internal conflict. Marginalized and economically disadvantaged populations, especially those in rural
areas, will be particularly affected, triggering migrations to urban centers in search of better opportunities.
In North Africa, it is estimated that 19 million people will move for climate reasons.
Box 2: Climate modelling for the CCDR

This report presents three climate scenarios to illustrate the range of climate change impacts. Each climate scenario
corresponds with a different level of average warming. These scenarios are created using a collection of climate
models known as the Coupled Model Intercomparison Project (CMIP). This report draws on the latest climate
modeling using both Shared Socioeconomic Pathway (SSP), the climate scenarios of the sixth phase (CMIP6),
and Representative Concentration Pathways (RCP) the climate scenarios of the fifth phase (CMIP5). As such, the
climate scenarios RCP and SSP are comparable. For instance, SSP3 (CMIP6) and RCP7-8.5 (CMIP5) both indicate
a 4°C average warming and a worst-case climate scenario. The choice between SSP (CMIP6) and RCP (CMIP5)
in this report depends on the availability of technical modeling in each sector. In particular, the analyses of sea
level rise use the SSP scenarios, while the analyses on water shortage and flooding adopt the RCP scenarios. To
harmonize the scenarios, the following comparisons are drawn:
Average warming
CCDR scenario CMIP6 CMIP5
by 2100
Recent policies and highly dangerous

SSP3 RCP 7–RCP 8.5 +4°C
climate outcomes (pessimistic case)
Recent commitment and dangerous

SSP2 RCP 4.5 +2.5°C
climate outcomes
Successful decarbonization and limited

SSP1 RCP 1.9–RCP 2.6 +1.5°C
warming (optimistic case)
Source: Compiled by World Bank staff.
5
1.2.1. Water scarcity
The water sector in Tunisia faces severe pressure, to the extent that water supply was heavily rationed in 2023.
Since independence, Tunisia has focused on mobilizing water resources through supply measures such as the
construction of large dams and interconnections between regions. Some demand initiatives, such as the National
Water Saving Program for the irrigated sector, have also been implemented. Despite these measures, per capita
water availability in 2021 was only 395 cubic meters (m³), well below the absolute water scarcity threshold of 500
m³.27 In 2019, Tunisia was already in the top decile of countries in terms of water stress (measured by the share of
freshwater withdrawal as a proportion of available freshwater resources).28 After four consecutive years of drought
since 2019, water stress has become even more severe. The harvest season for most crops has been severely
affected. For example, cereal production is expected to decrease from 750,000 to 250,000 metric tons in the
2022/23 season, a quantity that will barely suffice for seed production. In April 2023, the government started
implementing nightly cutoffs of water supplies to homes and prohibiting the use of water for irrigation or the watering
of green spaces and other public areas.
The current water crisis is also a symptom of some persistent challenges. The Société Nationale d’Exploitation et de
Distribution des Eaux (SONEDE, National Water Works and Distribution Company) primarily provides drinking water
in urban areas, while 41.3 percent of rural areas are covered by Groupements de Développement Agricoles (GDAs,
agricultural development groups). Although drinking water infrastructure has made it possible to achieve a 100
percent drinking-water supply rate in urban areas and 95 percent in rural areas, financial performance of the water
and sanitation sector’s SOEs, which are meant to operate on a commercial basis, is declining. 29
Due to charging water tariffs much lower than production costs, all national water institutions operate under
financial deficits, ultimately exacerbating water loss challenges. The water network’s efficiency has worsened
during the past decade, with water losses increasing from 25 percent in 2010 to 34 percent in 2021 for SONEDE.
This figure exceeds 50 percent in rural areas managed by GDAs, which is considered high in a country with scarce
water resources.30,31, Despite several increases to the drinking and sanitation water tariff in recent years, tariffs
remain insufficient to cover operational costs, leading to increasing financial deficits.32 The treated wastewater
price charged by the Office National de l’Assainissement (ONAS, National Sanitation Office) is also insufficient to
support network maintenance and complementary treatments. As a result, only about 2 percent of Tunisia’s irrigated
land can be directly irrigated with treated wastewater. Past tariff increases have not been sufficient to improve the
financial performance of SOEs.
Insufficient tariffs contribute to SOEs being heavily reliant on state subsidies to partially cover operational expenses.
In 2018, the state supported a difference of 3.1 billion Tunisian dinars (TD) (around US$997 million), or 82 percent
of all water costs when considering the water cycle from mobilization at dams to sanitation and reuse.33 ONAS also
benefits from a direct balancing subsidy. These subsidies have had an impact on demand, exacerbating issues with
water resource management in Tunisia. The water footprint of Tunisian consumption has been estimated at 2,200
m³ per inhabitant per year, which is 60 percent higher than the global average.34 There is also a low efficiency of
water-use rate, estimated at US$10.32 per m³ in 2020.35
27
FAO Aquastat data 2021.
28
29
World Bank 2019.
30
Water losses in rural drinking water networks represent not only technical losses, but also commercial losses due to illicit connections and unbilled water volumes.
31
Water sector note. Tunisia CCDR. April 2023
32
Despite the latest 2021 increase, the drinking water tariff is still considered as low compared to the regional benchmark. The rate of the first consumption block (<20 m3
per quarter) is around 0.06 USD/m3 and the second consumption block is (between 20 and 40 m3 per quarter) is around 0.21 USD. In contrast, for instance, in Rabat,
the rate for the same block is 0.70 USD/m3.
33
This share of the total cost supported is TD 1.5 /m3 (MARHP 2022).
34
Chouchane et al. 2013.
35
Compared to US$11.52 /m3 for all of Middle East and North Africa (Rossi et al. 2019).
6
SOEs are further vulnerable to the high and volatile price of large energy imports. SONEDE is the largest individual
consumer of electrical energy in Tunisia. The utility’s reliance on brackish water and seawater desalination plants has
led to increased energy costs to produce drinking water. SONEDE’s electricity consumption is high, at 0.67 kilowatt-
hours per cubic meter (kWh/m³) in 2021 compared with the median European energy consumption of 0.51 kWh/m³.
After its desalination plants were commissioned, SONEDE’s average energy cost of drinking water increased from
0.82 TD per cubic meter (TD/m³) in 2015 to 1.30 TD/m³ in 2021, while the average sale price evolved from 0.56
TD/m³ in 2015 to 0.94 TD/m³ in 2021.
Agriculture is the largest water user in the country, accounting for more than 75 percent of total water usage when
agricultural use is not restricted. The low cost of irrigated water has led to its overexploitation. The agricultural
sector is important for the national economy, contributing 9.6 percent of GDP in 2022 and employing 14 percent of
the active population in 2019.36,37 It also contributes to food security.
Although 90 percent of arable land is rainfed, irrigated agriculture consumes the largest share of water and
contributes to 36 percent of the value added by agriculture.38,39 To improve surface water mobilization, between 35
and 56 percent of total agricultural sector investments since 1990 were related to water. However, the economic
return of surface water mobilized for irrigated agricultural activity covers only 40 percent of the cost invested per
cubic meter.40 Subsidies have partly prevented progress in reducing water demand from irrigated agriculture. For
instance, the price of irrigation water for public schemes (representing 56 percent of all irrigable area) from large
dams has remained unchanged since 2004, at 0.065 TD/m³, representing only 15 percent of the cost in 2018. 41
Land-cover changes have had a significant impact on water yields, the storage capacity of dams, and other
freshwater systems. Ecosystems, especially forests and oases, play a crucial role both as water reservoirs and in
protecting dams from siltation by preventing or reducing both soil erosion and the transportation of debris that would
otherwise be deposited in dams and weirs. Tunisia’s surface water is mobilized from 37 large dams, which have a
total capacity of about 2,313 Mm3, primarily for local irrigation and livestock needs. 42 Accumulated siltation in dams
is reducing their ability to store surface water; indeed, in 2021, large dams had accumulated an average silting rate
of 22.59 percent. 43
The crucial role of ecosystems in supplying water has long been neglected, with freshwater allocated entirely to the
needs of drinking water and irrigation. For instance, the Ichkeul ecosystem has been deprived of freshwater, with
levels below minimum ecological standards, by the construction of six dams on the main wadis (ravines) that supply
it.44 Moreover, intensive agriculture and the misuse of fertilizers have resulted in a decrease in groundwater quality,
with the concentration of nitrates increasing. Land degradation causes an estimated economic impact of between 2
and 7 percent of national GDP per year. 45
Tunisia’s water scarcity is further compounded by suboptimal demand-side practices. The structural decline in
water resource availability and increasing droughts have led to large-scale groundwater exploitation and illegal
access to deep aquifers. Overall, the number of authorized water drillings for groundwater in 2021 was 14,117,
compared with 20,350 illicit drillings. Aquifer extraction rates have increased by up to 400 percent in some regions.
When groundwater is extracted to excess, the pressure in the aquifer decreases, causing saltwater from the sea
to enter and mix with the freshwater in the aquifer. Up to 85 percent of all groundwater resources already display
salinity levels above the minimum threshold value of 1.5 grams per liter. Limited awareness and preparedness at
the company level exacerbates water scarcity challenges. According to the 2020 World Bank Enterprise Survey, only
around 7 percent of Tunisian companies had adopted water management measures. 46,47,
36
World Bank data: Agriculture, forestry, and fishing value added % Tunisia’s GDP.
37
World Bank 2022.
38
GIZ 2019: https://www.giz.de/en/downloads_els/Rapport%20Final%20V4.pdf
39
World Bank data: Agricultural irrigated land
40
MARHP 2022.
41
Water pricing study developed by the General Directorate of Rural Engineering and Water Exploitation in 2018.
42
43
Dams lose 22 Mm3 capacity each year (MARHP 2022).
44
Sejnene dam, Joumine, Ghezala, Tine, Melah, and Douimis are under construction.
45
Water sector note. Tunisia CCDR. April 2023.
46
Based on World Bank Enterprise Survey data.
47
Almost one in five large companies (>100 full-time equivalent [FTE] employees) have implemented measures versus 3 percent for small companies (5–19 FTEs).
7
Climate change is expected to worsen the water scarcity situation, with Tunisia experiencing a trend towards
aridification due to higher temperatures, increased evapotranspiration, and decreased rainfall. Under a stabilized
emissions scenario (RCP 4.5), the frequency of dry years in Tunisia will increase to 52 percent (10 out of 19 years)
between 2031 and 2050. This will increase to 79 percent (15 out of 19 years) under RCP 8.5, exacerbating the
already challenging water situation, particularly in agriculture and rural areas. 48
1.2.2. Sea-level rise and flooding

Tunisia’s vulnerability to coastal erosion and disaster impacts is a growing concern, with several factors contributing
to this situation. The country’s urbanization levels have led to a concentration of population and economic activity
(including tourism and industry) along coastal zones, which are prone to floods and sea-level rise. Tunisia’s 1,300
kilometers (km) of coastline are already receding at the fastest rate in the Maghreb, the second-fastest-eroding
region globally.49 Coastal erosion, calculated at 70 centimeters per year between 1984 and 2016 (Figure 12), also
poses risks to the country’s irrigated agriculture in the form of the salinization of fields and the inundation of low-lying
wetlands.
Figure 12: Coastal erosion in the Mediterranean (1984 to 2016 average) 50
1,5
Average erosion/accretion rate (m/yr)
1
Accretion
0,5
-0,5
Erosion
-1
on alta éria rael rkey ain taly ypt nce cco Bi
H e a a s a o a
cc Syri Liby pru oati egr ani nisi
a
an M Alg Is Tu Sp I Eg ra ro e y r n b
eb F
M
o
Gre C C te Al Tu
L on
M
Source: Based on data from World Bank 2021b.
Public Wage Bill
48
It is important to note that projections of climate extremes point to an increase in both the frequency and intensity of droughts. World Bank 2018.
2012
2013
2014
2015
49
World Bank 2021b.
50
World Bank 2021b.
8
Coastal zones host two-thirds of the country’s population and 90 percent of economic activities, including the bulk
of the tourism sector. Almost 90 percent of beds in Tunisia are in coastal zones, with about 80 km (6 to 7 percent) of
the Tunisian coastline consisting of tourism-focused real-estate complexes.51 The tourism and travel industry is vital
to the Tunisian economy, contributing 14.2 percent of GDP and employing 11 percent of the population in 2018.52,53
However, the sector is still recovering from the impacts of the COVID-19 pandemic, with tourist arrivals in July 2022
still 30 percent lower than in February 2020 amid growing competition from other holiday destinations. Moreover, as
the current tourism business model is mainly developed around beach tourism activities, the generated benefits do
not substantively contribute to economically weaker or rural areas in the country. 54
Inadequate and dated urban infrastructure, which is less able to withstand shocks, contributes to the country’s
climate and disaster vulnerability. While droughts are more frequently recorded (accounting for 54 percent of
disasters reported between 1957 and 2018), floods account for the most significant economic losses (approximately
60 percent of total losses over the same period), the highest number of casualties, and the highest number of people
affected (around 560,000).55 Tunisia is building a strong evidence base to inform appropriate disaster planning,
with authorities on track to model flood risk as the Ministry of Finance and the Tunisian General Commission for
Agricultural Development build analytical tools to assess the impact of floods in Tunisia. A database of building
exposure to climate-related disasters has also been developed, and preliminary hazard and vulnerability modeling
has been conducted for flood risk, both pluvial and fluvial.56
Tunisia’s current transport infrastructure also displays weak resilience, both as a network and as infrastructure.
Network resilience refers to a network’s ability to continue functioning even if a segment is disrupted. Tunisia’s
freight transportation is highly reliant on roads (94 percent) and lacking in multimodality, with the market share
for railways shrinking to six percent in 2020.57 Infrastructure resilience is the ability of a system to absorb and
recover from disruptions. Although Tunisia’s road management (operated by Tunisie Autoroute, a semi-public limited
company with private law status that operates various motorways as a concessionaire) is robust and the country
continues to upgrade its road infrastructure, the supply and export of goods is nonetheless at risk of disruption.
Criticality analysis for this report showed the important roles that the country’s north-south corridors along the coast
play in transporting goods, while highlighting the importance of east-west corridors to protect the population in the
lagging regions in the west.58 Ports, which account for 90 percent of Tunisia’s foreign trade, also display vulnerability
in that they struggle with existing physical capacity constraints of infrastructure in urban settings, with little or no
prospect for capacity expansion. Most trade passes through the Port of Radés. 59
These vulnerabilities are already causing monetary losses for private sector operators and driving climate
awareness. According to the 2020 World Bank Enterprise Survey, around 24.5 percent of Tunisian construction and
17.2 percent of Tunisian transport companies had suffered monetary losses from extreme weather events (such
as storms, floods, droughts, or landslides) in the preceding three years, versus an average of 7.5 percent for all
companies.60 In the north-east, 12.2 percent of companies reported experiencing such losses, higher than other
regions. Affected companies seem to become more aware of climatic considerations, with 16 percent of impacted
companies having incorporated sustainability considerations into their strategic objectives, versus only 6 percent for
non-impacted companies. Yet, the affected companies did not display higher rates of energy or water management
measures, suggesting remaining obstacles (such as not having sufficient resources) to the implementation of
adaptation or resilience measures.
51
Kacem 2022.
52
Heger, M., Vashold, L., Palacios, A., Alahmadi, M., & Acerbi, M. (2022). Blue Skies, Blue Seas: Air Pollution, Marine Plastics, and Coastal Erosion in the Middle East and
North Africa. World Bank Publications.
53
https://www.statista.com/statistics/1253720/tourism-employment-as-share-of-total-employment-in-tunisia/
54
Statista 2023.
55
World Bank 2020.
56
After the Nabeul floods in September 2018, the Government of Tunisia and the World Bank initiated a dialogue that resulted in Program for Results financing in 2021 to
support the government’s integrated disaster risk management and financing program.
57
Ministry of Transport 2018.
58
Criticality analysis evaluates the resilience of a transport network and identifies vulnerable or “critical” network links which, if disrupted, have relatively higher impact on
the overall network performance. It estimates traffic volumes on the road network using a gravity model, allocating the demand proportionate to the import entry point and
population. The roads with the highest criticality include RN14, RN8, and the A1.
59
International Trade Administration 2022.
60
World Bank 2020b.
9
Tunisia’s Disaster Risk Finance (DRF) framework is insufficient to cover losses incurred by climate-related disasters,
exposing much of the economy to a large ex ante variability of incomes. Existing DRF mechanisms (Table 3) only cover
a fraction of economic and financial losses. With an insurance penetration rate (that is, the ratio of total premiums
as a percentage of GDP) of just 2 percent, most households, businesses, and small and medium enterprises (SMEs),
including farms, lack domestic private insurance to cover catastrophic risks. The Government of Tunisia (GoT), bears
the burden of providing relief to affected populations in the aftermath of a disaster, so multiplying the macro-fiscal
impacts of disaster shocks and hindering Tunisia’s long-term growth prospects. Agricultural insurance is emerging,
representing 0.42 percent of the total volume of insurance premiums in 2021, but products are insufficiently
developed to meet farmers’ need to cover yield losses, as an example.61 According to the Tunisian Ministry of
Agriculture, losses due to catastrophic climatic hazards over the past eight years (2014 to 2022) stand at TD 345
million (US$112 million), of which the state has borne 40 percent of the losses.62 Compensation through budgetary
instruments has also been provided for direct losses suffered by SMEs (for example, through the 2011 Fund and
Law 24–2019) and the agricultural sector (for example, through the Fund for Climate-Related Agricultural Losses).
Table 3: Current disaster risk finance instruments in Tunisia63
Instrument Details
• Natural Catastrophes (NAT CAT) insurance for households: Optional extension on
home and car insurance. Low penetration rate: non-life market premium (property
and casualty) is estimated at around 1.31 percent of GDP (compared to 1.74 percent
in Morocco).64
Insurance • NAT CAT insurance for companies: According to Law n°80-88, fire insurance for
“industrial, commercial, and hotel risks” is mandatory.
• Agricultural insurance: About 8 percent of farms have some kind of insurance,
mainly large operators to comply with lending requirements. No parametric (index-
based) insurance products are available.
• Fund for Climate-Related Agricultural Losses: Aims to compensate uninsured
farmers, herders, or fishers for damage caused by severe weather disasters.
• Guarantee Fund for the Insured (ad hoc): Aims to cover insured in case insurance
companies go insolvent. After the flooding of Nabeul in 2018, Law 24-2019 extended
Contingency funds the scope of the fund to compensate SMEs impacted by the flood.
• Compensation fund for SMEs impacted by the revolution (ad hoc): Created by Law
40-2011 to provide compensation for direct financial damage suffered by SMEs due
to acts of fire, looting, and destruction committed during the 2010/11 revolution.
• State budget: Three percent of the state’s annual budget can be allocated to
unforeseen expenses.
• Budget of the Tunisian Union of Social Solidarity: The Tunisian Union of Social
Solidarity is an NGO subsidized by the state to help the poor and manage social
Budgetary instruments solidarity programs during catastrophic events. It is under the supervision of the
Court of Auditors.
• National platform 1818: Allows for the creation of an ad hoc bank account to collect
donations following a disaster. Under the supervision of the Ministry of Finance.
• Budget reallocations
• Aid from donors
Residual risk financing
• Emergency loans: Up to 1 percent of the annual state budget in case of exhaustion
of unforeseen expenses.
Source: World Bank team assessment.
61
Fédération Tunisienne des Sociétés d’assurance 2022.
62
Atlas Magazine 2023.
63
World Bank team assessment.
64
AXCO 2022.
10
Despite heavy public spending on social protection, which contributes to resilience in climate-related disasters, many
people in need are not supported by the national social protection system. The country’s main social assistance
program, AMEN, was adopted in 2019 and still has limited coverage. It provides permanent cash transfers to about
10 percent of the population, while 16.6 percent of the population lived in poverty by 2021 (INS 2023).65 With
the support of the World Bank, the social assistance program is being transformed to improve targeting and make
it more transparent and equitable. Heavy reliance on subsidies aggravates fiscal pressures while administrative
fragmentation contributes to inefficiencies.
Tunisia’s coastal and urban zones will face elevated climate change pressure. Sea levels are projected to rise by up
to 0.3 m by 2050 and up to 0.7 m by 2100 under RCP 8.5, exacerbating the already accelerating trend of coastal
erosion. Additionally, the frequency and severity of extreme weather events will increase, putting more people at risk
and causing cascading economic consequences by destroying assets and disrupting business.
1.2.3. Dependence on fossil fuel imports

The energy sector is critical for both Tunisia’s economic development and its climate change mitigation ambition.
Energy accounted for 3.3 percent of GDP, 18 percent of merchandise imports, and 72 percent of the overall trade
balance in 2022. While Tunisia contributes only 0.08 percent to global greenhouse gas (GHG) emissions, its
emissions have been increasing in step with GDP growth.66 In 2020, energy accounted for the largest share of GHG
emissions (58 percent); followed by agriculture, forestry, and other land use (22 percent); industrial processes (12
percent); and waste (8 percent). In line with the government’s low carbon strategy, energy is expected to contribute
59 percent of emission reductions to achieve net zero by 2050.
Tunisia’s energy sector faces interlinked challenges: financial deficit of state energy companies and a high
dependence on imported fossil fuels. Tunisia is increasingly dependent on imports to meet its energy demand: its
import dependence rate, which was 7 percent in 2010, climbed to 50 percent in 2022, driven by rapidly growing
demand and diminishing national resources. This resulted in an energy import bill of TD 15 billion (US$4.9 billion),
or 10.3 percent of GDP, which accounted for most of the increase in the current account deficit in 2022. A growing
dependence on imports has exposed Tunisia to fluctuations in the international oil price and its own exchange rate
(Figure 13). Price fluctuations and potential shortages, combined with dwindling foreign reserves, present a major
risk for the private sector, negatively impacting its international competitiveness. However, despite the global energy
price spike, most energy products continue to be priced below cost, requiring subsidies from the state’s budget.
Energy subsidies have been a significant expenditure in Tunisia’s budget, averaging 6.4 percent of public expenditure
and 2.14 percent of GDP over the 2011 to 2021 period. In 2022, energy subsidies rose to 5.3 percent of GDP and 15
percent of public expenditure. Because the government’s budget deficit often prevents it from fully paying subsidies,
the deficits end up accumulating in the energy sector, particularly in the two SOEs, Société Tunisienne des Industries
de Raffinage (STIR, the Tunisian Company of Refining,) and Société Tunisienne de l’Electricité et du Gaz (STEG,
the Tunisian Company of Electricity and Gas), which dominate the petroleum and electricity/natural gas sectors,
respectively. Figure 14 shows that even before the 2022 price shock, both STEG and STIR experienced substantial
and growing debt due to the sector’s dependence on imported fossil fuels. The country’s energy mix is highly carbon-
intensive, dominated as it is by natural gas (53 percent) and oil (46 percent), with renewables accounting for only 1
percent of primary energy. The limited penetration of renewable energy is partly due to the financial deficits of the
sector’s SOEs, which undermine investor confidence.
65
Based on data from Statistics Tunisia’s “2021 National Survey on the Budget, Consumption and Standard of Living of Households.” Available at: https://www.ins.tn/en/
statistiques/102.
66
CO2 emissions GDP has remained stable at around 0.6 kg per 2015 US$ since 2010, compared with the European Union decreasing from 0.25 kg per US$ to 0.18kg per
US$ from 2010 to 2019 (International Energy Agency 2020).
11
Figure 13: Comparison of brent price (in US$ per barrel Figure 14: SOE debt is mounting due to need to
and TD per barrel, left axis) and subsidies (in percent of absorb energy subsidies (TD million)
GDP, right axis)
350 6 13,000 3,600

3,400
300 5 12,000
3,200
250 3,000
4 11,000
200 2,800
3
10,000 2,600
150
2 2,400
100 9,000
2,200
1
50 2,000
8,000
0 0 1,800
7,000 1,600
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2017 2018 2019 2020 2021
Subsidies (%GDP) (rhs)

Price Brent (TND/bbl) (Ihs) STEG (Ihs)
Price Brent ($/bbl) (lhs)
STIR (rhs)
Source: World Bank 2023.
The sectors that contribute the most to energy consumption and emissions are transport, industry, and buildings (the
residential and commercial sector, including energy used for cooking and appliances). Emissions from the energy
sector are dominated by energy transformation, which is mostly electricity production and is 98 percent gas-based.
This is followed by the end-use sectors of transport (27 percent); industry (17 percent); residential, commercial, and
agriculture (15 percent); and fugitive emissions (9 percent) (Figure 15). In terms of energy consumption, the transport
sector is the leading consumer (36 percent), followed by industries and buildings (residential and commercial) with
28 percent each, and agriculture (7 percent) (Figure 16).
Figure 15: Energy emissions (C02 equivalent) by sector Figure 16: Final energy demand by sector
100% 100%
16.6 8.9 6 .5 7
9 .1 9 .1
80% 15 80%
13 15.4 19.4
60% 24.3 26.9 60%

36.9
36.1
40% 16.6 40%
16.3
20% 29.9 32.6 20%

32 28.4
0% 0%
2010 2021 2010 2021
Fugitive emissions Other sectors Transports Manufacturing Energy Industry Transports Residential Services Agriculture and fishing
and construction
Source : Rapport Biannuel Actualisé de la Tunisie la Convention Source: Stratégie énergétique 2035.
Cadre des Nations Unies sur le Changement Climatique 2022.
12
Oil is the main fuel in the transport sector (96 percent). Road transport accounts for 89 percent of transport energy
consumption (of which around 66 percent comes from diesel and the rest from gasoline and liquefied petroleum
gas) and most of transport emissions.67 Steadily increasing use of passenger cars has created near-permanent
traffic congestion, driving increased emissions and air pollution. The number of private cars in operation rose from
950,000 in 2010 to 1.8 million in 2016.
The dominance of road transport can be attributed to a combination of insufficient public transport, inefficient
traffic management systems, and the heavy use of road transport for freight. Even though Tunisia has railway
infrastructure (with commercially viable intercity and commuter corridors) and a solid institutional foundation, the
railway sector has experienced plummeting demand: rail traffic systems account for only 5 percent of all interurban
passenger journeys and 14 percent of total freight transport. Urban tram or light-rail systems are only present in Tunis.
Public mass transport and bicycle traffic are underdeveloped relative to their potential. Demand for both buses
and metro rail have persistently declined due to a rapid increase in the use of private cars, growing competition
from other modes (including formal and informal taxi operators), and an overall perception of poor performance
due to lack of public resources to upgrade and maintain the aging fleet. The number of passengers using the three
largest state-owned public-transport operators decreased by 32 percent between 2010 and 2015. These SOEs have
become structurally loss-making and in need of significant state financial support. Traffic safety also remains an
impediment to walking and cycling to access public transport, especially in urban areas.68 Modernizing the collection
of safety data for statistical purposes, strengthening traffic management,69 and public awareness campaigns would
help promote urban streetscapes and support effective planning to encourage the use of sustainable transport.
Industrial energy sources are mostly petroleum products (39 percent), which includes pet coke (largely consumed
in the cement sector) and natural gas (37 percent). Disaggregating by subsectors, non-metallic minerals make up
between 83 and 85 percent of industrial energy use.70 Separate from emissions from industrial energy use, yet
within emissions from industrial processes, cement production is the largest emitter of GHGs, averaging 70 percent
over the period 2010 to 2020.71 This is followed by the production of bricks (14 percent of emissions on average),
the usage of hydrofluorocarbons (HFCs) (6 percent), and the usage of nitric acid (5 percent).
Few companies have tried to improve energy efficiency or transition to renewable energy.72 Five percent of
companies across all sectors have installed onsite renewable energy generation capacity, and only one in five
companies reported implementing an energy management system.
Compared with other end-use sectors, the residential and commercial sector (often labeled “buildings”, although
it includes energy for cooking and appliances) has the highest share of electricity penetration. It is also the sector
where the share of renewable energy is highest, at 26 percent of the sector’s final energy use if biomass is included.
Population growth and improving living standards are expected to drive rapid growth of this sector’s energy use,
which is expected to reach 35 percent of total energy consumption by 2030. With almost 2.4 million housing units
in 2014 and an estimated need of about 40,000 new units a year, Tunisia’s housing stock is likely to reach 3.2
million units in 2030. 73 In the residential sector, a steady increase in electrical appliance ownership has resulted
in climbing electricity consumption. Growing use of air conditioning, in the tourism sector especially, is also driving
electricity consumption.
67
Pipelines are included in the transport sector and account for natural gas consumption, which makes up 4 percent of transport energy use.
68
In 2012, “pedestrian” was reported as the second cause of road traffic accidents (19 percent) after “private vehicle” (33.4 percent). Traffic accidents by road type were
more concentrated in urban agglomerations (42.1 percent) compared with national roads (15.6 percent) and regional roads (9.1 percent). Geographically, most accidents
were reported in Greater Tunis (41.2 percent), suggesting the prevalence of traffic safety challenges in urban areas. Most recent statistics (2012) as reported in the
National Transport Development Plan 2040, published in 2017.
69
For example, lowering speed limits and improving road infrastructure with safety features.
70
Non-metallic minerals include the production of cement, phosphate processing, ceramics, glass, and lime products. The transformation of non-metallic minerals into these
products is often an energy-intensive process.
71
One of the main ingredients in cement, clinker, is made by heating limestone to extreme temperatures. The process releases carbon trapped in the stone, which combines
with oxygen in the atmosphere to form CO2. It is an unavoidable part of the process.
72
World Bank 2020b.
73
Programme for Energy Efficiency in Buildings 2019.
13
Decarbonization is both a mitigation strategy and a solution to the country’s need to improve energy security and
drive economic development. Major decarbonization solutions entail efforts to conserve energy, improve efficiency,
and increase renewable energy penetration. These solutions are expected to reduce not only Tunisia’s emissions and
air pollution, but also its dependence on imported fossil fuels, so improving energy security and relieving pressure on
both the trade and current account deficits. Investing in clean energy can also generate jobs and create opportunities
for the private sector, leading to important socioeconomic benefits. The competitiveness of renewable energy would
also help reduce the overall cost of energy supply while reducing vulnerability to international price fluctuations,
ultimately enhancing energy affordability for households and competitiveness for businesses. Lower energy costs
would reduce the pressure created by energy subsidies and help the sector regain financial viability. This, in turn,
would attract private finance for renewable development, creating a virtuous cycle for the sector.
14
2. Climate Change Strategies, Policies,
and Institutions
2.1. An Ambitious Climate Change Agenda with Opportunities and Challenges
The Government of Tunisia (GoT) considers climate action a key priority and has taken decisive steps. The government
recently launched its Strategy for Ecological Transition, an all-encompassing strategy that seeks to implement a
resilient, sustainable, socially fair, and inclusive development model that transforms ways of consuming, producing,
working, and living in an integrated manner. The strategy has five objectives, which include a climate objective to
strengthen the adaptation and resilience capacities of sectors, environments, and populations, and an objective
to reduce carbon intensity to achieve neutrality in 2050. In addition, the country’s 2023–2025 development plan
recognizes that, in the context of climate change, any economic transition would benefit from prioritizing accelerating
the energy transition, adapting to climate change, and ensuring the sustainable management of natural resources.
Achieving these goals is projected to require TD 6.7 billion (US$2.2 billion).74 The recently launched process to prepare
Tunisia’s ecological transition strategy 2035 envisions the convergence of sectoral strategies towards sustainability,
while improving resources management efficiency in development activities. It includes a key axis centered on the
promotion of adaptation, resilience, and carbon neutrality by 2050.
Tunisia is also committed to the international climate change agenda. Tunisia submitted its third National
Communication on Climate Change in 2019 and its National Adaptation Plan (NAP) is being developed. Ahead of the
2021 United Nations Climate Change Conference, Tunisia submitted its updated Nationally Determined Contribution
(NDC), in which it increased its unconditional and conditional 2030 emissions intensity targets by 27 percent and
45 percent against a 2010 baseline, respectively.75 The updated NDC includes upgraded mitigation objectives
(with emission reductions stemming predominantly from the energy sector) and reinforces interventions for the
most vulnerable sectors, which includes water resources, the coastline, ecosystems, tourism, and health. It also
emphasizes an integrated urban planning approach to enhance local capacities. The updated NDC is aligned with
Tunisia’s development needs and aspirations. It includes components on gender mainstreaming and social resilience
to leave no one behind 76 and ensure alignment with the United Nations’ Sustainable Development Goals (SDGs).
In November 2022, the country issued a combined National Low Carbon Strategy and Climate Resilient National
Development Strategy for 2050 (SNBC&RCC 2050), building on the country’s long-term low-emissions development
strategy (LT-LEDS). The SNBC&RCC 2050 is the main policy document for integrating mitigation and adaptation in
different economic sectors.
Despite committing to combating climate change, Tunisia’s escalating fiscal deficit and lack of private finance limit
programs implementation. The country needs about US$19.4 billion over the period 2021–2030 to achieve its NDC
commitments. This includes:
• US$14.4 billion for mitigation, of which 60 percent would need private financing
• US$4.3 billion for adaptation
• US$700 million for capacity-building actions.
The financial requirement for the adaptation component of Tunisia’s updated NDC amounted to more than US$400
million in 2021 (that is, nearly 1 percent of Tunisia’s GDP). This figure is expected to reach US$475 million in 2030.
Although the NDC includes estimations of financing needs and Tunisia has prepared and drafted various Nationally
Appropriate Mitigation Actions, lack of funding limits implementation. In the case of renewable energy, for example,
the GoT attracts private investment through three regimes: (i) concessions for large projects; (ii) authorizations for
small and medium projects (up to 10 MW for solar photovoltaic [PV] and 30 MW for wind); and (iii) self-generation
for industrial customers. There have been two rounds of calls for proposals under the concession regime and four
74
See the preliminary version of the development plan.
75
CO2 consumption per unit of GDP.
76
The updated NDC also underscores the importance of limiting the impacts of climate change on poverty, strengthening social protection, and ensuring access to sustainable
employment for the households and communities most vulnerable to climate change.
15
rounds under the authorization regime, attracting significant international and local private investors. However, due
to various barriers (mainly investor risk perception and lack of financing), by the end of 2021 only a limited number
of projects had been implemented.77 Climate investments will likely need to attract different sources, including the
private sector, as US$11 billion is supposed to be mobilized from international sources according to the NDC (see
Chapter 4).
Frequent changes within the government and public sector bottlenecks have further restricted the state’s ability to
implement climate action. Fiscal and economic stresses have gradually reduced fiscal space for public investment
and increased the costs of borrowing. Further, structural bottlenecks in the public administration (including
challenges in procurement and expenditure controls, limitations inherent in the framework for project management
entities) complicate timely and impactful climate action. Collectively, these challenges make the rapid formulation,
implementation, and management of public sector action, including investment projects, very challenging, and in
turn are likely to moderate expectations regarding the expected speed and adequacy of the public sector climate
response. While resolving these structural issues requires several medium- to long-term public sector changes,
the development of a special projects facility for both own-financed and donor-funded climate investments with
accelerated procedures—including the contracting of procurement and contract-management functions—could be a
possible solution.
Although Tunisia has succeeded in producing strategic documents and setting up a coordination mechanism to
implement its climate change strategy, it falls short on embedding its commitment in policies, processes, and
systems (Figure 17). Climate change considerations have not yet been systematically included in Tunisia’s public
finances, fiscal risk statements, public investments, or procurement. SOEs are also not required to report on climate
risks or have plans to address them.
Figure 17: Assessment of Tunisia’s climate change governance functions
Climate change governance function Tunisia Middle East and North Africa Countries
Climate change framework law No
LTS or 2050 climate change plan Yes
Coordination mechanism Partial
Climate-informed local level risk assessments No
Climate-informed fiscal risk statements No
Climate-informed budget guidelines Partial
Climates expenditures in budget or tracked No
Climate-informed project screening Partial
Green public procurement practices in law No
0% 20% 40% 60% 80% 100%
Yes Partial/under preparation NO
Source: Data comprises 19 countries and was collected by World Bank staff in 2021
77
Three projects totalling 12 megawatts (MW) had been constructed under the authorization regime, 435 MW had been constructed under the old self-generation regime,
and 20 MW of solar had been installed by STEG.
16
To strengthen climate governance, the government created a dedicated structure to enable coordination between
sectors. However, this structure has limited resources to fulfill its mandate. In 2018, the Unité de Gestion par
Objectif–Changements Climatiques (UGPO-CC, Management Unit by Objective-Climate Change) was created at the
Ministry of Environment (MoE) to coordinate climate change action between ministries, private actors, and other
stakeholders. In 2020, two technical advisory committees were formed to focus on adaptation and mitigation. Other
sectoral agencies contribute to the development of policies and measures on an ad hoc basis. In practice, however,
the UGPO-CC has limited human resources and its budget is mostly provided through cooperation projects. The
committees have met three times since their creation in 2020. Consultations with civil society organizations attest to
this issue, while underscoring the lack of a coherent approach to involving non-government organizations and local
communities.
Leadership and responsibilities for the implementation of climate change reforms are not clearly delineated
between different actors. The institutional arrangement does not provide clarity on roles, responsibilities, or
leadership at the national and local levels. NDC implementation is fragmented between several institutions, mainly
the MoE; the Ministry of Industry, Mining, and Energy; the Ministry of Agriculture, Water Resources, and Fisheries
(MARHP); and their affiliated bodies. Lack of access to information and the limited influence of the UGPO-CC also
remain important challenges.
Comprehensive climate change legislation could help enhance implementation of Tunisia’s climate objectives.
Although legal texts approving and acceding to international legal agreements are in place, these have not yet been
translated into comprehensive climate legislation. 78 There is also no legislation or guidance on the institutionalization
of climate change (beyond the coordinating role of the MoE), or practical mechanisms for adopting a “whole of
society” approach to enable stakeholders from all sectors to act for a just climate transition. National framework
legislation on climate change would serve to enshrine stable, ambitious objectives; create mechanisms for realizing
these objectives; and ensure proper oversight and accountability. 79
In 2022, national consultations were initiated to propose climate policy legislation, either as an independent climate
law or for integration into the upcoming environmental code. Specific legislation would help Tunisia implement its
NDC, its long-term strategy, and the upcoming NAP by clarifying, among other issues, intermediate and sectoral
targets; the frequency of risk and vulnerability assessments; the mechanisms to be used (for example carbon pricing
or sectoral regulation); coordination mechanisms; the roles and responsibilities of subnational governments and
SOEs; finance mechanisms; and the monitoring, review, and verification (MRV) system that is to be used to track
progress. However, to be effective such legislation would need to be accompanied by sustained implementation
support and associated resources.
Stakeholders’ technical capacities and climate tools, including the MRV framework, can be enhanced. The
implementation of NDC objectives requires the transfer of skills and technical capabilities to the public sector, the
private sector, and civil society. Support is needed for investments in training and skills development, planning, and
awareness-raising, which are essential for long-term market development.53 Improving and formalizing an MRV
system in line with the enhanced transparency framework of the Paris Agreement is another priority. Improved
transparency will allow for better monitoring and evaluation of climate action while promoting accountability.
78
Existing legislation includes: Organic Law No. 2016–72 of October 2016, which approves the Paris Climate Agreement for the implementation of the United Nations
Framework Convention on Climate Change (UNFCCC); Law No. 93–46 of May 1993, which ratifies the UNFCCC; and Law No. 2002–55 of June 2002, which approves the
accession of the Republic of Tunisia to the Kyoto Protocol.
78
The World Bank Reference Guide to Climate Change Framework Legislation highlights 12 elements that should be integrated in “good” climate change laws: https://
openknowledge.worldbank.org/handle/10986/34972.
17
2.2. Challenges to Integrated and Inclusive Climate Governance
The UGPO-CC plays the role of national coordinator between the different actors responsible for achieving the
objectives of the NDC. The Forum National des Acteurs de l’Adaptation au Changement Climatique (FNAC, National
Forum of Climate Change Adaptation Actors) was established by the UGPO-CC to facilitate knowledge exchanges,
build capacity, and provide support to various actors engaging in climate change initiatives. This forum includes local
authorities that are part of a common sub-forum. However, FNAC is not sufficient to ensure effective coordination
between national actors and local authorities. In practice, each local authority coordinates directly with central
sector ministries.
Inclusive multistakeholder and multilevel planning is nascent, yet likely to be essential for sustained and
inclusive “whole of society” efforts to strengthen climate action and accountability. The 2022 constitution assigns
responsibilities to local authorities for environmental management, among other responsibilities, though no new
related law has yet been developed. As a result, the new arrangements need to be defined. According to the Organic
Law of Local Authorities (2018) (which had formalized the decentralization process), environmental preservation,
waste management, and sustainable development are operationally assigned to local authorities, while policymaking
is centralized. This has had the effect of reducing engagement and coordination between ministries and local
authorities and weakening climate governance and interventions. There is a need to reinforce governance frameworks
that embed the participation of other stakeholders (such as the private sector, NGOs, the media, academia, and the
financial sector). Consistent, inclusive, and results-oriented multistakeholder engagement is needed to support a
“whole of society” approach that draws on the capacities of various actors and that maximizes the potential social
co-benefits of climate change mitigation and adaptation (for example, gender equity, non-discrimination, and good
labor practices). This “whole of society” approach should ideally consist of three streams of action, including:
• Accountability for climate finance and performance toward climate commitments
• Collaboration in the development of climate policies, strategies, and programs
• Direct action that mobilizes communities and individuals in support of Tunisia’s effort to reduce its carbon
footprint and establish more resilient communities.
Despite coordination challenges, climate change has been progressively adopted in local development and sectoral
strategies. The strategies for the three cross-sectoral objectives identified in this report are summarized in boxes 3
to 5. Local climate change strategies represent an evolution towards multilevel planning and enhanced local climate
governance to specifically address climate threats in a given vulnerable zone. Examples are the local strategies and
action plans of the municipalities of Gabes, Mateur, Ayn Darahim, and Tataouine; the Nabeul Governorate Post-Flood
Recovery Action Plan (2019); and the emergency response plans for the island of Djerba and Ghar el Melh/Kalaât
el Andalous.
Box 3: Policies and strategies to address water scarcity

Water policies are evolving towards communities, business, and food resilience. The updated strategic framework,
Water 2050, tackles the challenges of water supply and demand management through innovative water development
sources, more efficient infrastructure, and water savings technologies. Adaptation to climate change is also a pillar
of Reuse 2050 and Water 2035 (the SONEDE strategy), which calls for higher reliance on non-conventional water
sources. The legal framework is under review through the draft Water Code, which mainly targets illegal drilling and
aims to reorganize water management at the rural level. Despite Tunisia having 231 wetlands occupying 1,250,200 ha,
ensuring freshwater for ecosystems is not part of the Water 2050 strategy. Food resilience will primarily be addressed
by the upcoming National Plan on Climate Change Adaptation for Food Security. Tunisia has also developed a national
strategy to combat desertification.
18
Box 4: Policies and strategies to enhance resilience of urban and coastal zones
Urban and coastal management policy frameworks integrate climate action, but implementation remains challenging.
The country’s strategic orientation towards building urban and coastal resilience was initiated in the 2012 National
Strategy on Climate Change, followed by:
• The 2030 National Strategy on Disaster Risk Management (2021) and its Action Plan, which seek to address the
causes and effects of disaster risk by planning disaster response, recovery resilience, and reconstruction
• The Integrated Management of Coastal Zones Protocol (ratified on November 29, 2022)
• The Code on Landscape Management and Urbanism
• The Plan for Urban Planning.
In 2022, Tunisia submitted its Voluntary National Report for the Midterm Review of the Implementation of the
Sendai Framework for Disaster Risk Reduction 2015–2030. The Ministry of Equipment and Housing is responsible
for the development of sector policies, while the Agency of Coastal Protection and Management, which is affiliated
to the Ministry of Environment, is responsible for coastal zone management with the support of local authorities.
The National Strategy on Tourism Development 2035, which is spearheaded by the Ministry of Tourism, outlines a
concerted effort to transition towards sustainable tourism.
Box 5: Policies and strategies to develop renewable energy and improve energy efficiency
Tunisia plans to reach carbon neutrality by 2050 and become a regional energy hub, exporting clean energy to other
African countries and Europe through the Italy-Tunisia (Elmed) interconnector, supported by the World Bank. This
will require decarbonizing the energy sector by increasing the share of renewables in the energy mix and improving
the energy efficiency of end-user sectors. On paper, Tunisia’s policies and regulations are largely supportive of
renewable energy and energy efficiency, scoring 77 and 66 respectively on Regulatory Indicators for Sustainable
Energy. However, to date the implementation of current policies and strategies has been limited and, in the case of
renewable energy, policies relating to transparency of the utility and renewable grid integration are incomplete.
The following key strategies and policies are in place:
• Renewable energy: The National Strategy for the Green Economy 2030 sets the agenda for achieving net-zero
carbon emissions. The SNBC&RCC 2050 targets 50 percent renewable energy by 2035 and 80 percent by 2050—
a substantially more ambitious target than the 30 percent by 2030 initially proposed by the Tunisia Solar Plan of
2015, which was recently updated to 35 percent. Although the Transversal Law (2019) allows industrial customers
with demand above 1 MW to form special-purpose vehicles to sell self-generated electricity to each other, in effect
allowing third-party access to transmission and distribution networks for the first time, the implementation of this
legislation requires two additional ministerial decrees (relating to the wheeling charge for medium-voltage network
and to the contractual framework to sell excess energy to STEG).
• Energy efficiency: In February 2023, Tunisia released Energy Strategy 2035, complemented by strategies to
improve the efficiency of end-use sectors. An example is the Sustainable Cities 2050 strategic program, which
aims to reduce congestion and achieve carbon neutrality in all Tunisian cities by 2050. Despite advances in
Tunisia’s regulatory framework since the 1990s, the following gaps remain: financing mechanisms are limited;
minimum performance standards and energy labelling systems still need to be developed; and tariffs need to be
strengthened to provide sufficient incentive for energy conservation and efficiency improvements.
19
3. Key Objectives for Resilience and
Decarbonization
The previous chapters discuss how Tunisia’s economic development and climate change interact, and describe the
strategies, policies, and institutions in place to address climate change at the national, local, and sectoral levels.
If Tunisia is to achieve its ambitious climate goals and enhance the resilience of its economic drivers and communities,
it would benefit from focusing on the following key objectives:
• Ensure enough water is available for all
• Enhance the resilience of urban and coastal areas to climate stressors
• Decarbonize the economy.
This chapter estimates the costs of inaction on these objectives and recommends next steps towards achieving
them to help Tunisia and its people successfully cope with, and manage, the impacts of climate change.
3.1. Addressing Water Scarcity

3.1.1. The costs of inaction on water resources
By 2050, overall water resources per person per year could decrease by 43 percent (from 366 m³ to 210 m³)
under RCP 4.5, and up to 66 percent (to 122 m³) under RCP 8.5.80 Tunisia’s current water resources have been
estimated at 4,929 million m³ (Mm³) of water, of which 55 percent is surface water (2,731 Mm³), 16 percent is
groundwater (770 Mm³), and 29 percent is found in deep aquifers (1,431 Mm³).81 As climate change alters the water
cycle, surface water resources could decline by 41 percent by 2050, of which a third would be due to an increase in
evapotranspiration and two-thirds would be due to a decrease in rainfall under RCP 4.5.82 Coastal areas would be
disproportionately affected as losses at coastal aquifers could potentially reach 50 percent of resources in 2050 due
to the combined effects of rising sea levels and salinization.83
Water demand has increased in recent years due to urban growth, rising populations, and increasing irrigation
needs. The rate of increase differs from region to region and sector to sector. Under RCP 8.5, expected increases
in water demand, coupled with reductions in supply, are projected to result in a demand-supply gap of 1,139 Mm³
per year, or 28 percent of demand being unmet, by 2050 (Figure 18).84 A simultaneous increase in the frequency
and intensity of climate change-induced extreme weather events will likely drive a decline in water quality while
increasing the incidence of water-borne diseases, with the poor disproportionately impacted.85
80
Agence Française de Développement 2020.
81
MARHP 2022.
82
83
Agence Française de Développement 2020. Only RCP 4.5 information is available.
84
85
Only 61 percent of schools and 53 percent of preschools provide basic sanitation services (UNICEF 2022).
20
Figure 18: Water supply and demand in 2018 (no drought condition) and under RCP 8.5 with no action 86, 87
5,000
4,574
4,500
4,117
4,000
3,500 3,239
2,978
3,000
2,500
2,000
1,500
1,000
500
0
2018 2050 under RCP 8.5
Water demand Water supply
Source: Generated by World Bank team.
Reduced water availability could affect agricultural production, compounding agricultural losses from climatic
disturbances and further straining people’s livelihoods. Major agriculture systems in Tunisia (olive, oasis, cereal,
and livestock) are among the most vulnerable to climate change, with water availability being a major concern.88
The projected drop in yield for olives, which accounted for 40 percent of total agricultural exports in 2019, could
reach 69 percent under RCP 8.5. Soft wheat and barley are expected to experience similar drops in yield (35 percent
decline for soft wheat and 41 percent for barley) by 2050 under RCP 8.5.89, 90 Agricultural lands favorable to olive
and cereal cultivation are also expected to shrink due to the northward migration of bioclimatic stages. This is cause
for concern because cereals are particularly essential for national food security and are crucial for the livelihoods of
many rural households, especially in the northern regions.91 By 2100, olive cultivation is projected to lose about 14
percent of its current area under RCP 8.5, and about 5 percent of its current area under RCP 4.5.92 Climate change
is also expected to cause the loss of at least 30 percent of agricultural jobs by 2050, driven in part by the irreversible
desertification of the country’s oases, where agriculture is the main source of livelihoods.93
86
Agence Française de Développement 2020. For current demand and supply, baseline estimates are based on potable, agricultural, industrial, and tourism demands
and on conventional and non-conventional water supply sources. For future demand and supply, estimates are bases on potable and agricultural water demands and on
conventional and non-conventional sources.
87
There are differences in terms of results and methods. For instance, the Water 2050 strategy forecasts a reduction in conventional water resources of around 30 percent
by 2050.
88
Agricultural production is primarily composed of livestock (37 percent), arboriculture (mainly olive production, 28 percent), market gardening (16 percent), and cereals (10
percent).
89
90
Under RCP 4.5, yields could decline 67 percent for olive oil, 42 percent for soft wheat, and 54 percent for barley.
91
When the Ukraine war escalated, food prices surged by 15.1 percent and the food trade deficit rose by 50 percent to TD 2.9 billion (2.2 percent of GDP) within a year
(National Observatory of Agriculture and Institut National de la Statistique [National Statistics Institute]).
92
By 2100, olive area cultivation is projected to be affected between -27 percent and +7 percent under RCP 8.5 and between -17 percent and +11 percent under RCP 4.5.
93
Ministry of Environment 2021.
21
By 2050, climate change could degrade Tunisia’s critical ecosystems and soils by a further 28 percent under SSP3,
linked to an increase in soil erosion (Figure 19) and a reduction in water yields, soil quality, and the storage capacity
of dams.94 Ecosystems,95 scrublands, and oasis ecosystems are under threat due to increased temperatures and
reduced rainfall, which harm trees and reduce ecosystem productivity. Climate change is expected to increase the
frequency and intensity of wildfires and allow pests such as bark beetles to thrive and spread. The Aleppo pine, a
widespread tree species in Tunisia, is already experiencing increased mortality rates due to warmer temperatures.
Estimates put the loss of forest due to fires at 180,000 ha by 2030 (17 percent of the current forest area).96
Figure 19: Soil erosion at Siliana watershed in 2020 (left) and 2050 under SSP3 scenario (right, projected)
9°10’0’’E 9°20’0’’E 9°30’0’’E 9°10’0’’E 9°20’0’’E 9°30’0’’E
2020 2050 under SSP3
36°10’0’’N 36°10’0’’N 36°10’0’’N 36°10’0’’N
36°0’0’’N 36°0’0’’N 36°0’0’’N 36°0’0’’N
35°50’0’’N 35°50’0’’N
35°50’0’’N 35°50’0’’N
0 2,755,5 11 Kilometers
0 2,755,5 11 Kilometers
35°40’0’’N 35°40’0’’N 35°40’0’’N 35°40’0’’N

Soil erosion risk (t/ha/yr) Soil erosion risk (t/ha/yr)
0 - 2.5 2.5 - 5 5- 10 10 - 20 >20 0 - 2.5 2.5 - 5 5- 10 10 - 20 >20
9°10’0’’E 9°20’0’’E 9°30’0’’E 9°10’0’’E 9°20’0’’E 9°30’0’’E
Source: Generated by World Bank team.
Failure to act would result in huge water losses by 2050, with agriculture and ecosystem services (which the
poor and vulnerable depend upon for their livelihoods) being especially hard hit. The water shortage is projected
to generate considerable losses, especially for irrigated agriculture, which accounts for almost 36 percent of value
added by the agriculture sector. Agricultural production is expected to drop by between 29.1 percent (under RCP
4.5) and 33.1 percent (under RCP 8.5) relative to projections under a scenario of no climatic stress. At current 2022
prices, these losses would translate into TD 4.0 billion and TD 4.6 billion, or between 2.8 percent and 3.2 percent
of GDP. These direct (partial equilibrium) sectoral losses would then generate macroeconomic (general equilibrium)
losses.
3.1.2. How to solve the water crisis

Enhance water management and increase water supply
Managing water demand and improving efficiency will be essential for optimizing existing conventional water
resources in Tunisia. Regulating water demand—including through measures such as pricing, quotas, and metering—
94
Further information on the impact of climate change on landscapes can be found in the background note on landscape management. In terms of method, the first step
was to identify the current and potential future benefits associated with different land uses and management practices by mapping and valuing ecosystem services using
the InVEST (Integrated Valuation of Ecosystem Services and Tradeoffs) model, which involves the assessment of ecosystem services quantity provided by different land
uses and then estimating their economic value. The next step was to assess the costs of inaction and the benefits of adaptation measures to address climate change. The
costs of inaction were assessed by estimating the economic losses associated with the impacts of climate change on ecosystem services.
95
Ecosystems function as water reservoirs and protect dams from siltation.
96
Ministry of Environment. 2021
22
should ideally be a priority.97 Effective demand management controls could be accompanied with targeted awareness
campaigns about the value of water and conservation methods. Digitalization of the national water management
system could further improve network monitoring and management and facilitate water accounting, water valuation,
and demand management policies.
Accompanying institutional reforms and establishing a water-monitoring and early-warning system would further
enhance water governance and management. Proposed reforms under the responsibility of the contracting authority
include:
• Work towards the institutional and financial evolution of SONEDE towards better transparency and cost-efficiency
to attract private capital.98
• Revise, approve, and implement the New Water Code99 to: (i) integrate the environmental right to water; (ii)
align the cost of water with uses and types of water (green, blue, and gray); (iii) specify the role of GDAs in the
protection of water; (iv) consider the risks of climate change; and (v) give a more important role to the Water
Council, among others, while ensuring that measures suggested by the Water 2050 strategy are integrated.
• Establish a regional monitoring and early-warning system to help people prepare for water stress and increasing
droughts. Investing in hydrometeorological and early warning services in Tunisia could generate a 3:1 rate of
return, with an average reduction of US$12.4 million in annual disaster losses.100 Such a system could be
established at the regional level to track changes in water, efficiency (physical and hydraulic), and productivity
(agronomic and economic).101
Enhancing the technical and financial capacities of institutions—especially in rural areas—is critical for the efficiency
of water policies. Water management is assigned to the MARHP and its related body, SONEDE. Water planning and
management capacities would need to be reinforced and coordination between ministry services and water users
(or water-user associations) improved. This is especially important for rural water distribution, which is managed
by 2,500 GDAs under the support and direction of regional commissions for agricultural development. Most of
these entities struggle with lack of technical and functional capacity102 and do not operate under efficiency and
performance-based principles, precluding cost recovery and contributing to high water losses due to poorly operated
and maintained distribution systems. Most of the rural population is deprived of effective support or regulation
regarding sanitation (which is managed by ONAS).
Water-related challenges in rural areas particularly affect women, who are unable to play a more active role in
making decisions relating to the management of water resources. In times of drought or restrictions on irrigation
water, women need to go further to fetch water for their families and livestock. The Ministry of Agriculture has
introduced an indicator that tracks the participation rate of women in the boards of rural drinking-water GDAs and
asked technical directors to address this issue. Nonetheless, data on 1,364 GDAs shows that the participation of
women in leadership structures remains low due to cultural barriers, especially when it comes to boards of directors,
in which only 13 women take part across all GDAs.103
97
Water can be priced using both direct price (tariff or fee) and quantity regulation instruments (quota). To improve water resource management, countries have been
establishing agencies—typically at river-basin scale—to assess and monitor the water balance and regulate the use of water through quantity restrictions or quotas. Quotas
function as implicit caps for user groups. Examples include quantity restrictions on water supply for irrigation (devised by a ministry of agriculture) and quantity restrictions
on water supply to households (devised by utilities and monitored and enforced by local government). Tariff reforms have been implemented to regulate water demand,
cover utility operating costs, and generate external financing to build water infrastructure to reduce water wastage in the course of service delivery and increase the supply
of water resources through desalination or wastewater treatment and reuse. Surveys can help to define willingness of citizens to pay. (World Bank 2023c).
98
A change in SONEDE’s status towards a performance-based company should be approached with a thorough analysis based on prior financial, organizational, and
commercial studies, and would take into account all economic, legal, social, and national security aspects.
99
Tunisia’s Water Code was adopted in 1975 and has not been amended. A new water code would ideally reflect the ecological, political, and economic changes that Tunisia
has undergone, aim to combat illegal well-drilling, and organize water groups.
100
Global Facility for Disaster Reduction and Recovery 2022.
101
The Ministry of Local Affairs and Environment developed a meteorological alert tool, Carte de Vigilance, to provide weather warnings. The proposed hydrometeorological
mapping and early warning system could build on these efforts.
102
GDAs are also responsible for operating and maintaining public irrigation schemes. This is part of the reason public irrigation schemes are not properly maintained and
leak or lack water.
103
A board usually consists of three to six members. Assuming four board members on average, this gives a percentage of 0.23 percent women participation on boards.
23
Tunisia would also benefit from turning to non-conventional water sources (for example, by investing in seawater
desalination and the reuse of treated wastewater), to complement conventional water sources and cope with
demand-supply imbalances. Conventional water resources, in the form of available renewable surface water or
groundwater, are almost fully utilized and the development of additional built water storage will require thoughtful
and purposeful design.104 To bridge unmet demand, SONEDE has focused on non-conventional drinking water
sources, including seawater desalination. Tunisia has experience with the desalination of deep brackish water, but
the exploitation of seawater only began in 2018, when Djerba station was commissioned. Several new desalination
stations are under construction. In addition to surface water storage, alternative groundwater storage techniques
may also be further pursued locally, where feasible, in the form of aquifer recharge, storage, and recovery, and by
using underground dams.
Combining desalination with wastewater reuse could increase water supply by 693 Mm³, according to the Water
2050 strategy (Figure 20). To control the cost of energy and reduce emissions, renewable energies (and especially
solar panels) have been proposed for production, transfer, distribution, and treatment operators as well as for key
energy consumers including SONEDE, GDAs, ONAS, and SECADENORD. 105 At the SONEDE level, this means installing
mini power stations at pumping and water-desalination plants. 106 In addition, Tunisia could take advantage of recent
technology improvements in desalination to maximize water recovery and reduce the volume of brine produced and
discharged back into the ocean, so limiting harmful effects on the marine environment. This could be complemented
by regularly monitoring discharge to analyze the effects of seawater desalination facilities on the ecosystem.
Figure 20: Possible mix of seawater desalination and wastewater treatment capacity in Tunisia 107,108
800
191.6
700
191.6
600
136.9
500
91.3
400
18.3
300
501
432
200 373
342
298
100
0
2020 2025 2030 2040 2050
Production of treated wastewater Desalinization
Source: World Bank staff estimates.
104
World Bank 2023b.
105
SECADENORD provides, manages, and maintains canals used for transporting water.
106
This is in line with an ambitious Tunisian energy transition program, which combines energy efficiency and renewable energies until 2030.
107
Tunisia’s Water 2050 strategy: http://www.onagri.tn/uploads/Etudes/ITES-eau2050.pdf
108
Estimations in the Water 2050 strategy differ slightly from SONEDE’s desalination capacity expansion projections. SONEDE’s national desalination program estimates
higher total capacity increases of about 320.47 Mm3/year by 2050 using both brackish and seawater desalination plants.
24
The above measures could be accompanied by soft incentives to reduce environmental degradation and combat
food and water waste to improve resilience. Water demand and governance measures could be accompanied by
awareness campaigns to improve uptake. There are also significant losses throughout the food value chain that
are, ultimately, water losses. For instance, about 10 percent of the total volume of cereals produced is lost due to
mechanical damage during harvesting in addition to wastage on the consumption side. 109 Even though reduction of
food loss and waste in Tunisia could increase the resilience of the food sector, awareness and communication on the
subject are still rare. Measures such as information campaigns, training, and community campaigns can help change
behaviors to reduce wastage throughout the production chain, up to the final consumer. Community participation
efforts could leverage existing initiatives such as community-based soil and water conservation programs. Public
and private investments for cold chain and modern logistics are needed to transform Tunisia’s outdated food system.
Increase the resilience and efficiency of the agriculture sector and leverage nature-based solutions
As the largest consumer of water in the country, Tunisia’s agricultural sector could improve irrigation efficiency and
water-use productivity to reduce water demand from irrigation systems, avoid imbalances, and prevent conflict
between water users. Irrigation accounts for 75 percent of demand from groundwater, 23 percent of demand from
surface water, and 2 percent of demand from wastewater reuse.110,111, The current average demand for water per
hectare actually irrigated is estimated at 4,500 m³ and differs significantly by region and crop. 112 Demand has been
growing steadily over the years, with variations by region, resulting in a structural and spatial imbalance between
supply and demand. 113 Pressure will increase in the agricultural irrigation sector because the urban, industrial, and
tourism sectors are likely to be prioritized in times of water scarcity. The Water 2050 strategy expects a 25 percent
reduction in irrigated water use by 2050.114
To protect rural areas from income stress, smallholder farmers (including herders) could upgrade their operations
with climate-smart practices and increase their productivity efforts. Tunisian agriculture is subject to many
constraining factors, including land fragmentation, lack of modernization, and limited primary and secondary
processing. These factors could compromise the profitability and sustainability of Tunisian agriculture in coming
decades. There is a need to disseminate innovative and climate-resilient agricultural practices, which include the use
of digital solutions 115 and the farming of resilient species and livestock breeds. The development of index insurance
or insurance based on statement could provide guarantees for losses of yield or annual farm turnover.
Nature-based solutions—especially those that support the recharge of groundwater reservoirs by restoring forests,
wetlands, and oases—could play a crucial role in mitigating the impacts of climate change in Tunisia. Nature-based
solutions have a proven ability to recharge aquifers, mitigate the decline in surface water, and prevent siltation of
dams. Such solutions include:
• Enhancing water and soil conservation upstream of watersheds
• Adopting nature-based sediment protection measures upstream of dams
• Implementing upstream afforestation and reforestation measures to increase groundwater resources and
prevent soil erosion by stabilizing soil and reducing water runoff 116
109
The average wastage of a subsidized baguette is 900,000 units per day.
110
Agriculture Note–Tunisia CCDR. April 2023
111
Chahed and Hamdane 2013.
112
The average water consumption for wheat is 2,179 m3/ha, with a significant regional disparity (3,407 m3/ha in Kairouan, 813 m3/ha in Siliana, and 618 m3/ha in
Jendouba). The cultivation of irrigated wheat produces an average yield of 3.9 t/ha (4.2 t/ha in Jendouba, but only 3.7 t/ha in Kairouan and Siliana). The average water
productivity is 7 kg/ha/mm (8 kg/ha/mm in Kairouan, 6 kg/ha/mm in Jendouba and Siliana) (Mazhoud et al. 2020).
113
Sixty-one percent of water resources concentrated in the north.
114
To reach 25 percent, the GoT would have to eliminate leaks and increase irrigation water efficiency, irrigation intensification (capital per cubic meter of irrigation water
used), and tariffs.
115
Digital tools can help analyze soil moisture to optimize automatic watering. Several smart irrigation apps have been developed to help farmers schedule irrigation and
improve water productivity while considering water availability constraints. Some target cereals (such as the IREY app of the National Institute of Fields Crops, INGC) while
others target all crops (for example the MABIA app, developed at the National Agronomic Institute of Tunisia). The cereals app helped increase water productivity from 0.9
kg/m3 to 1.9 kg/m3 while the MABIA app increased crop yields by 18 percent, reduced the total number of irrigations by 15 percent, and improved crop water productivity
by 69 percent compared with traditional irrigation practices. More communication is needed to raise Tunisian farmers’ awareness of these apps.
116
Agroforestry can take several forms, including silvo-pastoral and silvo-arable systems. In Tunisia, afforestation and reforestation can build on existing initiatives, such as
the Green Tunisia initiative, which aimed to plant 100 million trees by 2020.
ments in the agricultural sector for climate resilience and nature-based solutions.
25
• Using a combination of contour ridges and micro-basins on agricultural lands and tree orchards to prevent soil
erosion and ensure water availability.
Agroforestry—a sustainable land-use system that combines indigenous, drought-tolerant, multipurpose tree species
with crops and/or livestock—can further mitigate the effects of climate change by enhancing food security and
contributing to a community’s income while improving soil fertility and increasing carbon sequestration. Promising
tree species include the Carob tree (Ceratonia siliqua) and the olive tree, the latter of which grows in highly degraded
agricultural land and could increase olive yield in Tunisia by 44 percent in 2050.117
Box 6: Strengthening workforce capacity to address water scarcity

Tunisia’s current education system has limited capacity to provide the skills needed to achieve a successful water
transition. The education system needs to work with the public and private sectors to ensure that it offers training in
skills and knowledge that are current and relevant to improving water security. Specific skills and knowledge needed
include wastewater treatment plant (WWTP) operation and management; environmental water policy; water chemical
testing and analysis; the management and preservation of natural water resources; and non-conventional water use.
Across 42 universities, 187 degree programs are offered, with relatively even coverage of these five areas. However,
there is a large gap in the training of technicians at universities, with only five degree programs reported (one in WWTP
operation, one in management and environmental water policy, and three in water chemical testing and analysis).
The development of skills at technical and vocational education training (TVET) level is also limited, with only three
degree programs reported (two in water chemical testing and analysis, and one in management and preservation of
natural water resources).
Source: World Bank (Forthcoming). Jobs and Skills Survey, Climate Change and Human Capital in Tunisia.
3.1.3. Summary
Table 4: Costs of investments118 to address water scarcity until 2050 (in US$ million)
Engagement Investment cost up Investment costs Total investment

Public or private
dimension to 2030 2030–2050 costs
Increase water supply Public 2,442 9,820 12,262
and efficiency
of infrastructure
Private 453 2,268 2,721
and technologies 119
Increase the resilience Public 627 685 1,312
and efficiency of the
agriculture sector and
leverage nature-based Private 230 530 760
solutions120
Public 3,069 10,505 13,574

Total
Private 683 2,798 3,481
117
This includes investments in the agricultural sector for climate resilience and nature-based solutions.
118
The investment costs are capex discounted at 6 percent and represent additional climate action.
119
This includes investments in wastewater; desalinization; extension of water infrastructure in rural areas; loss reduction; renewable energy; and enhancing water
management.
120
This includes investments in the agricultural sector for climate resilience and nature-based solutions.
26
3.2. Enhancing Resilience to Flooding and Sea-level Rise
3.2.1. The costs of inaction of sea-level rise and flooding
A significant portion of Tunisia’s territory is exposed to the risks of submersion from sea-level rise and/or flooding.
Under both SSP2 and SSP3, 0.4 percent of the total land area in Tunisia, which includes 24 percent of the linear
coastal distance, could be affected by sea-level rise by 2050, with the populated coastline of Tunisia significantly
affected in terms of shoreline erosion and extended coastal inundation or the permanent submersion of low-lying
coastal areas. By comparison, 15 percent of the linear coastal distance would be affected under SSP1. 121
Climate change-induced erosion and submersion could cause loss of land worth US$1.6 billion (under SSP3) and
US$1.5 billion (under SSP2) by 2050.122 However, adopting a strong integrated coastal zone management approach
under SSP1 would dramatically limit loss of land to US$44 million.123 These costs are likely to be significant due to
the concentration of economically important infrastructure, even though climate change is expected to affect only
27 percent of coastal zones that are important for environmental and economic sustainability in 2050 (under SSP2
and SSP3). 124 Under threat are agricultural areas (12 percent), natural areas with assets (9 percent), and urbanized
areas (2 percent) (Figure 21). Sea-level rise is expected to exacerbate climate change-induced inland losses (see
Section 3.1.1) and reduce coastal agricultural land, with submerged agricultural land estimated to be 9 percent tree
crops, 14 percent annual crops, 5.8 percent irrigated crops, 49 percent pastures, and 9.9 percent miscellaneous
agricultural areas. 125 Coastal populations are also expected to increase, heightening vulnerability.
The indirect costs of surface area loss could be even more pronounced, with the tourism sector being among the
worst affected. In a scenario where no adaptation measures are taken to protect the tourism sector in coastal zones,
the direct and indirect costs of sea-level rise to the Tunisian economy could amount up to 6.9 percent of 2020 GDP
by 2050 due to cascading impacts on hotel, restaurant, and catering activities; public revenue; tourism-related
economic activities; and jobs. 126 In the case of inaction under the SSP3 scenario, 0.8 percent of tourism-sector
jobs in the threatened coastal zone—the equivalent of 1,110 jobs—may be lost by 2050. Figure 22 highlights the
tourism sector assets that are most likely to be affected. Tunisia’s road network is also at risk of coastal erosion and
submersion, disrupting the movement of goods.127
121
Sea-level rise is expected to be similar under the different SSP scenarios by 2050 and will only diverge by 2100. This report focuses on climate-induced erosion. Existing
drivers of coastal erosion (such as coastal subsidence due to heavy infrastructure near the coast or aquifer-water extraction), coastal infrastructure (such as ports),
defense developments, and land reclamation leads to increasing shoreline vulnerability and more exposure to sea-level rise and storm surges.
122
For details about assumptions and hypotheses, see the Technical Note on the impact of climate change on the coastline, definition, and assessment of scenarios with
respect to the risks of coastal erosion and sea-level rise (June 2023).
123
For this modeling, the report looks at interventions in SSP1, which considers the best adaptation measures (SSP3 considers inaction).
124
By 2100 climate change would affect 32 percent of coastal zones that are important for environmental and economic sustainability.
125
126
The impact and GDP loss would be mainly linked to direct costs related to land losses and related infrastructures or buildings (hotel, ports, and shops) rather than on jobs
lost.
127
Some 54 km of road assets are within the area projected to experience coastal erosion, consisting of 0.8 km of primary, 21.9 km of secondary, and 31.8 km of tertiary
roads. Regarding 100 cm FABDEM, 5.2 km of road assets are within the hazard area, out of which 5.2 km motorway, 45.3 km primary, 232.1 km, and 220.1 km tertiary
roads. These include some segments of motorways with high network criticality especially in the south along the coastline, which should be prioritized in executing
measures to enhance resilient transport network.
27
Figure 21: Distribution of coastal areas that could Figure 22: Share of tourism-related assets in areas
be affected by erosion and marine submersion due that could disappear due to coastal erosion and
to climate change (as a percent of the total area marine submersion
threatened by 2050)
Natural area
with assets 9%
Urbanized area 2% Houses 11%

Hotel 22%
Beaches 2%
Shops 12%
Agricultural area 12%
Port 1%
Protection works 2%
Economic
development area 2% Natural area with
assets 2%
Natural area
without assets*73%
Wild natural
beach 1% Restaurant 48%
Weakly urbanized
area 0,3%
* Refers to natural areas with biodiversity conservation issues but without

applicable specific decrees or regulations and with no tourism activity, economic
activity, housing/population activities or infrastructure threatened.
Source: World Bank staff estimation. Source: World Bank staff estimation.
The likelihood of catastrophic floods and associated asset damages is expected to increase as a one-in-1,500-years
flood becomes a one-in-163-years flood under RCP 8.5 (Figure 23). Climate change is expected to drive increases
in temperature and greater variability of precipitation. This would be accompanied by an increase in the frequency
and intensity of floods, especially in the eastern Mediterranean coastal region. The northernmost Mediterranean
coastal region may also experience flooding, but to a lesser degree. Assuming no reconstruction takes place, losses
in Tunisia could amount to TD 238 million (around US$76 million) by 2050. In general, the north is still expected to
receive the most flooding across all scenarios, even though there are large floodplains in many other parts of the
country.
Figure 23: Likelihood of flooding under different RCP scenarios 128
2.0%
exposed assets)
1.5%
Damage (% of
1.0%
0.5%
0%
0 200 400 600 800 1,000 1,200 1,400 1,600
Return period
RCP 8.5 RCP 4.5 RCP 2.6 No additional warming
Source: World Bank staff calculations.
128
Based on empirical and extrapolated distribution functions to calculate expected annual damages (deterministic case) and median and outlier responses (stochastic
case). (Source of data: https://www.preventionweb.net/english/hyogo/gar/2015/en/home/). There are limitations and uncertainty, particularly related to the underlying
flood modeling and the assumption of the theoretical framework by Myhre et al. 2013.
28
The impact of flood risks attributable to climate change on road network assets is likely to be significant, which
could constrain the government’s fiscal space for ensuring the mobility of people and goods across the country.
Figure 24 shows the road network links exposed to significant direct flood risks, suggesting that the impact may
vary by region within the country. Given a 100-year flood event, the expected costs of rehabilitating road assets
from potential flood events (direct risk) may, on aggregate, amount to US$276.7 million in 2050 under an RCP
8.5 scenario, and US$332.5 million under an RCP 4.5 scenario (median).129 Projections show that the eastern
Mediterranean coastal region may be prone to larger direct impacts, while possible road damage in northmost
Mediterranean coastal regions may be less pronounced because inundation depths are expected to be less severe,
causing less damage to road assets.130 This is in addition to the indirect cost of flood events, such as the economic
cost of diverting traffic to alternative routes, which could reach US$15.5 million (RCP 8.5) and US$17.8 million (RCP
4.5 at median) in 2050, by road segment (a link between two intersections).131 Figure 25 shows the road links with
the highest expected economic costs under an RCP 8.5 scenario.
Figure 24: Tunisia road network links most exposed to Figure 25: Tunisia road network links most exposed
direct risk of 100-year flood (RCP 8.5 scenario), 2050 to indirect risks of 100-year flood (RCP 8.5 scenario),
median 2050 median
Source: World Bank team estimations. Source: World Bank team estimations.
129
Estimates range between US$102.9 million and US$450.5 million under RCP 8.5, and between US$121.6 million and US$543.4 million under RCP 4.5. The cost of
rehabilitating paved roads is on average 30.7 percent higher than the cost of periodic maintenance. However, direct comparison requires caution because periodic
maintenance works vary in quality, affecting the speed of asset deterioration and recovery costs when climate disaster risks materialize (World Resources Institute 2020).
130
Road network density is also high in the northernmost Mediterranean coastal region.
131
Indirect risk (the economic cost of diverting traffic when a road link is blocked) is not appropriate to aggregate because the sum of indirect risks of road links is not the
same as the economic risk of blocking the same links.
29
3.2.2. How to prepare for sea-level rise and flooding
Defend coastal zones against sea-level rise and flooding
Targeted coastal zone interventions to protect coastal zones and their economic activities may help to prevent
some of the damage. The type of intervention depends on the affected coastal zone (Table 5). For natural areas
with assets, including beaches, primary interventions would usefully focus on soft defense measures such adding
sediment or sand along the shoreline (beach nourishment), conserving dunes, and implementing complementary
nature-based solutions such as increasing vegetation cover to stabilize soil. The level of urbanization determines if
additional hard measures are needed. Interventions in coastal zones could target tourism infrastructure. In highly
urbanized areas, soft measures may be complemented by sustainable hard defense measures such as breakwaters,
raising existing infrastructure, or building new infrastructure. Hard defense measures should ideally be sustainable
coastal protection investments that do not cause further coastal erosion elsewhere. Stopping shoreline retreat may
also prevent negative effects on groundwater aquifers and vegetation coverage. If left unchecked, such negative
effects would further magnify Tunisia’s water scarcity.
In addition to defense structures, building a sustainable and diversified tourism value chain and offerings would be
essential for further reducing the risks to the tourism sector. The tourism sector could develop year-round tourism
that is tailored for different regions, taking advantage of unique landscapes as well as cultural and heritage assets
such as Roman ruins. The more the tourism offering diversifies from coastal zones and focuses on sustainable
tourism, the more the impacts of the sector on biodiversity and coastal erosion would be mitigated. This, in turn,
would provide protection against some climate change impacts. Creating a more sustainable and diversified tourism
value chain could create an annual net present value of US$1.8 billion by 2050.
30
Table 5: Interventions by surface type under an ambitious adaptation scenario
Area type Sub-area 2030 2050 2100
All areas Integrated coastal zone management
Urbanized area Nature-based solutions; Nature-based solutions; no Maintain actions in

Area with high density of roads, buildings, houses, sustainable hard defense new buildings (building freeze); place
infrastructures structures (breakwaters, groins) economic reconversion plan 132
Weakly urbanized area Urgent occasional relocation; Nature-based solutions (case- Relocation;
Mainly residential area building freeze by-case) renaturation
Agricultural area Compensation measures for The state buys back submersible The state buys back
Cultivated area, fields, agricultural activity farmers in the event of marine land; passive ex-post submersible land;
submersion; building freeze management passive ex-post
management
Natural area with assets 133 Building freeze Maintain actions in place Maintain actions in
Natural areas not anthropized but with interesting place
characteristics (including high biodiversity and
ecosystems services) and with strong potential for
nature-based activities development
Port Raising infrastructure; resizing Raising infrastructures; resizing Port reconversion

Port and landing dock and retrofitting and retrofitting; reconversion
plan
Beaches Wide beach with dune Dune conservation Beach nourishment (case-by- Relocation of
Dune type tourist and important natural or case) activities
beaches agricultural areas behind
Wide beach with dune and Dune conservation; building Dune conservation; building Dune conservation;
without important natural or freeze freeze building freeze
agricultural areas behind
Narrow beach with Beach nourishment; hard defense Beach nourishment; building Relocation
urbanization behind structures freeze; reconversion plan
Narrow beach with Beach nourishment; hard defense Maintain actions in place Maintain actions in
important natural or structures place
agricultural areas behind
Economic development area Structures or beach nourishment Conversion; relocation Conversion;

Mixed areas where high-value-adding buildings if beach in front relocation
or infrastructure are concentrated (oil terminals,
shops, and so on)
Coastal Coastal Outside the port, in an Maintenance, or raising of Maintenance or raising of Relocation plan;
protection works urbanized area infrastructure or works; beach infrastructures or works; beach renaturing;
Any protective nourishment; hard defense nourishment; hard defense reconversion of the
infrastructure or structures; relocation plan structures; building freeze area
works (for example,
breakwater, sea Outside the port in a weakly Building freeze Maintaining or raising Relocation plan;
wall) urbanized area infrastructure or works; renaturing;
reloading; relocation plan reconversion of the
area
Outside the port, outside If agricultural area, once-off Renaturing Renaturing

urbanized or industrial compensation
areas
Source: Compiled by World Bank team.
132
In this case, an economic reconversion plan is a strategy that both the government and private sector could follow to transform the coastal economy
from one focus to another. It could involve changing resources and workforce from sectors impacted by coastal erosion and submersion to other
areas.
133
While natural areas are assets per se, for the purpose of this report, the definition of natural areas with assets has been adopted as presented in the
table
31
Protect people and infrastructure
Tunisia would benefit from investing in multimodal transport and building the resilience of both infrastructure and
the network to climate-related shocks. At the asset level, Tunisia could strengthen the resilience of road assets to
identified flood hazards, including by building thicker pavements, applying sealant to paved roads, and adding riprap
and new piles to bridges. Focusing the analysis on highways, the investment needed to build thicker pavements to
boost Tunisia’s resilience against a 100-year flood hazard in 2050 would be as follows: 134
• Under the RCP 4.5 scenario: 382 km of road links are exposed to flood risk at the median and introducing the
resilience measure is likely to cost US$183.4 million at the median.135
• Under the RCP 8.5 scenario: 398 km of road links are exposed to flood risk at the median and introducing the
resilience measure could cost US$152.8 million at the median.
Increasing investments in railways would serve to strengthen network resilience. Promoting multimodal transport
provides network redundancy so that operations can continue even if one transport mode experiences disruption.
Modernizing railways (for example, updating signaling systems) would improve operational quality to achieve safe
operations under severe operating environments and stressors. The GoT has demonstrated a commitment to
strengthening the country’s logistics sector. Over the longer term, rail is set to absorb around 40 percent of funds
earmarked by the National Transport Master Plan for 2040, with the segment’s 19 projects amounting to TD 28
billion (US$9.7 billion). These investments could usefully focus on recovering the financial sustainability of the public
railway operator, SNCFT, through adequate compensation mechanisms for providing railway services of a public good
nature while targeting strategic investments for commercially viable markets.
Resilience should ideally be mainstreamed in investment planning, programming works, the design and engineering
of infrastructure assets, and in the operation and maintenance of facilities. Network criticality can be used as a
factor for planning infrastructure development projects and programming asset maintenance works. Prioritizing the
connectivity of lagging regions when planning high-quality road corridors would strengthen the economic resilience
of these regions when such connectivity is accompanied by measures to support productive economic activities.
Infrastructure owners’ asset management systems and plans should ideally be upgraded to incorporate climate and
disaster risks. Transport authorities would benefit from: (i) building capacity to prepare and respond to disruptions
and asset damages and losses, (ii) clarifying responsibilities, (iii) strengthening coordination among authorities
to minimize the impact of disruptions, and (iv) introducing effective measures to build resilience. For facilities of
strategic importance, PPPs could be contracted to ensure adequate maintenance and operation, and incentivized by
linking key performance indicators with funding, which could, in turn, be sustainably sourced from user charges (for
example, tolls). Seaports are Tunisia’s economic driver not only for freight transport, but also for car ferries and cruises
anchored to the country’s prominent tourism industry. Opportunities for improving ports include: (i) upgrading port
facilities; (ii) strengthening the coordination of policies, planning, and investments with other authorities including
municipalities; and (iii) enhancing connectivity with the land transport network, particularly railways. Developing a
logistics strategy for the public railway operator, SNCFT, would be an important step towards improving railways and
encouraging a shift from trucks to rail. Reforming customs regulations and port tariff regimes to improve operational
efficiency (for example, processing times) are also essential for the resilient supply of imported goods.
To future-proof Tunisia, institutional mechanisms could ensure that climate change risks are systematically
included in infrastructure, land-use, and urban planning. Tunisia has taken significant steps to improve its resilience
to disasters, including publishing its 2030 National Disaster Risk Reduction Strategy in 2021. Nonetheless,
opportunities remain to improve the country’s resilience, including updating and enforcing building codes and design
standards, especially of key public infrastructure. Indeed, the 2030 National Disaster Risk Reduction Strategy states
that disaster risk reduction must be included in urbanization programs. This has not yet resulted in shifts in the
134
Following Miyamoto International (2021), the cost of thicker pavement was assumed to cost 20 percent of the initial road investment costs. The unit
road investment cost for each road class assumed unit investment costs (for example, 2x2 lane highways) from the Tunisia Transport Development
National Plan 2040 (2017). The analysis employed the same approach as the plan to apply the 20 percent contingency to the estimated investment
needs.
135
Estimates range between 140 km and 190 km of road links exposed to the flood hazard, and between US$67.0 million and US$299.7 million in
investment needs.
32
strategies of the Ministry of Equipment and Housing or the Ministry of Local Governance, although some projects
by international donors do implement disaster risk reduction standards (for example, the European Union-funded
prison building program includes anti-seismic measures). As already noted, in slightly urbanized areas affected by
sea-level rise or flooding, it would be useful to focus on relocating economic activity and implementing a freeze on
new buildings. Institutional mechanisms would also help respond to climate shocks in a timely manner. Some local
initiatives already draw on best practices, for example, the city of Ayn Darahim has built innovative disaster risk
management rooms to cope with extreme events. Ayn Darahim is in a mountainous area that is particularly exposed
to natural disasters that include landslides, forest fires, and severe cold snaps.
Building the resilience of infrastructure also means strengthening local institutional capacity to manage and
protect assets. Involving local authorities by giving them the authority to plan and make decisions would encourage
implementation of protective measures. In the case of coastal erosion, integrated coastal zone management (ICZM)
is a proven tool that uses zoning to identify priority areas, inform interventions, and develop local investments, plans,
and policies. Multistakeholder participation in ICZM planning at the municipal, national, and regional (subnational
and multinational) levels is key for designing effective solutions that not only target coastal erosion, but also aim to
improve the integrated land-use planning and management of coastal areas. The need for local governance on climate
change is demonstrated by the fact that Tunisia has different bioclimates, requiring different actions in different
municipalities. The 2018 Local Government Code (Organic Law No. 2018–29 of May 9, 2018) has transferred a
certain number of disaster risk management-related prerogatives to municipalities, but decentralization has faced
delays.136,137
Enhance social protection and develop risk-based insurance schemes
Given current disaster risk financing gaps, there is a strong need to improve financial resilience at the micro and
meso levels (households, farmers, and businesses), as well as to reduce fiscal impacts and economic losses.
Disaster risk financing addresses residual risk after disaster risk reduction efforts have decreased the impacts of
disasters. In the agricultural sector, the development of index insurance or insurance based on statement could
guarantee losses of yield (crop or livestock) or annual farm turnover. At the sovereign level, a comprehensive disaster
risk finance strategy based on a risk-layering approach may enable the government to more cost-effectively and
efficiently cover its disaster risk financing needs.138 Given the low insurance penetration rate and limited growth of
the domestic insurance market, initiatives to broaden financial inclusion and develop catastrophic and other (non-
catastrophic) risk cover are needed to enable the private insurance market to support greater financial resilience. Box
7 provides an illustrative cost-benefit analysis to show how layering different disaster risk financing instruments would
improve Tunisia’s financial resilience to climate-related disaster risk. Different disaster risk financing instruments
have different cost-effectiveness for disasters of varying frequency and severity.
Tunisia would benefit from leveraging its existing social protection systems and building capacity to ensure a
quick response in the event of climate stress and shocks. Such a response could minimize the impacts of climate
change on people without exacerbating existing vulnerabilities.The country’s main social assistance program, AMEN,
maintains a database of poor and vulnerable households. The government successfully used this database to
provide social assistance to nearly a million additional households during the COVID-19 shock, demonstrating how
the system could be leveraged for future shocks, including climate stresses and shocks. 139 It would improve Tunisia’s
resilience if the database included all vulnerable households to facilitate early warning and a speedy response to
potential future shocks. Delayed social assistance or insurance disbursements can aggravate the human impact
and economic costs of a disaster. Improved targeting of financial risk protection schemes for health, especially the
free health insurance (Assistance Médicale Gratuite; AMG), would be possible by scaling up the AMEN program and
integrating the AMG into the AMEN targeting system.
136
The 2018 Local Government Code (Organic Law No. 2018–29 of May 9, 2018) has transferred a certain number of disaster risk management-
related prerogatives to municipalities, but decentralization has faced delays.)
137
The decentralization process was halted with the freezing of the activities of parliament in July 2021 (delay in laws of competencies transfer) and
with the dismissing of municipal councils in March 2023.
138
Tunisia is in the process of drawing up its NAP-food security component, which includes a feasibility study for the creation of a Climate Change
Adaptation and Resilience Fund to cover economic, environmental, and social issues.
139
The registry includes contact and geolocation information for surveyed households, facilitating early warning alerts and recovery initiatives in the
event of a natural disaster. The system also includes a mobile payment platform that further facilitates its responsiveness. At present, roughly 70
percent of the 900,000 households on the social registry have been surveyed and about 70 percent receive payments digitally.
33
Box 7: Illustrative disaster risk finance analysis
This analysis considers three simplified, illustrative options for disaster risk finance instruments that may be used
in combination with ex-post borrowing: Strategy A (reserve fund), Strategy B (reserve fund and contingent credit),
and Strategy C (reserve fund, contingent credit, and insurance). Different costs are associated with using different
financing instruments. For example, when using insurance, an upfront premium is paid.
The analysis assumes that government emergency funding needs are approximately 15 percent of the flood damages
modeled using a catastrophe risk model (in other words, approximately TD 30 million, TD 90 million, TD 200 million,
and TD 300 million for flooding with a return period of 5 years, 10 years, 15 years, and 20 years, respectively). The
funding available under the illustrative disaster risk finance instruments is TD 30 million from the reserve fund (to
cover approximately 1-in-5-year emergency funding needs), TD 60 million from the contingent credit line (to cover
return periods of approximately 5 to 10 years), and TD 55 million from the insurance layer (to cover half of the
financing needs for return periods of approximately 10 to 15 years).
One way of comparing different disaster risk finance strategies is to compare the expected cost of these strategies
at different magnitudes of losses. This can help determine where one strategy may be more cost efficient for the
government. Figure 26 presents the expected costs of different strategies in financing contingent liabilities for
different return periods. On average, there is a small opportunity cost savings for Strategy B and Strategy C compared
with Strategy A. The benefits, however, are substantially higher for more severe flooding (higher return periods), as
shown in 1-in-10-year flooding and 1-in-20-year flooding (for which the contingent credit and insurance instruments
contribute to meeting the funding needs). This highlights the potential for such instruments to provide a cost-effective
method for risk financing when combined in a risk-layering approach. These instruments can also help reduce the
need for budget reallocations following disasters, which can negatively impact welfare and increase budget volatility.
Figure 26: The expected cost of funding average, 1-in-10-year, and 1-in-20-year losses over the next year
under each of the modeled illustrative disaster risk finance strategies
Expected cost of funding loss
300
(million TD)
200
100
Average 1 in 10 year 1 in 20 year
Average A Strategy B Strategy C
34
Box 8: Strengthening workforce capacity to enhance resilience of urban and coastal zones
Tunisia’s current education system has limited capacity to provide the skills needed to enhance resilience to sea-level
rise and flooding. The development of these skills is already under way, although at a limited scale. A survey of 42
higher education and technical and vocational education training (TVET) institutions found that both types of institution
offer relevant programs (resilience to climate-related natural disasters; designing and implementing infrastructural
projects; green building architecture; geographic information systems [GIS]; urban and coastal planning; and the
environmental impact of land use and territorial planning).
Specifically, the survey found that, at university level:
• Roughly half of the universities polled provide relevant degree programs (42 programs in total)
• For Master’s, engineering, and Bachelor’s degrees, the most common relevant program focuses on climate change
broadly
• Between 8 percent and 50 percent of responding universities offer courses linked to the six relevant skills
• Capacity is more limited at TVET institutions, of which only one institution reported offering courses linked to only
three relevant skills (green building architecture, GIS, and the environmental impact of land use and territorial
planning) and general climate change.
3.2.3. Summary
Table 6: Costs of investments to increase resilience of coastal areas plus costs (in US$ million) until 2050
Investment costs up Investment costs Total investment

Engagement dimension Public or private
to 2030 2030-2050 costs
Protecting coastal
Public 1,373 785 2,157
zones against erosion 140,141
Protect critical infrastructure
Public 163 0 163
against climate shocks ,142,143
Total Public 1,536 785 2,320
140
The investment costs for each period (2030/2050/2100) (CC adaptation actions or capital expenditure [CAPEX]) are non-cumulative data. The total CAPEX 2050 does
not include the total CAPEX 2030. The estimate of the cost of each policy or investment action for adaptation was based on discounted unit costs (that is, in 2023 value).
No operating expense (OPEX) has been calculated. With regard to the prospective in dynamic mode (CBAM projection period year 0 to year 100): there is no integrated
discount rate, from year to year on the value to be invested smoothed per year. For example, the total investments to be made in 2030 seen above have been smoothed
over the period N0 to N30, linearly, without discounting, in current USD value (and not constant). Same for 2050 and 2100.
141
This includes investment in coastal zones against sea-level rise and diversifying the tourism sector.
142
The investment costs are CAPEX, discounted at 6 percent and represent additional climate action.
143
This includes investment in capacity building for local authorities and building resilience of road infrastructure.
35
3.3. Decarbonizing the Energy Sector
3.3.1. The costs of inaction in the context of a decarbonizing world
Without decarbonizing the energy sector, growing energy demand and continued dependence on fossil fuels will
likely keep prices high, in part due to exposure to international oil price fluctuations. The energy sector may become
stuck in a vicious cycle of deteriorating financial viability, which would limit its capability to invest in decarbonization
and would require a choice to be made between passing the costs to consumers or passing it to the government
(through subsidies). Energy affordability and competitiveness issues would be exacerbated. Industrial sectors in
Tunisia would also be affected by rapidly shifting consumer preferences towards more sustainable products and
services, as well as policies such as the European Union’s carbon border adjustment mechanism (CBAM).
Tunisia’s current account deficit and financing conditions may limit its ability to import the energy it needs to
meet growing demand, thus stifling economic activity. With a large structural current account deficit and limited
capital inflows (from both foreign direct investment and portfolio), Tunisia is expected to maintain large external
financing needs. Recent evidence has shown that financing these needs without accessing international capital
markets will become increasingly challenging, limiting Tunisia’s ability to import energy and other inputs for its
industrial activities. Projections carried out for this report suggest that, given prevailing current account deficit trends
and external financing conditions, Tunisia’s energy imports would have to be reduced by 3.5 percent to preserve a
level of foreign exchange reserves covering at least two months of imports.144 This energy supply constraint would
significantly affect production across all sectors. An analysis conducted for this report and based on World Bank
Enterprise Survey data suggests that doubling the number of power outages would reduce the value added by
Tunisian manufacturing and service companies by 8.7 percent.145 For households, it would mean reduced mobility
and comfort, since energy is a critical input for transport, cooking, heating, and lighting. Rationing energy and power
outages could incite social unrest in the country. An energy shortage would also generate large losses and inflation
at the macro level, as discussed in Chapter 4.
Failing to decarbonize the energy sector would lead to higher GHG emissions, making it difficult for Tunisia to
comply with its NDC obligations. The government’s SNBC&RCC 2050 points out that, under a business-as-usual
(BAU) scenario, net emissions would grow by 2.7 percent per year, reaching 78 million tons CO2 equivalent (CO2e) by
2050 (from 35 million tons CO2e today). Emissions from the energy sector would therefore be more than double the
current level. Using the latest Social Cost of Carbon figures, this implies an annual cost of US$6 billion (14 percent of
Tunisia’s GDP in 2020).146 The increase in emissions under a BAU scenario would also be associated with additional
ecological, social, and economic costs, such as increased air pollution, which adversely affects health. Even though
emission intensity would decrease, there would still be a significant increase in energy consumption (from 8 million
tons of oil equivalent today to more than 18 million in 2050).
3.3.2. How to decarbonize energy supply and demand in end-use sectors

Decarbonization of the energy sector depends on a two-pronged approach focused on decarbonizing demand
(especially the major energy consuming sectors of transport, industry, and buildings) and decarbonizing supply
(focusing on the electricity sector). The government’s SNBC&RCC 2050 expects energy emission reductions to
primarily come from the electricity sector (46 percent) and the end-use sectors (45 percent). This requires significantly
scaling up renewable energy use and improving energy conservation and efficiency in both the electricity production
and end-use sectors.147 Figure 27 summarizes the possible levers for achieving carbon neutrality.
144
Total imports should drop by 7 percent to maintain the minimum level of reserves. However, energy imports need to fall by less because they are assumed to be less
responsive to import restrictions as they are more crucial for the functioning of the economy.
145
Considering the relatively low average number of power outages reported by Tunisian companies (1.1 in 2020), a 3.5 percent drop in energy imports could be compatible
with a doubling of power outages.
146
The Social Cost of Carbon estimates the economic damages that would result from emitting one additional ton of CO2 (CPAT estimate of US$75/tCO2) to help understand
the economic impacts of decisions that would increase or decrease emissions.
147
Energy conservation entails changing behaviors and processes to consume less energy. Energy efficiency entails improving technologies and processes to use less energy
for the same output.
36
Figure 27: Levers for achieving carbon neutrality in the energy sector
Electrification/green
Energy conservation Energy efficiency Renewable energy
hydrogen
Energy demand: end-use sectors Energy supply: electricity sector

(transport, industry, buildings)
• Changes in behaviors and switch of economic • Reduction of losses

activities toward less carbon intensive • Energy efficiency (technologies)
• Energy efficiency (technologies) • Massive integration of renewable energy
• Electrification of usages/integration of green
hydrogen
• Direct use of renewable energy for thermal
applications
Source: Note sur la Stratégie Bas–carbone Tunisie.
Decarbonize energy demand in end-use sectors

Changing behaviors and production processes while improving energy efficiency so that less energy is needed per
unit of production or activity are the two most important decarbonization mechanisms across all end-use sectors.
The resulting decline in energy intensity would enable the country to decouple GDP growth from energy demand.
STEG estimates that, with these measures, final energy demand will grow by only 1 percent annually from 2022 to
2050, compared with 2.8 percent under BAU (Figure 28).
Decarbonization also requires increasing the penetration of electricity. This will allow for the shift to clean energy
because renewable energy can seldom be used directly, except when using solar energy to heat water or to dry items.
The share of electricity in final energy use in Tunisia was only 18.5 percent in 2021 (excluding losses), compared to
around 23 percent in Europe and 20 percent in the world on average (excluding Sub-Saharan Africa). An electricity
forecast prepared by STEG projects an electricity penetration rate of 54 percent in 2050 under the decarbonization
scenario (called “net zero” in the projection), versus 29 percent under BAU. Green hydrogen and its derivatives
(for example, ammonia), which can be produced using renewable energy, also help decarbonize sectors such as
transport and heavy industry. Higher penetration of electricity and hydrogen is expected to decrease primary energy
intensity by 3.2 percent annually, compared with 1.4 percent in a BAU scenario (Figure 29). The rest of this section
outlines strategies for decarbonizing the end-use sectors that consume the most energy (transport, industry, and
buildings).
37
Figure 28: Final energy demand by sector Figure 29: Final energy demand by sources
20 100%
18 90%
16 80%
Million tons oil equivalent
14 70%
12 60%
10 50%
8 40%
6 30%
4 20%
2 10%
0 0%
2019 2050 (BAU) 2050 (Net zero) 2019 2050 (BAU) 2050 (Net zero)
Industry Transportation Household Service Traditional fuels Electricity Solar thermal Fossil fuels
Motor fuels Feedstock Hydrogen
Source: STEG estimation
The “avoid-shift-improve” framework is useful in considering measures to decarbonize the transport sector.
“Avoid” refers to meeting mobility needs with fewer vehicular travels (for example, by digitalizing services, trucking
industry reforms to encourage consolidating demands, and urban planning). “Shift” refers to switching from the
currently dominant private car model to more sustainable modes, including walking, cycling, public transport,
and rail. “Improve” refers to increasing energy efficiency of vehicles and promoting electromobility and the use of
green hydrogen. These measures would require policy and reform measures that encourage behavioral changes to
be developed via thorough and sensible consultations with stakeholders. For sectors that possibly involve public
operators (for example, railways and public transport), regaining the financial sustainability of incumbent public
operators would be an important consideration alongside reform and investment measures.
Road transport presents opportunities such as:
• Improving motor vehicle fleet composition by enforcing emission standards
and the mandatory retirement of aged fleet
• Demand management measures such as congestion charging and road pricing
• Traffic management improvements such as intelligent transport systems and street parking.
The maritime and port sector is rapidly transitioning by improving fuel efficiency, increasing the use of green
fuels, and implementing energy efficiency measures at facilities. Seaports could further decarbonize by obtaining
power from renewable sources (such as solar panels) at their premises and building rooftops, with possible visibility
impacts. Decarbonizing the maritime sector would present an opportunity for Tunisia to position itself as a regional
enabler for stronger connectivity with Mediterranean basin countries and the rest of the world.
Promoting renewable energy and electromobility will be essential for a low-carbon transition in the transport
sector. Under the net-zero strategy, STEG assumes that all new car sales after 2040 are electric vehicles and there
is early retirement of conventional cars starting in 2035. Under such conditions, electric vehicles could provide 78
percent of intracity passenger mileage and 90 percent of intercity passenger transport mileage in 2050 under a
decarbonization scenario. In addition, green hydrogen would be used in buses and freight trucks. These estimates
are ambitious, given that electricity is almost non-existent in the transport sector and Tunisia has yet to develop a
hydrogen industry. However, Tunisia has the double advantage of extensive road networks and relatively concentrated
populations in few urban centers, which allows for the rapid rollout of charging infrastructure. Experience in regional
counterparts suggest that used car imports could serve as an entry point for electrifying motor vehicles. Tunisia
already has a sensible set of measures in place to manage the import of used cars, with a progressive-age tax and
age restrictions of five years. The United Nations Environment Programme has rated Tunisia’s vehicle regulatory
environment as “good”. To pave the way for a low-/zero-emissions fleet, Tunisia would benefit from, among other
interventions, enhancing regulations to ensure the quality of imported electric vehicles and investing in infrastructure
for electric vehicles.
38
Tunisia’s government could accelerate transport decarbonization by implementing concrete policies and initiatives
that send clear signals to the market and encourage the transition to a sustainable transport system. The effort to
decarbonize transport could usefully prioritize providing safe, reliable, green, and resilient public transport services
to encourage a shift from private cars. The National Agency for Energy Management (ANME) is already implementing
an electromobility promotion program and there are policies to encourage electric vehicle transition.148 However,
the related policies, initiatives, and investments need to be harmonized.149 The Ministry of Transport, the MoE, the
Ministry of Industry, municipal authorities, and ANME could usefully develop clear, time-bound, and specific policies,
regulations, and standards around electric vehicles and buses. Public transport is a suitable entry point for electrifying
motor vehicles because of its co-benefits, which include abating air pollution and enhancing vulnerable groups’
access to opportunities and services, so improving inclusiveness. Developing vocational training for e-technologies
will be essential for supporting the currently nascent e-mobility industrial and infrastructure ecosystem, while
materializing the job-creation potential of the transition. Public transport is also highly visible, creating opportunities
to promote the green transition of mobility. National and local government could identify options for grants or initial
subsidies for e-bus trials and incorporate plans into strategy documents that assign responsibilities and specify
timelines. For public transport more broadly, the GoT could establish a working group (consisting of the Ministry of
Transport, local authorities, bus operators, external experts, and public transport users) tasked with reforming public
transport business models, building institutional capacity, and collecting data. Promoting the use of railways would
require policy reforms, institution-building, and targeted investments to develop viable railway operators and improve
the performance and quality of railway services so that they may compete against more carbon-intensive modes of
transport. Incentivizing the switch from individual to collective transport and adopting urban and land-use planning
to reduce travel distance and incorporate collective transport could also be pursued. These measures would require
coordination between various government agencies.
For the industrial sector, cost-effective measures include improving production efficiencies, increasing the use of
alternative cleaner fuels (including renewable energy by switching to electricity and increasing the use of green
hydrogen in place of fossil fuels), reducing waste along product lifecycles, and carbon capture and storage (CCS)
for the remaining emissions. An example is the cement industry, which is responsible for 10 percent of national final
energy consumption and is a major emitter of GHG (accounting for 14 percent of national GHG emissions, including
energy and process emissions)150 that would be subject to the European Union’s CBAM.151 Replacing fossil fuels
with green hydrogen, reducing the amount of clinker, or capturing and utilizing carbon dioxide emissions are all
potential tactics for reducing GHG emissions in this sector. Changing the cement produced for types that do not
rely on burning clinker may also be a viable alternative. CCS is a proven technology that could offer a cost-effective
decarbonisation pathway.152 Another technology being investigated is the use of concentrated solar power to produce
high-temperature heat. Tunisia is also the world’s eighth-largest producer of phosphate rock and a significant
producer and exporter of fertilizers, for which the feedstock could be replaced by green ammonia.
Even though Tunisian companies are aware of climate requirements, there is limited climate preparedness. All
industries that consume more than 800 tons of oil equivalent per year are required to carry out an energy audit
every five years to benefit from a 70 percent subsidy. However, the obligation relates only to conducting audits and
not to implementing energy efficiency measures. ANME’s data indicates that the implementation of energy efficiency
investment programs has been limited due to lack of technical capacity and funding. The Energy Transition Fund
initially offered promising credit lines to industry, but its size and scope have been shrinking in recent years. The
World Bank Enterprise Survey found that about 77.5 percent of companies that emit carbon dioxide regularly monitor
their emissions. The main exception is the food industry, where only around 10 percent of companies have such
148
The program focuses on testing electric or hybrid vehicles in national transport, setting up charging infrastructure, training stakeholders on the technical aspects of
electromobility, setting up appropriate regulatory and fiscal frameworks, and formulating a strategy to develop electromobility in Tunisia.
149
For example, the Finance Act 2023 lowered the tax on the import of charging equipment for electric vehicles by 17 percent, while the Ministry of Industry announced an
incentive program with a TD 10,000 subsidy when replacing an internal combustion engine vehicle with an electric vehicle, while providing exemption from import duties.
39
measures in place. About one in three Tunisian companies (32 percent) reported monitoring energy consumption153.
Climate ambition in Tunisia’s private sector is low. Only about 1 percent of GHG emitters have committed to emissions
targets, and even fewer monitor emissions along their supply chain. About 16 percent of Tunisian companies have
implemented energy consumption targets, with innovative, large, or exporting companies scoring higher.
This points to a need for greater effort to mobilize energy efficiency measures, especially within the SME segment.
As noted above, climate preparedness and policy support (for example through subsidized energy audits) are more
prevalent among larger industrial companies. Decarbonization is likely to require a scaling-up of energy audits and
energy management systems; the implementation of new regulatory and innovative finance models to increase
energy efficiency investments; and new approaches to electricity delivery, including renewable energy self-generation,
and co-generation. These measures would also need to cover SMEs, which experience more difficulty accessing
technologies and finance. Another strategy would be to promote industrial zones to aggregate energy demand. The
energy forecast prepared by STEG (detailed below) anticipates a gradual reduction in energy intensity and increased
penetration of electricity and green hydrogen in major sectors, reducing the use of fossil fuels to less than 5 percent
by 2050.
The government has implemented successful programs to green the building sector, including rooftop solar PV
and solar water-heating for poor and vulnerable households. However, these programs face financial, technical,
and communication-related challenges that prevent them from reaching their full potential. Several independent
programs and regulations are in place to increase the use of renewable energy and improve energy efficiency
in the building sector. 154 The share of electricity was highest of all end-use sectors in the combined residential,
commercial, agriculture, and public sector, at 29 percent in 2021, whereas the share of electricity was 22 percent
in the residential sector 155 and 64 percent in the commercial sector, if these are considered separately from the
other sectors.156 There is further potential to substitute liquefied petroleum gas (LPG) and natural gas, which are
predominantly used for cooking and heating, with electricity. The most important decarbonization measures for the
building sector focus on improving energy efficiency through better insulation and by using more efficient appliances
for lighting, cooking, heating, and cooling (the government already has some exchange programs for refrigerators
and light bulbs). These measures could be enforced by:
• Implementing minimum energy performance standards and energy labeling for appliances
(such as refrigerators, air conditioners, heaters, and light bulbs)
• Rolling out building codes and labeling for new buildings
• Gradually retrofitting existing buildings, starting with major public buildings.
Adopting a holistic view of the transition in cities could exploit synergies across end-use sectors. A transition towards
compact cities is essential for reducing energy demand in transport and many urban activities. The World Bank
recommends an optimal urban population density of 9,000 inhabitants per square kilometer. Tunisia’s national
average urban population density is about 2,600 inhabitants per square kilometer (8.5 million inhabitants on 3,201
square kilometers).157 Denser urban populations allow for a reduction of urban sprawl. In addition to lowering traveled
distances, it also fosters the use of collective means, which require three times less energy.158 Decreasing the time
spent in traffic also improves inhabitants’ productivity (estimated at 2 percent of GDP).159 Compact cities further
result in lower energy demand for streetlights and better thermal regulation of habitats.
150
Emissions in the cement sector stem from direct emissions from decarbonizing the raw material (clinker) and indirect emissions from energy consumption (use of fuel to
generate heat for clinkers and of electricity for crushing and grinding raw materials and running pumps).
151
GIZ 2021.
152
International Energy Agency 2020.
153
The share is higher among large companies, those owned by foreign investors, or those exporting abroad. Only about 20 percent of smaller companies have such
processes in place.
154
These include the Tunisian Solar Program (PROSOL), established in 2005, which promotes the use of solar water heaters, and PROSOL ELEC, established in 2010, which
supports photovoltaic systems in residential buildings. In addition, Article 35 of Circular 87-47 grants an exception for loans to purchase equipment or products under
national programs (such as family computers and solar water heaters), for which the repayment period can be up to 5 years.
155
The share of electricity in the residential sector is 44 percent if biomass is excluded.
156
Ministry of Industry, Mines, and Energy 2023.
157
World Bank 2019b.
158
Pérez-Martinez and Sorba 2010.
159
World Bank 2019b.
40
Decarbonize electricity generation
Given the importance of increased electricity penetration and green hydrogen in achieving net-zero emissions in
the energy sector, decarbonizing electricity supply by ramping up renewable energy is critical and aligned with
the national energy security agenda. To prepare pathways for the decarbonization of the electricity sector, different
scenarios were investigated. A capacity expansion model (OPTGEN) and a dispatch model (SDDP) 160 were used to
prepare projections of power generating capacity and electricity production by type of technology until 2050 for three
scenarios: 161,162
• Scenario A: Least-cost scenario. This is an unconstrained optimized scenario in which the capacity expansion
plan is developed with no constraints on emissions. In this scenario, optimization starts in 2026, with projects in
the pipeline implemented between 2023 and 2026. Electricity demand grows following a BAU trajectory, without
additional energy efficiency and decarbonization of end-use sectors.
• Scenario B: Green scenario. In this scenario, constraints are imposed to decarbonize the electricity sector by
2050 (net CO2 emissions reach zero). Electricity demand is the same as in Scenario A.
• Scenario C: Green hydrogen and deep decarbonization (net zero) scenario. This scenario assumes increased
electricity penetration and deployment of green hydrogen in the building, industrial, and transport sectors,
which displaces the use of fossil fuels through the actions mentioned above.163 This scenario also assumes
that the switch to electricity prompts energy-efficiency improvements because electric equipment is typically
more efficient than fossil-fuel-driven equipment. This improvement in end-use efficiency offsets the increase
in electricity demand. Electricity demand (excluding electricity use for green hydrogen production) is therefore
projected to grow at the same rate as BAU, although the penetration of electricity is 54 percent of final energy
demand in 2050 (compared with 29 percent under BAU) (Figure 30).
Figure 30: Total electricity demand under the net zero scenario (Scenario C)
120
100
80
TWh
60
40
20
0
2019 2025 2030 2035 2040 2045 2050
Final electricity demand 19 22 28 35 45 55 65
Hydrogen production 0 0 1 4 13 27 49
Source: STEG projections.
160
For more details and model description, see the Energy technical note.
161
A scenario was simulated whereby the profile for renewable capacity follows the Tunisian Solar Plan rather than the optimum path. Details can be found in the technical
note but are not reported here, as results are suboptimal.
162
The three scenarios were chosen to investigate the cost of decarbonisation in the power sector. The assumptions used do not necessarily match those of the Energy
Strategy 2035 or the SNBC. One of the scenarios is a “least-cost solution with no carbon constraint”, to be able to compare results with a scenario of decarbonisation of
the power generation sector (with and without increased electricity penetration and the introduction of hydrogen). The present analysis focuses on the power sector as a
critical sector to reach carbon neutrality and does not assume overall carbon neutrality of the energy sector or the whole economy.
163
The scenario has been conservative in assuming only green hydrogen production for domestic use. Exports of green hydrogen could develop in the longer term if Tunisian
production proves to be competitive on world markets. This possibility requires further investigation.
41
In all scenarios, there is a massive switch from natural gas to renewable energy because solar and wind are the
least-cost solution for producing electricity. In all scenarios, most of the new power generation capacity is based on
renewables, which account for 77 percent of total capacity in 2050 in Scenario A, 81 percent in Scenario B, and 84
percent in Scenario C (compared with the government’s target of 80 percent). Some natural gas capacity is added
for the latter part of the forecast period, at which point some gas plants would have been retired and additional gas-
fired generation will likely be needed to enhance the flexibility of the power system, to complement other flexibility
measures such as battery storage and increased interconnections. In Scenarios B and C, the new gas-fired units are
equipped with CCS to respect the net-zero emissions target. Because of this target, Scenario B has slightly lower
gas capacity than Scenario A. This is offset by higher renewables capacity, particularly from solar. Given the higher
electricity demand for hydrogen production in Scenario C, the installed capacity is double that of Scenario B. It also
favors solar PV energy due to lower investment costs and the possibility of shifting hydrogen production to hours with
available sunlight. Natural gas accounts for an even smaller share of generation (less than 10 percent in Scenario B
and less than 2 percent in Scenario C). The Elmed interconnection could initially be used to import electricity until the
renewable energy potential is sufficiently developed. Towards the end of the forecast horizon, Tunisia would become
a net exporter of electricity under all scenarios. Exports are highest under Scenario C, since the development of
green hydrogen supports the higher installation of solar PV and provides flexibility during the summer months, freeing
some solar generation for export. To ensure power system flexibility to accommodate renewables, there is a need for
battery and pumped storage in all scenarios. The need for battery storage is lower under Scenario C because some
of the storage needs are provided by green hydrogen.
Figure 31: Installed capacity (Gigawatts) Figure 32: Power generation mix
70 100%
60
80%
50
60%
40
GW
30 40%
20
20%
10
0 0%
All Scenario Scenario Scenario Scenario Scenario Scenario
A B C A B C Scenario Scenario Scenario Scenario Scenario Scenario
All A B C A B C
2022 2030 2050 -20%
2025 2030 2050
Thermal 5,1 4,9 4,9 4,9 6,3 5,6 10,2
Solar 0,0 1,5 1,6 1,4 8,0 11,5 28,9 Wind Solar Thermal Italy
Wind 0,2 4,4 4,3 4,7 12,9 12,9 21,1
Source: World Bank staff estimation. Source: World Bank staff estimation.
The reduction in thermal generation reduces the need for natural gas, with positive outcomes for energy security
and the trade balance. From 4 million tons of oil equivalent today, natural gas consumption decreases to 1.8 million
in 2050 in Scenario A; 1.3 million in Scenario B; and 0.4 million in Scenario C. Therefore, the CO2 emissions are
already considerably reduced under Scenario A (to 3.7 million tons in 2050 from 8.3 today). By definition, they fall
to zero in Scenarios B and C.
Due to the large penetration of renewables (which are cheaper than thermal generation) and the improved efficiency
of power plants, it is expected that the average cost of electricity generation will decrease significantly, from the
average cost of thermal generation today to the average cost of renewable generation in 2050. The average cost
in Scenario B is slightly higher than in Scenario A due to the use of costly technologies such as batteries and CCS.
With higher penetration of solar and lower use of thermal power plants (hence CCS), the average cost of Scenario
C is comparable to Scenario A. This overall reduction would have important benefits for the financial viability of the
42
sector and the affordability of electricity, improving the welfare for households and competitiveness for businesses.
Chapter 4 explores the impact of the decarbonization scenarios in more detail.
Decarbonizing the electricity sector will require mobilizing significant investments in developing renewable energy
projects and integrating these projects into the grid. The sooner these investments can be secured, the sooner
the country will be able to kick-start its journey towards carbon neutrality and economic health, which in turn would
enable it to attract further investment to decarbonize its economy (a virtuous circle). There has been substantial
progress in terms of government policies and regulations since 2015, but the development of new renewable energy
projects remains limited and the current level of 467 MW installed is very far from the government target of 4,800
MW and the optimal of 5,900 MW by 2030. The following additional measures would support the rapid expansion
of renewable energy projects:
• Macro fiscal: Restore the financial viability of the sector, including reforms and the financial restructuring and
performance improvement of STEG. Provide payment guarantees as needed.
• Coordination: Put in place an interministerial committee and designate focal points at relevant ministries to
expedite and facilitate the necessary approvals along the procurement and development phases. Assign a STEG
team to support the Ministry of Energy.
• Procurement and project development procedures:
o For all regimes: Limit the number of permits required along the value chain. Establish clear procedures for
land access. Issue a renewable energy code including fiscal incentives for projects completed within agreed
timeframes.
o Concession regime: Improve the procurement documents to enhance project bankability.
o Authorization regime: Secure financing by better risk-sharing and assistance programs with local banks.
o Self-generation regime: Initiate corporate power purchase agreements for direct sales between a private
generator and an industrial or commercial customer. Introduce the concept of an aggregator for easier
financing, but also to better manage variability in load. Simplify the process and establish transparent tariffs
for wheeling.
• Regulations: Establish an independent regulator to ensure cost-efficiency and issue licenses for private generators.
It is important to rapidly improve the flexibility of the power system to better accommodate the integration of
renewable energy. This could be done through interconnections with neighbors, battery and pumped hydro storage,
and demand-side response (which is virtually non-existent at present). In addition, market design needs to ensure
proper renumeration of flexibility services. Plans are already in process to integrate the Tunisian power system with
that of Europe via Italy through the Elmed interconnector, which is expected to be commissioned in 2028. Throughout
the forecast horizon, the interconnection is expected to contribute significantly to the flexibility of the Tunisian power
system, as indicated by daily exchanges on the interconnector, which will change direction according to time of day
and season according to the supply/demand situation on both sides of the interconnector. The interconnector could
thus contribute to reducing renewable energy curtailments, accelerating decarbonization in a cost-effective way.
Ensuring integration and coupling between sectors would be key for efficient decarbonization in the country. Sector
coupling (the interlinking of energy supply and energy demand) is essential because end-use sectors could contribute
to balancing the electricity system through demand-side management. In some cases, end-use sectors could also
provide storage services, for example by using the batteries of electric vehicles when they are not in operation or
being charged. Sector integration (a coordinated approach to the gas and electricity systems) is already a practice in
Tunisia because the national operator is the same for both systems.
Tunisia could develop into a clean energy hub both for decarbonized electricity and green hydrogen. The development
of a green hydrogen industry is complementary to renewable energy, and hydrogen is an important energy carrier
for decarbonization. However, as Scenario C shows, this would require Tunisia to scale up renewable energy projects
even faster than its targets to be able to produce large volumes of green hydrogen before the end of the decade.
Some immediate potential actions include:
• Setting up an multisectoral Green Hydrogen Council that includes representatives from all relevant ministers and
43
key players in the private sector to steer the preparation and validation of the green hydrogen roadmap.
• Identifying demand clusters and key infrastructure to establish special green hydrogen zones with special
incentives.
• Establishing a regulatory framework and preparing certifications, norms, and standards for green hydrogen,
which is particularly important for exports.
• Securing financing.
Compressed gaseous hydrogen could be mixed with natural gas (at a proportion of 15 to 20 percent) and exported
via the existing Transmed gas pipeline to Italy, or in pure form via a dedicated pipeline to be built in future. The first
solution is the most likely and least expensive. If the cost of production in Tunisia is sufficiently competitive, then the
country could supply, through Italy, markets in Germany and Austria with a strong appetite for green hydrogen. Several
studies 164 and a roadmap (which is in preparation) see the export market for green hydrogen expanding rapidly
after an initial market catalyst through the local market in replacement for grey hydrogen165 (mostly for ammoniac
replacement in the phosphate/fertilizer sector).166
An integrated approach to energy and water management could help reduce risks on both fronts. As the country
increasingly relies on desalination of seawater and brackish water, the carbon intensity of the water sector could
increase. Massive development of renewable energy may then alleviate the water sector’s carbon footprint.
Generating power from renewable energy would reduce water stress as renewable energy requires much less water
than conventional thermal power generation because it does not need water for cooling. The development of green
hydrogen could be a source of additional water stress because it is produced through the electrolysis of water.
However, if using desalinated water, the development of a green hydrogen market could result in economies of scale
in water desalination, leading to cost reductions that would ultimately benefit water users. In addition, technologies
that produce green hydrogen through electrolysis of seawater or brackish water are being developed.
164
GIZ 2021b.
165
Grey hydrogen is created by reforming natural gas or methane and is emissions intensive. Green hydrogen is produced by electrolysis of water using renewables-based
electricity.
166
See the Background Paper for more details on export potential.
44
Box 9: Strengthening workforce capacity to develop renewable energy and improve efficiency
The shift towards clean energy has come with increasing demand for a qualified labor force in this field. The new
Energy Strategy for 2035 uses a general equilibrium economic model to forecast the cumulative creation of 70,000
additional jobs between 2021 and 2035. In addition, a green hydrogen roadmap (in preparation) foresees the creation
of an additional 65,000 jobs in the hydrogen sector by 2035, and another 400,000 by 2050. These jobs include
project managers, engineers, technicians, and workers who can design, build, operate, and maintain renewable
energy infrastructure.
Improving energy efficiency in buildings, industrial processes, and transportation will create a growing need for
professionals who can conduct energy audits; design and implement energy-efficient systems; and provide energy
management services. People should ideally be equipped to take advantage of these new job opportunities at all
levels. Highly skilled jobs like renewable energy engineers, electrical engineers, and other specialties are critical
for the development and innovation of renewable energy technologies. Medium-skilled jobs (like technicians) and
low-skilled jobs are also important for installing and maintaining renewable energy systems and energy-efficient
technologies.
At present, Tunisia’s university and technical and vocational education and training (TVET) institutions have relatively
higher capacity to provide higher-skilled degrees than those relevant for medium- and low-skilled jobs. Across 48
universities and TVETs, staff self-reported that the skills identified for relevant engineering and other higher education
degrees are well covered by their degree programs. Twenty-eight programs resulted in 4,460 graduates per year, with
more female than male graduates across these disciplines. However, coverage varies. For example, 328 graduates
are qualified in electrical engineering each year compared with only 14 in renewable energy. A mere 37 electrical
technicians are qualified each year. About 2,321 students graduate from technical-level training programs per year. A
notable gap at the technical level is in sales agents with specialized energy knowledge. Of the TVETs surveyed, there
were only 20 graduates in sales in the previous year.
Taken together, these provide a foundation of skilled people across the jobs needed for the energy transition. However,
the number of students graduating each year does not yet match the need.
To facilitate the development of a green workforce to meet the growing demand, it will be important to establish
common governance and planning across relevant stakeholders (for example, sectoral skills councils) and strengthen
linkages between the private sector and education or training institutions. These linkages could involve:
• Developing a common database to identify gaps between skills supply and demand
• Involving industries in preparing clean energy education or training curricula
• Arranging internships and practical skills training with industry for students
• Expanding training of trainers’ programs and certification to grow the pool of skilled workers.
3.3.3. Summary
The following table summarizes the investment and operational costs of producing and transmitting electricity
to meet national demand. Scenario A, as least-cost, serves as the reference scenario and shows that following
BAU and maintaining the current dependence on gas-based generation would be more costly. Although scaling up
renewables will likely require more upfront investments, it will save on operational costs. The costs of Scenarios B
and C, compared with Scenario A, can be seen as the cost of decarbonizing electricity supply for BAU demand and
additional demand from increased electricity penetration and green hydrogen. There is limited difference between
the three scenarios up to 2030. However, by 2050, the need for achieving net-zero emissions increases the need for
more renewables and CCS for the remaining gas power plants, which increases the costs for Scenarios B and C. The
costs of Scenario C are larger given the higher electricity demand.
45
Table 7: Costs of investment and operations to decarbonize energy sector (in US$ million) until 2050
Engagement dimension Public or private Up to 2030 2030–2050 Total costs
Scenario A: 4,457 Scenario A: 5,904 Scenario A: 10,362

Public Scenario B: 4,439 Scenario B: 6,962 Scenario B: 11,401
Scenario C: 4,427 Scenario C: 8,683 Scenario C: 13,110

Decarbonizing energy supply Scenario B: 6,792 Scenario B: 11,169 Scenario B: 17,961
Private
in the electricity sector 167 Scenario C: 7,383 Scenario C: 14,183 Scenario C: 21,567

Total Scenario B: 11,231 Scenario B: 18,131 Scenario B: 29,362
Scenario C: 11,810 Scenario C: 22,867 Scenario C: 34,677
Source: World Bank staff estimations.
167
The costs include capex and operating expenditure for generation and transmission (including storage, CCS for thermal power plants, and grid extension and reinforcement),
discounted at 6 percent, for the three scenarios. For Scenario C, the investment includes the cost of electrolyzers for green hydrogen production, but not the cost of
infrastructure for green hydrogen transport. The numbers only cover the costs in the electricity sector, not the investments or savings in end-use sectors. It is assumed
that, per the government’s plan, two-thirds of the generation investments will be carried out by the private sector, and the remaining generation and transmission grid
investments will be made by the public sector.
46
4. Building Macroeconomic, Financial, and Human
Capital for Climate Resilience
This chapter quantifies the macroeconomic and fiscal impacts of the climate stresses detailed in Chapter 3 before
analyzing to what extent the policies and investments proposed to offset these stressors would affect macro
estimates. It then looks at the role of both the public and the private sectors in financing and incentivizing the
climate actions needed to place the economy on a sustainable path. Finally, it discusses the challenges posed by
climate change to financial stability.
4.1. Macroeconomic Impacts of Climate Inaction

Modeling tools enable us to tease out the macroeconomic and fiscal impacts of the costs and benefits of climate
inaction versus climate action identified in Chapter 3. This analysis combines different modeling frameworks to
better capture the complexity of climate stressors and provide as precise an estimation of impacts as possible
(Box 10). Building on the findings in Chapter 3, it first estimates the extent to which water shortages could affect
the economy overall if not addressed. The estimated cost of inaction does not include decarbonization as this is
not determined by climate stressors. However, failing to decarbonize would result in a large opportunity cost, as
highlighted by the estimated impacts of climate action in Section 4.2.
Box 10: Combining models to estimate the economic impacts of climate change and
climate action
The CCDR combines the World Bank’s macroeconomic and fiscal model (MFMOD) with a state-of-the-art multisectoral
open economy model following Baqaee and Farhi (2021) that accounts for elasticities of substitution and reallocation
between different intermediate inputs. This framework helps provide a more realistic characterization of the
macroeconomic impacts of microeconomic shocks, such as energy and water shortages (Bachmann et al. 2022),
which are crucial to model climate shocks.
In the context of this CCDR, the Baqaee and Farhi model is used to compute the macroeconomic impacts of the
water shortage in non-agricultural sectors and of the energy shortage stemming from the external constraint (both
illustrated in Chapter 3). The impacts are measured in terms of a percentage reduction in sectoral as well as aggregate
real outputs. These losses are then used to feed the sectoral production functions in MFMOD by adjusting their total
factor productivity parameter to replicate the output losses. These changes produce shocks to the MFMOD, which in
turn generate the macroeconomic and fiscal outcomes.
4.1.1. The economic costs of inaction

The climate-induced water shortages projected in Chapter 3 are likely to have substantial detrimental impacts on
Tunisia’s economy and macro-fiscal balances. Compared with a baseline that draws on past trends, water shortages
would reduce real GDP by between 4.1 percent (in the RCP 4.5 scenario) and 4.6 percent (RCP 8.5 scenario) (Table
8). A sizable portion of these losses could materialize by 2030, when the economy is expected to shrink by between
2.0 percent and 2.7 percent relative to the baseline, equivalent to between TD 2.7 billion and TD 3.8 billion (US$0.9
billion and US$1.3 billion) per year. These losses are driven by the agriculture sector, which could see its value added
fall by between 10.3 percent and 19.3 percent by 2030, and between 24.0 percent and 27.3 percent by 2050. Water
shortages could also affect the industrial sector, whose GDP contribution may fall by as much 5.2 percent by 2050.
A decline in agricultural production would reduce net exports because imports would increase to bridge the resulting
supply-demand gap. As a result, the current account deficit would deteriorate by between 6.6 percent and 13.2
percent by 2030 (with the deterioration of the current account balance growing to between 20.7 percent and 24.8
percent by 2050). This would exacerbate Tunisia’s already fragile external balance. Nearly all key macro and fiscal
indicators would deteriorate, exposing the economy to an unprecedented and protracted crisis.
47
Sea-level rise and flooding could generate significant economic losses, although their magnitude may be lower
than losses due to water shortages. Simulations suggest mild losses from floods and sea-level rise for the RCP
4.5 scenario (0.1 percent of GDP by 2050). For RCP 8.5, this figure increases to 0.8 percent of GDP by 2030
which, if not addressed, would grow to 1.7 percent of GDP by 2050 (Table 8). These losses are driven by loss of
land, infrastructure, and buildings due to inundation (see Chapter 3) and could drive proportionate reductions of
investments and consumption. The former is likely to be slightly more affected due to a reduction in capital stock. All
sectors would be affected, with industry and services slightly harder hit than agriculture because capital losses are
expected to be concentrated in those sectors. The current account balance would improve slightly because imports
are projected to compress a little more than exports as demand falters. Similarly, the budget deficit would improve
as expenditure is expected to fall more than revenues in the medium-to-long term.
These effects combined would cause the economy to shrink by 3.4 percent of GDP by 2030 (close to TD 5.6 billion
a year in net present value). Together, water shortages, coastal erosion, and flooding shocks would reduce real GDP
by 3.4 percent in 2030 (RCP 8.5 scenario) compared with a baseline that is derived from past trends. The annual
losses would grow to 6.4 percent of GDP by 2050, or TD 10.4 billion (US$3.4 billion) in net present value terms
(Table 8). A large portion of these losses is driven by the impacts of water shortages. The agricultural sector would
be particularly affected, with its value-added declining 15 percent by 2030 (and 29 percent by 2050). A decline in
agricultural production would reduce net exports because imports would increase to bridge the resulting supply-
demand gap. As a result, the current account deficit would deteriorate by more than 6 percent in 2030.
Table 8: The macro and fiscal impacts of climate damage scenarios (percent deviation from baseline)
Water shortages Flood and sea-level rise Combined
RCP 4.5 RCP 8.5 RCP 4.5 RCP 8.5 RCP 8.5
2030 2050 2030 2050 2030 2050 2030 2050 2030 2050
Real GDP -2.0 -4.1 -2.7 -4.6 0.0 -0.1 -0.8 -1.7 -3.4 -6.4
Private consumption -1.5 -2.1 -1.9 -2.2 -0.1 -0.1 -0.9 -1.6 -2.4 -3.8
Government consumption -2.4 -2.6 -3.0 -2.7 -0.1 -0.1 -1.0 -2.1 -5.6 -9.0
Private investment -1.1 -3.2 -1.1 -3.5 -0.1 -0.1 -1.2 -1.9 -1.8 -5.4
Government investment -2.2 -3.6 -2.7 -3.9 -0.1 -0.1 -1.0 -2.1 -5.6 -9.0
Net exports -8.1 -34.4 -19.6 -41.7 -0.4 -0.2 -6.4 -1.9 -7.5 -19.6
Agriculture -10.3 -24.0 -14.3 -27.3 0.0 -0.1 -0.5 -1.0 -14.9 -28.6
Industry -2.1 -4.6 -2.8 -5.2 0.0 -0.1 -0.9 -1.9 -3.4 -7.1
Services -0.8 -1.1 -1.1 -1.2 0.0 -0.1 -0.8 -1.8 -1.8 -3.0
Current account balance* -6.6 -20.7 -13.2 -24.8 0.2 0.2 3.2 1.7 -6.5 -9.4
Fiscal revenues -1.7 -2.9 -2.2 -3.2 0.0 -0.1 -0.8 -1.7 -3.0 -5.4
Fiscal expenditures -1.8 -3.2 -2.3 -3.6 0.0 -0.1 -0.8 -2.0 -5.0 -10
Budget balance* -2.9 -6.2 3.6 6.9 0.0 -0.3 -0.1 -4.9 -22.8 -48.8
Public debt# -3.6 -7.0 -5.0 -7.8 0.0 -0.2 -0.8 -2.6 -7.4 -22.2
* Positive numbers signal an improvement of the balance (that is, a reduction of the deficit), while negative numbers signal a deterioration of the deficit.
# Positive numbers signal an increase in the public debt (in percentage points of GDP).
48
4.1.2. The economic and welfare benefits of actions to mitigate and adapt
The high costs of climate change demonstrate the importance of not only adapting the economy but also of
bringing it to a sustainable path. Chapter 3 identifies a wide array of actions—both policies and investments—to
address water shortages and inundation from flooding and sea-level rise. Many of these actions are likely to be
needed in the short term, which could provide rapid relief for an ailing economy. The chapter also discusses options
for decarbonizing the energy sector, which would bring benefits through multiple channels. This section combines
the macroeconomic and fiscal (MFMOD) and Baqaee and Farhi models to quantify the impacts of these actions.
Decarbonizing the energy sector would allow the country to largely address the external imbalance, while generating
large emission reductions and significant economic gains. As discussed in the preceding chapters, external financing
constraints have started to limit Tunisia’s ability to import. It is plausible that this constraint will become tighter if
no action is taken to redress external imbalances.168 Energy imports account for almost three-quarters of the trade
deficit. By replacing natural gas with renewables to generate electricity, the contemplated decarbonization scenarios
allow for enough of a reduction in energy imports to relax this external constraint.169
Table 9 presents the output response (relative to the baseline scenario) for the three decarbonization scenarios
described in Chapter 3: the least-cost scenario (Scenario A); the green scenario, which entails net-zero emission
within the electricity sector (Scenario B); and the green hydrogen and deep decarbonization scenario, which entails
developing green hydrogen technology and increased electrification and energy efficiency in end-use sectors
(Scenario C). All scenarios lead to economic gains relative to inaction, with the economy expected to be larger by
between 1.1 percent (least-cost scenario) and 1.75 percent (deep decarbonization) by 2030. The GDP impact of
Scenario C is largest in the short term (GDP 1.75 percent larger by 2030) because end-user sectors are likely to
benefit from enhanced decarbonization policies, resulting in lower energy costs.170 While all sectors benefit, industry
and agriculture perform particularly well given their greater energy dependence compared with services. Scenario
C entails a reduction in net exports as import demand increases due to the large real income effects of declining
production prices (linked to lower energy costs). Public debt increases in all scenarios, but not significantly because
most decarbonization investments are expected to be shouldered by the private sector.
168
Modeling suggests imports should be reduced by 7 percent to maintain foreign reserves at a minimum level of two months of import cover. This rationing is considered in
the reference scenario and generates economic losses compared to a baseline of no external constraint.
169
This also involves an increase in capital investments, which are assumed to be funded by foreign direct investment and that would lead to an increase in electricity imports
as the current large-scale IPP tariff is indexed up to 80 percent to foreign currency. However, this import increase would be considerably smaller than the reduction in gas
imports to produce electricity.
170
The model assumes that investments by end-user sectors are equivalent to 120 percent of the expected energy cost savings from decarbonization of production (for
example, energy savings technology or shifting away from fossil energy towards renewables). The 120 percent reflects the penalty of credit market frictions, which do not
allow to borrow fully against future profits realized through savings.
49
Table 9: Macro impacts of decarbonization scenarios (percent deviation from baseline)
Scenario C:
Scenario A: Least-cost Scenario B: Green
Deep decarbonization
2030 2050 2030 2050 2030 2050

Real GDP 1.06 1.45 1.11 1.40 1.75 1.40
Private consumption 0.5 1.2 0.9 0.9 3.1 7.9

Government consumption -0.6 -0.1 -1.0 -0.1 -1.3 0.0
Total investment -1.4 1.9 -1.1 1.1 0.1 -1.8
Net exports 28.7 -6.4 21.8 -2.0 -12.8 -89.9
Agriculture 0.3 0.9 0.3 0.8 3.2 5.6

Industry 1.2 1.7 1.3 1.7 1.8 1.2
Services 1.1 1.4 1.2 1.4 1.5 0.9
Current account balance* -0.8 -5.3 -3.9 -7.0 -28.2 -84.9
Fiscal revenues 0.7 1.3 0.9 1.1 2.4 4.1

Fiscal expenditure 1.3 2.9 1.1 3.5 2.4 4.5
Budget balance *
-6.9 -16.4 -3.6 -23.7 -2.5 -8.4
Public debt #
1.0 2.7 0.9 2.9 1.5 1.7
Notes:
Scenario A: the capacity expansion plan is developed with no constraints on emissions and optimisation starts in 2026, with projects in the pipeline implemented between
2023 and 2026. Electricity demand is assumed to follow business as usual (BAU), without energy efficiency and decarbonization of end-use sectors.
Scenario B: Constraints are imposed to decarbonize the electricity sector by 2050 (net CO2 emissions reach zero). Electricity demand is the same as in Scenario A.
Scenario C: Increased electrification and deployment of green hydrogen in the building, industrial, and transport sectors, which displaces the use of fossil fuels, through the
actions mentioned above.
Reforms and investments to address climate change are also expected to yield huge benefits to the economy,
particularly the agricultural sector. The actions envisaged to fight water shortages have particularly high returns
because they allow both an increase in the availability of water and substantially reduce the amount of water per
unit of output, particularly in agriculture. This would facilitate the increase of production and exports, effectively
accelerating economic growth. The gains from reconstruction after flooding and for adaptation to coastal erosion
are also important, but more limited. If all actions to adapt to water shortages, flooding, and coastal erosion were
implemented, GDP would be 7.7 percent larger than in the RCP 8.5 inaction scenario (the “Combined” scenario in
Table 8) already by 2030, and a full 9.9 percent larger by 2050 (Table 10, Scenario D). More than half of these gains
are accounted for by growth of the agricultural sector, which is the main water user and beneficiary of actions to
address water shortages. Boosted by the increase in agricultural and, to some extent, industrial production, exports
are expected to increase faster than imports so that net exports account for between 25 percent and 32 percent
of the economy’s growth. In the absence of compensatory fiscal measures, public debt is expected to increase by
between 25 (by 2030) and 54 percentage points of GDP (by 2050) as the large investments associated with this
scenario are assumed to be shouldered by public expenditures. That could be well beyond Tunisia’s borrowing ability,
but the scenario is indicative of the huge potential gains from addressing climate stressors.
50
Combining the adaptation measures with the most ambitious mitigation policies yield similar economic impacts
while achieving the net-zero goal. Adding the mitigation policies of the deep decarbonization scenario (Scenario C)
further accelerates economic gains. As a result, GDP would be almost 9 percent larger than in the inaction scenario
already by 2030 (Table 10, Scenario E). The acceleration is mainly driven by net exports because the decarbonization
policy reduces energy imports in the short term, even as increased domestic demand (due to decarbonization) is
mainly covered by domestic supply buoyed by the adaptation policies. At the same time, exports are expected to
increase (relative to Scenario D) as the productive sectors benefit from lower energy costs. Eventually, these effects
are likely to peter out and, by 2050, net exports would be at the same level as in the inaction scenario in Table 8.
The public debt increase is slightly higher than Scenario D because part of the decarbonization strategy is financed
by debt. The key benefit of adding mitigation to adaptation is the massive reduction in emissions already by 2030
(-78 percent), which eventually reach zero by 2050. This could entail additional economic benefits in terms of lower
negative externalities from pollution and in terms of direct earnings, should an effective international carbon credit
market materializes. None of these benefits are considered in the results, which can therefore be viewed as lower-
bound estimates.
Table 10: The macroeconomic impacts of adaptation and mitigation (percent deviation from RCP 8.5 inaction scenario
unless otherwise indicated)
Addressing water shortage, floods, and

coastal erosion + deep decarbonization
coastal erosion (Scenario D)
(Scenario E)
2030 2040 2050 2030 2040 2050
Real GDP 7.7 8.0 9.9 8.8 7.9 9.1
Private consumption 4.0 2.9 5.3 3.8 2.8 8.2
Government consumption 14.4 13.5 15.3 4.5 8.1 9.8
Private investment 1.7 6.5 9.2 1.1 1.7 2.4
Government investment 5.9 8.2 9.8 -4.3 9.5 18.9
Net exports 60.8 47.1 33.1 164.2 73.1 0.6
Agriculture 53.4 68.2 83.8 55.0 68.0 82.3
Industry 6.9 9.1 11.2 7.3 8.8 10.1
Services 2.6 1.0 2.0 3.9 1.0 1.3
Current account balance (GDP p.p.)* 2.8 2.4 1.5 5.9 2.1 -2.9
Fiscal revenues (GDP p.p.) 1.5 1.5 2.0 1.5 1.6 2.3
Fiscal expenditure (GDP p.p.) 4.9 5.2 5.5 4.7 6.0 6.5
Budget balance (GDP p.p.)* -3.5 -3.7 -3.5 -3.2 -4.4 -4.1
Public debt (GDP p.p.)# 24.7 44.2 54.3 19.8 45.0 57.8
CO2 emissions 1.0 1.3 2.7 -78.1 -93.5 -98.3
Notes:
• GDP p.p. indicates deviations from inaction scenario in percentage points of baseline GDP.
• Scenario D models all the climate damages (water shortage, sea-level rise, and flooding) included in the combined scenario in Table 8 along with the full set of
interventions to address these damages discussed in Chapter 3.
• Scenario E models all the climate damages (water shortage, sea-level rise, and flooding) included in the combined scenario in Table 8 along with: (i) the full set of
interventions to address these damages discussed in Chapter 3 and (ii) the actions to achieve the full decarbonization of the economy as per Scenario C in Table 9.
51
The large gains of the combined adaptation and mitigation actions translate into a significant reduction in poverty.
Inserting the macro results into the poverty simulation model ClimSim allows for a simulation of the poverty impacts
of climate actions. The results suggest that adaptation measures have significant poverty-reducing effects due to
higher private consumption growth and greater output in all sectors. As a result, poverty is lower (by between 2.5
and 3.6 percentage points) by 2050 in the case of both adaptation measures (Scenario D) and adaptation plus deep
decarbonization (Scenario E), when compared to the inaction scenario (Figure 33).
Figure 33: The distributional impacts of adaptation and mitigation measures
0.0
2020 2030 2040 2050
-0,5
-0,1
-1,5
-2.0
Scenario D
-2.5
-3,0
-3.5
Scenario E
-4.0
4.2. Financing Climate Action

While the economic and environmental benefits of climate actions are clear, identifying how the investments
underlying these actions might be financed is crucial given Tunisia’s limited access to international financing. A
significant share of the funding for adaptation will need to come from public investments, while decarbonization
investments will likely stem from public and private sources, as highlighted in Chapter 3. The Tunisian government
struggles to finance investments, given large recurrent expenditures in the budget (which equal 112 percent of
revenues and grants) and constrained access to international financial markets. As a result, public debt financing is
unlikely to enable the investments needed for the climate transition. Similarly, Tunisia remains a marginal destination
for foreign direct investments and portfolio flows are virtually nonexistent. This section discusses potential fiscal,
financial, and private sector policies to address these gaps.
4.2.1. Fiscal policies

Given constraints to debt financing, fiscal policies—especially those that aim to reduce expenditure—could help
finance the public investments needed for Tunisia’s climate transition. Reducing expenditure, including energy
subsidies, represents a significant opportunity to leverage Tunisia’s own resources. These subsidies (which target
fuels, LPG, electricity, and natural gas) account for a large share of GDP (5.3 percent of GDP in 2022). They are also
largely regressive, generate negative environmental externalities, and keep energy consumption artificially high. At
the same time, the current Tunisian context makes it difficult to leverage additional tax revenues to fund adaptation
needs. Tax revenues are already high (as a share of GDP) and any additional taxes or tax-rate increases are likely
to have limited short-term impacts as they may affect demand if not well targeted. To the extent that additional
taxes could be considered, carbon tax, capital income tax, and property tax would be the most promising. Taxing
production on the basis of carbon intensity is an efficient way to internalize pollution externalities and could be
effective at raising revenues, given the relatively low administrative complexity of production taxes. The adoption
of a carbon tax is also aligned with the GoT’s broader objective of developing carbon pricing instruments, notably
through a carbon tax system on energy consumption and a crediting system for GHG mitigation in the electricity and
the cement sectors. Taxing capital income is also a potentially useful tool to raise revenues and increase the equity
52
of Tunisia’s tax system, which currently weighs considerably more on labor than on capital.171 Recurrent property tax
could be another effective way to increase the equity of the tax system (given its inherent progressivity) and would
enable targeting of a significant portion of the wealth of high-income individuals. Relieving macro-fiscal constraints
would also enhance investor confidence and the business environment, so facilitating private sector investment.
Tunisia’s current fiscal structure is at odds with the need for climate action because it does not sufficiently tax
polluting activities while subsidizing carbon-intensive consumption. The large energy subsidy is driven by fuels and
LPG, which account for almost 60 percent of total subsidies (Figure 34). Even before the 2022 increase, Tunisia had
one of the highest levels of energy subsidies relative to GDP in the world and was one of the very few countries that
does not export energy while having energy subsidies of above 3 percent (Figure 35). At the same time, the country
has a relatively low level of environmental taxes. The pre-COVID (2018–2019) average net balance of tax-explicit
subsidies was 1.8 percent of GDP, equivalent to US$850 million in 2022 GDP terms. Although the country does tax
polluting activities, rates are relatively low and are subject to many exemptions and relief. For example, while the
general value-added tax (VAT) rate is 19 percent, diesel, kerosene, and heavy and light fuel oil benefit from a reduced
rate of 13 percent. Low-voltage electricity for residential use also benefits from this reduced VAT rate.172
Figure 34: Tunisia’s energy subsidies (as a percent of GDP)
Fuels & LPG Electricity Natural gas

6%
5%
4%
3%
2%
1%
0%
2015 2016 2017 2018 2019 2020 2021 2022
Source: Ministry of Finance
171
Tunisia is the developing country with the largest difference between effective labor and capital tax rates, according to data from Bachas et al. (2022).
172
Specific taxation exists to finance the Energy Transition Fund, which replaced the National Fund for Energy Efficiency in 2014. However, the rate is very low. The following
energy products are exempted: bottled LPG, natural gas for social tranche (monthly consumption <300 thermal units), and electricity for social tranche (monthly
consumption <100 kWh). Other products are also subject to an energy transition tax (for example, there is a lump sum on cars, air conditioning, lamps, or used engines).
However, the rate of taxation is low and not able to sway consumer behavior.
53
Figure 35: Comparison of fossil fuel subsidies and environmental taxes:
Tunisia versus global (percent of GDP in 2019–2018)
Total Explicit Fossil Fuel Subsidies Average 2018-2019, % of GDP
Total environmental Taxe average 2018-2019, % GDP
Note: Orange dots indicate net energy exporting countries with average energy subsidies above Tunisia’s value.
Green dots indicate net energy importing countries with average energy subsidies above Tunisia’s value.
Source: Parry et al. 2021.
Tunisia’s energy subsidy policy generates more negative environmental externalities than those it internalizes
through taxation. The local consumption (and production) of fossil fuels generates negative externalities such as
local pollution and global warming, which are not explicitly valued in monetary terms. When considering the implicit
economic losses that these externalities generate, the net environmental balance of Tunisia’s fiscal policy worsens
considerably. The externalities associated with energy subsidies (implicit subsidies) are estimated at 7.4 percent
of GDP for 2021–2022 (around US$3.7 billion), and 6.5 percent of GDP in the pre-COVID period. These reflect the
impacts of global warming (2.9 percent of GDP), foregone VAT revenues (2.6 percent), local air pollution (0.8 percent),
and increased road accidents (0.2 percent) (Figure 36).173 In 2019, the latest year for which both environmental
tax and energy subsidy estimates are available, the cost of implicit and explicit energy subsidies amounted to 9.8
percent of GDP, which dwarfed the revenue from environmental taxes (1.4 percent). The negative net fiscal balance
incentivizes polluting activities at the expense of more environmentally friendly investments.
173
The estimates are based on the data of the Climate Policy Assessment Tool (CPAT) with the following underlying data and assumptions. Global warming costs: Based on
the damage per ton CO2 (set at a social cost of carbon fixed at US$75 in 2030) together with the level of Tunisia’s CO2 emissions. Foregone VAT: Based on the supply
cost augmented by all externalities (assuming the general VAT rate of 19 percent). Local pollution: Based on the averted mortality using the value of the statistical life, a
measure of the rate at which individuals are willing to exchange money to reduce small risks of death within a certain period of time, and the average ambient air pollution-
attributed mortality per µg/m3 with ambient PM2.5 (contributed by one unit of fuel used). Road damage: Based on fuel price elasticities of vehicle kilometers traveled.
54
Figure 36: Implicit and explicit fossil fuel subsidies versus environmental taxes (as a percent of GDP)
6% Road accident
Pollution
5%
4%
Potential Natural gas
VAT
3%
Electricity
2% Energy tax
Global
warming
Fuels
1% & LPG
Transport
tax
0%
Implicit subsidy Explicit subsidy Tax
Note: Explicit subsidy is a monetary cost for the state aimed to reduce the price of a fossil fuel for its users. Implicit subsidy is the economic costs
associated with the externalities generated by the additional consumption of fossil fuels due to the explicit subsidy. These externalities include:
increased global warming; reduced VAT; increased local pollution and road accidents.
Source: World Bank staff calculations; Climate Policy Assessment Tool (CPAT); Parry et al. 2021.
The structure of environmental taxes and subsidies also contributes to reducing the fiscal space needed to invest in
mitigation and adaptation. Environmental taxes represent a mere 6 percent of total tax revenues, contributing little
to create the needed fiscal space.174 On the other hand, energy subsidies account for 15 percent of expenditures (and
19 percent of revenues), so shrinking the fiscal space for alternative investments. Just bringing the environmental
net fiscal balance to zero would add around US$1.1 billion annually, part of which could finance mitigation and
adaptation investments.175 Reducing subsidies to zero—while keeping environmental taxes as they are—would
increase the available annual government budget by around US$2 billion.176
Phasing out energy subsidies while protecting the affected vulnerable groups and raising environmental taxes are
crucial for Tunisia from both an economic and an environmental point of view. Chapters 1 and 3 have made the case
for more sustainable energy public expenditure particularly by gradually phasing out energy subsidies. Such reform
would have to be accompanied by compensation for the vulnerable groups affected by the higher energy prices due
to the reform. Environmental tax reforms are desirable for at least three reasons.177 First, they ensure that market
prices reflect the costs of environmental externalities, so generating efficiency gains. Second, by realigning price
incentives, environmental taxes can minimize the economic costs (or raise economic activity) of reducing pollution
in the economy. A carbon tax would reinforce incentives for behavioral changes and energy-efficiency improvements.
Third, environmental taxes can raise domestic revenues at a lower cost than other taxes. 178
174
Figures are based on pre-COVID (2018–2019) averages, which are the latest available.
175
The calculation is based on the report’s estimates of energy subsidies and environmental taxes for 2023.
176
Part of this additional budget could be used to incentivize the development of renewable energy generation, including by shouldering some of the costs involved in such
development.
177
Pigato 2019.
178
OECD 2018.
55
Modeling results suggest significant gains from lowering recurrent public expenditures and the increasing in taxes
on carbon and capital income. The simulations presented in Table 11—which are based on the MFMOD and Baqaee
and Farhi model (Box 10)—show that both a carbon tax and an energy subsidy phaseout, along with direct capital
income taxes, yield economic gains by avoiding the need for the country to resort to costly debt financing of adaptation
and mitigation investments.179 This is reflected in Scenario F, which is based on a full adaptation policy addressing
water shortages, floods, and coastal erosion risks.180 This yields the largest economic gains of all scenarios by 2050
as the Tunisian economy is expected to be 10.8 percent larger than in the inaction scenario. Public debt still grows,
but much less rapidly than in the corresponding scenario in Table 11. Given the massive economic gains, this growth
appears sustainable from a financing point of view. As in Table 10, even in this scenario (Scenario F), net exports are
a key driver of growth, along with government consumption boosted by additional fiscal revenues. On the other hand,
higher taxes and lower recurrent expenditure reduce private consumption. In Scenario G, where decarbonization
is added to adaptation, this effect neutralizes the import-demand effect of decarbonization on end-user sectors.
As a result, net exports continue to increase throughout the period with a sustained improvement in the current
account balance. As in Table 10, the second scenario yields more rapid growth by 2030. However, the higher tax
burden funding both adaptation and mitigation weigh on consumption, eventually moderating the gains relative to
the first scenario and risking adverse impacts on poverty. Even in Scenario G, however, the economic gains remain
very significant (8.8 percent GDP growth by 2050). In addition, debt growth appears relatively sustainable while
maintaining the goal of net-zero emissions by 2050.
179
A capital income tax appears more beneficial than other forms of revenue-generating taxes because they would rebalance the tax burden, which is currently skewed in favor
of capital.
180
This scenario assumes a gradual subsidy phaseout over five years and a carbon tax that grows from zero to US$20 by 2030. After 2030, the models assumes that a direct
income tax commences to cover the remaining financing gap of public investments in adaptation and (for the second scenario) mitigation.
56
Table 11: The impacts of financing climate action through fiscal policy (percent deviation from RCP 8.5 inaction
scenario unless otherwise indicated)

coastal erosion + deep decarbonization
coastal erosion (Scenario F)
(Scenario G)
2030 2040 2050 2030 2040 2050
Real GDP 7.1 8.4 10.8 8.2 7.4 8.8
Private consumption -6.1 -13.9 -19.8 -1.6 -4.9 -2.9
Government consumption 27.2 34.3 47.6 23.8 23.7 24.0
Private investment 7.4 12.7 18.3 0.5 2.8 5.6
Government investment 6.5 7.8 8.9 -3.8 10.0 19.2
Net exports 182.4 193.4 225.6 187.9 125.7 85.9
Agriculture 53.4 68.2 83.8 55.0 68.0 82.3
Industry 6.3 8.9 10.8 7.0 8.4 9.8
Services 2.8 1.1 2.2 4.1 1.2 1.4
Current account balance (GDP p.p.)* 8.6 12.8 16.3 6.9 5.6 3.1
Fiscal revenues (GDP p.p.) 6.9 7.7 8.6 4.8 5.4 6.7
Fiscal expenditure (GDP p.p.) 6.5 7.9 9.9 5.5 6.9 7.8
Budget balance (GDP p.p.)* 0.4 -0.2 -1.3 -0.7 -1.4 -1.2
Public Debt (GDP p.p.)# 5.4 12.1 24.2 8.5 20.1 26.6
CO2 emissions -1.8 0.4 6.4 -78.1 -93.5 -98.3
Notes:
• GDP p.p. indicates deviations from inaction scenario in percentage points of baseline GDP.
• Scenario F models all the climate damages (water shortage, sea-level rise, and flooding) included in the combined scenario in Table 10 along with the full set of
interventions to address these damages discussed in Chapter 3
• Scenario G models all the climate damages (water shortage, sea-level rise, and flooding) included in the combined scenario in Table 10 along with: (i) the full set of
interventions to address these damages discussed in Chapter 3 and (ii) the actions to achieve the full decarbonization of the economy as per Scenario C in Table 9.
• All scenarios assume additional taxes and public expenditure cuts to finance the additional investments to address the damages and decarbonize the economy.
4.2.2. Promoting public investment

Ideally, a large share of the estimated required investment would come from the private sector (with appropriate
incentives). However, several areas will probably still depend on public investment. These relate to investment in
public infrastructure (for example, water provision, coastal management, the transmission network for integration
of renewable energy, the public transport and railway system, and efficient and resilient public buildings) and social
expenditures needed to support the poor and vulnerable (see Section 4.4).
Tunisia is taking steps to better integrate climate indicators into public financial management. The MoE, in
coordination with the Budget by Objective Unit (Ministry of Finance), has initiated preparatory work to integrate climate
indicators emanating from national climate policies and targets into the performance indicators of all objective
management units in key sectors. This would improve ownership and monitoring and evaluation of priorities.
57
Developing a climate project database would promote public finance for adapting to climate change. Sectoral
priorities (for example coastal protection and disaster risk management for agriculture, water, tourism, industry,
and transport) are often mentioned in national climate policy documents, but these orientations are not reflected
in sectoral strategic documents. Neither are they followed in terms of development of investment portfolios and
project requests. Instead, climate change budgeting and accounting at the Ministry of Finance has mostly been on
a project-by-project basis. Additionally, there is no legal or institutional framework for climate-sensitive accounting.
A comprehensive public financial management framework that captures climate change planning and actions (from
budgeting to execution to reporting) would support informed and transparent decision-making.
There is no methodology to prioritize climate projects in the current budget allocation system (such as the “tartib”
system). The 2021 and 2022 budget circulars by the head of government mention that priority should be given to
climate change-related projects. However, specific guidelines on this process are yet to be developed. Tunisia’s legal
framework does not require climate change screening and evaluation for proposed infrastructure projects. Rather,
this is done on a project-by-project basis, depending on donor requirements for projects that are externally funded.
Mainstreaming climate change objectives in public procurement would have a significant positive impact. Public
procurement in Tunisia accounts for about TD 15 billion (US$5 billion) annually, which is nearly 13 percent of GDP
and 40 percent of the state budget. Given the size and scale of public procurement, green public procurement
could contribute substantially to net-zero emissions by 2050. Despite a few initiatives such as requiring feasibility
studies for the construction sector and the elaboration of an action plan for sustainable public procurement (2019),
implementation is lagging. The legal procurement framework mentions sustainable procurement as a key objective
but does not provide additional guidelines. In particular, the integration of evaluation and award criteria for public
contracts related to sustainable development (life cycle cost and environmental factors) are not yet developed, and
the online public procurement system does not yet allow for the disclosure or tracking of green procurement.
SOEs such as STEG and SONEDE are key to Tunisia’s adaptation and mitigation objectives and could spearhead the
adoption of sustainability standards in their operations, and of climate-related disclosure in their annual reports.
Tunisia’s regulatory framework does not require climate reporting, and research carried out for a forthcoming World
Bank report found no mention of climate impacts, risks, or mitigating measures in the most recent annual reports
of state-owned banks, Entreprise Tunisienne d’Activités Pétrolières (ETAP, the Tunisian Company of Oil Activities),
SONEDE, or ONAS. Climate change reporting is an emerging opportunity in corporate reporting, both globally and
in Tunisia. STEG is developing an action plan for climate governance that aims to improve its capacity to track its
investments in renewable energy, the climate resilience of its assets, and other metrics. The action plan also aims to
identify physical risks in STEG’s operations for its customers, the regulator, and the electricity market.
Municipalities have a key role to play in leveraging finance for climate adaptation. Tunisian cities, which are poised
to play a critical role in ramping up climate action, often lack technical expertise and financial resources to develop
collaborative and integrated climate action plans. Opportunity exists to reinforce the capacities of Tunisian cities,
support existing initiatives (such as the Municipality of Tunis’ upcoming climate action plan), and facilitate their
access to climate adaptation finance by raising awareness and creating linkages with global trust funds that focus
on city-level climate resilience (such as the City Climate Finance Gap Fund, the City Resilience Program, and the
Resilient Cities Network).
4.2.3. Green finance

Even with decisive government action, attracting private, bilateral, multilateral, and international market financing
remains key to meeting Tunisia’s large climate investment needs. These needs are recognized in the NDC and
could take the form of concessional lines of credit, grants, foreign direct investment, and innovative financing via
carbon markets. Private actors are expected to finance a significant share of NDC actions, mainly through climate
investments. Adopting ambitious green finance policies would support these investments.
58
Cognizant of these needs, Tunisian authorities have been pledging to develop green capital markets since at least
2016. The Tunisian capital market authority signed the so-called Marrakech Pledge in 2016, a continental coalition
of African Capital Markets Regulators and Exchanges committed to “act collectively in favor of fostering Green Capital
Markets in Africa”. In 2021, the securities regulator Conseil du Marche Financier published the “Guide for Green,
Social and Sustainability Bonds”. The guide aimed to disseminate best practices for the selection, evaluation, and
reporting of bond issuances so that reasonable assurance could be given on the use of their proceeds. Also in 2021,
the Tunisian Stock Exchange published an ESG reporting guide intended for listed companies.181 The Ministry of
Finance has further communicated its intention to launch a national sustainable banking framework in the coming
years and to formulate a climate finance policy.
These commitments have translated into little progress so far, and Tunisia’s climate and green finance market
remains nascent and underdeveloped. As of January 2023, no outstanding ESG-linked debt instruments were
recorded in Tunisia, according to the International Institute of Finance’s Sustainable Debt Monitor.182 This is in
contrast with regional markets where, as of October 2022, Turkey, Egypt, and Morocco had about US$25.4 billion,
US$3.2 billion, and US$268 million in outstanding sustainable debt, respectively.183 This gap is consistent with
the Sustainable Banking and Finance Network’s assessment that Tunisia is in the earliest development stage for
sustainable finance (at “commitment”), as indicated in its 2022 Country Progress Report. Progress has also been
limited on the concessional financing front. Between 2009 and 2020, Tunisia secured about US$5.3 billion in
climate financing commitments from bilateral, multilateral, and philanthropic partners, of which only 11 percent
was provided as concessional funding through grants.184 Because actual disbursements have been low in Tunisia,
investments stemming from these sources is likely to have been limited thus far too.
The challenging macro-financial environment is a key barrier to the development of Tunisia’s green finance market.
Tunisia’s macroeconomic crisis and debt sustainability concerns have limited the country’s access to international
capital markets. This has increased concerns of capital outflows, which have further limited the convertibility of the
local currency. As a result, local players have been hindered from accessing (concessional) funding from development
banks. New foreign investment has also been stifled due to high-risk perceptions relative to other destinations.
Tunisia’s bank-dominated financial sector is highly exposed to the state, making it vulnerable to debt repayments.
Capital markets (debt and equity) are small and shallow, restricting diversification of funding and access to long-
term finance. Institutional investors are few, pension funds have debts (instead of reserves to invest), and there is
virtually no life insurance. The small private equity market is dominated by the subsidiaries of commercial banks,
and there is a lack of financial instruments for risk management, with an underdeveloped insurance sector. Equity
capitalization is relatively small: Tunisia’s stock market provided 9.1 percent of corporate financing in 2019, and
financial institutions still dominate market capitalization with a share of 42.3 percent, according to the Financial
Market Council annual report. These issues, both conjunctural and structural, will probably not be solved in the
short term. While access to financing remains limited and expensive for both the public and private sector, it may be
necessary to increase the availability of concessional and grant funding for priority sectors.
Tunisia’s public and private sectors have developed limited instruments to unleash green finance and there is a
lack of eligible, bankable projects. Tunisia lacks a national climate finance strategy to accurately measure its climate
investment needs and provide the market with certainty around regulatory changes. Both the state and businesses
have failed to develop a substantial pipeline of bankable projects that can meet investors’ financing requirements.
The absence of a national sustainable taxonomy in Tunisia adds to the challenge because potential investors are
181
The ESG Reporting Guide covers the principles of the Sustainable Stock Exchanges Initiative of the United Nations and the usefulness of the corporate social responsibility
approach and ESG reporting. It also provides practical recommendations for their implementation. The guide is based on the Global Reporting Initiative standard, the
recommendations of the World Federation of Exchanges, the SDGs, and its national version, the National Governance Framework.
182
The sustainable debt monitor is based on Bloomberg data and covers 141 emerging and frontier markets. ESG- or sustainability-linked financing typically refers to the use
of financing instruments tied to the sustainability performance of the issuer, such as sustainability-linked loans and sustainability-linked bonds, including green bonds.
183
These figures only include the issuances captured by Bloomberg data. The actual level of green financing might be higher. Measuring the value of green finance remains a
common challenge, as the absence of consistent standards or certifications makes it difficult to establish the global “ESG” asset size, with estimations ranging from US$3
trillion (J.P. Morgan 2019) to US$35 trillion (Global Sustainable Investment Alliance 2020).
184
Initiatives include the Sustainable Use of Natural Resources and Energy Finance (SUNREF) project, supported by the French Development Agency, which is enabling the
development of a green loan offering by commercial banks. While this is still nascent (18 projects financed so far), it is a positive first step towards developing the green
loan market.
59
unable to incorporate sustainable principles into their capital allocation processes. As a result, projects are not being
promoted as “green” with investors.185 Moreover, there are few financial instruments and mechanisms in place to
lower Tunisia’s investment risks, and no government-sponsored financing schemes to support the investment risk
linked to financing the green transition.
It would be useful and relevant to explore the real potential of compliance and voluntary carbon markets in Tunisia
and identify the preconditions that would enable sound, structured, and sustainable growth of such markets. Key
barriers that limit their development include the lack of a proper system to monitor and evaluate mitigation and
adaptation actions carried out at the national and sectoral levels; challenges linked to ensuring environmental,
financial, and markets’ integrity; and the inherent pricing complexity of voluntary carbon markets. The capacity of
banks requires development to scale up bond issuances in general, and green bonds in particular.186 These factors
compound the already high-risk perception of green investments to further constrain private sector climate and
green financing. 187
Addressing these issues requires concerted and decisive efforts by both the government and the financial sector.
These efforts should ideally focus on the following objectives:
• Develop a national sustainable finance strategy, coordinating policies, and regulations for sustainable finance goals
• Deepen skills and local capacity to support efforts to meet domestic climate goals and scale up sustainable finance
• Develop a national sustainable taxonomy classification of economic activities that can be considered environmentally
sustainable to support transparency and disclosure in reports
• Introduce and test new green finance instruments
• Create an enabling platform to aggregate projects into bankable portfolios and provide technical assistance to
project owners
• Increase access to concessional and grant fundings for priority sectors
• Channel resources from multilateral development banks and international financial institutions through, for
example, concessional finance, credit guarantees, securitized products, hedging, or risk-sharing arrangements
• De-risk investment through well-established and stable legal and regulatory frameworks for adaptation and
decarbonization investments.
4.2.4. The role of the private sector

Besides providing financing, the private sector is crucial for developing the required technologies and skills to
implement climate action. This highlights the need to tackle constraints blocking its potential. The private sector
could be instrumental in making production processes more climate-friendly; developing and maintaining activities
that are resilient to new climate conditions (see Chapter 3); and developing the skills and inputs needed for the
transition to a more sustainable path. Yet, despite many strengths—an educated and trained workforce, investment
in high-quality infrastructure, and Tunisia’s strategic location—the country’s private sector appears to lack dynamism.
Since 2011, investment and company entry rates have fallen, while foreign direct investment and productivity growth
declined and companies became less export-oriented. As noted in the forthcoming Country Private Sector Diagnosis,
the presence of regulatory distortions, widespread state presence, and protected domestic markets are key
contributors to lacklustre performance of the private sector.188 These factors are further compounded by political and
macroeconomic uncertainty that together discourage foreign direct investment at the needed levels, underscoring
the importance of blended finance and guarantee instruments to crowd in this important source of capital.
Steep restrictions to investments and competition need to be addressed to revitalize the private sector and unleash
the climate transition. Tunisia attempted several economy-wide reforms in recent years, including reducing barriers
185
For Tunisian potential issuers, this implies relatively higher costs for launching green bonds, given that non harmonized reporting and external review requirements are
more complicated and expensive (BIS 2021).
186
The Tunisian Central Bank is part of an initiative on “Capacity building and development of a roadmap for the use of green bonds in Tunisia”, in collaboration with ANME
and GIZ.
187
Uncertainty about future climate policies, technological costs (with lack of track records for new technologies), high transaction costs, long payback periods for green
investments, and high upfront costs often result in insufficient returns for existing risks, which increases the real and perceived risks of green projects overall.
188
World Bank Group (Forthcoming).
60
to foreign investment, simplifying business registration, reducing subsidies, and signing performance contracts with
state-owned enterprise. However, SOEs still often compete against private companies from an advantaged position.189
This is especially the case for infrastructure sectors, which are important for the climate transition. While competition
in typical infrastructure sectors is limited by high fixed costs and other natural entry barriers, Tunisian regulations
make it difficult for energy, transport, and communications companies to enter market segments where competition
would be viable. Entry is further hampered by excessive technical requirements, direct restrictions on investment,
and regulations for interconnectivity and access to infrastructure. Conditions for new entrants are made more difficult
by the absence of tariff regulations in upstream markets. In the energy sector, access to infrastructure by third-party
operators is not legally guaranteed, and there is no requirement to unbundle production, infrastructure, and retail.
Beyond infrastructure, other restrictions block the emergence of a more vibrant private sector. Import tariffs and non-
tariff barriers stifle competition in domestic markets, while interest-rate caps and heavy dependence on collateral
reduce access to finance for small businesses, women, and youth. The intent of many regulations—such as those
supporting SOE participation in commercial activities, administered prices, and command-and-control measures—
is to promote greater equity and protect the population’s welfare. In some ways, these goals have been achieved.
However, these measures are often second- or third-best responses. By implementing policies that do a better job of
targeting the problems that they aim to resolve, it would be possible to preserve welfare without repressing private
activity.
Decarbonizing key export sectors and integrating them into green value chains would be important for ensuring
future international competitiveness.190 Tunisia possesses pockets of competitive export industries that can be
integrated into green value chains. An analysis of Tunisia’s competitive strengths associated with products in
green value chains highlights, for example, that the electronics sector is well poised to tap into these drivers of
growth. Understanding the area in which each extensively traded industry and sector is carbon-competitive is critical
for tapping into opportunities stemming from the global decarbonization agenda. Lowering the carbon content
of such export sectors would ensure future competitiveness in the global trading system. Tunisia could turn the
implementation of the European Union’s CBAM into an opportunity to expand its exports.191
The new PPP framework could help the private sector partner with the state to develop the infrastructure needed
for the climate transition. Given the limited financial viability of SOEs, private sector involvement is likely to be crucial
for filling the investment gap in the utility sectors. Recent developments in Tunisia’s PPP framework, coupled with the
fact that the NDC has indicated that a large share of climate investment should be directed to the energy sector,192
suggests that the country is open to greater private sector participation in the energy transition. This would require
a more open market with flexible arrangements for the sale of electricity and ancillary services between public
and private actors. This also applies to the water sector, where PPPs could help secure non-conventional water
resources. This is reflected in Tunisia’s PPP project pipeline, which includes several desalination and wastewater
treatment plants. The private sector investment potential in the water sector is estimated at between US$2.9 billion
and US$3.4billion. 193 Most of this will probably be used to develop large-scale desalination plants for the agriculture
sector.194 Public sector and international financing could be leveraged in blended finance approaches, such as
through guarantees with subsidies, to encourage further private sector participation.
189
This is despite some recent positive steps towards improved transparency and governance, and benefit from support that is not available to private competitors (such as
state aid, preferential treatment, or restrictive entry regulations for new entrants).
190
The Green Value Chain Explorer referenced above assesses countries’ competitive strengths and potential opportunities in products associated with the solar, wind, and
electric vehicles value chain. For more information, consult Mealyl and Rosenow (forthcoming).
191
While the commodities under the proposed CBAM coverage comprise less than 2 percent of Tunisia’s exports to the European Union, decarbonizing production could help
Tunisia expand its range of exports to the region.
192
In the case of the updated NDC, 82 percent of climate investment should go to the energy sector, of which 40 percent would be needed for energy efficiency measures, 30
percent for renewable energies, and 11.5 percent for strengthening the electrical infrastructure.
193
United Nations Development Program 2020.
194
United Nations Development Program 2020.
61
4.3. Financial Stability in the Face of Climate Risks
While a shift toward decarbonization policies and investments is likely to yield benefits in the long term, there
are financial stability risks during the transition process. These risks fall into two broad categories: physical risks
(stemming from the impacts of climate change) and transition risks (financial risks resulting from the decarbonization
transition). For the financial sector, transition risks could materialize through various channels. For instance, the
global shift away from a carbon-based economy raises the risk of stranded assets. The significant exposure of
Tunisia’s financial sector to the public sector, along with high macro-financial risks and elevated financial sector
vulnerabilities, exacerbates the potential impact of extreme climate events for the financial system.
Almost a fifth of lending in Tunisia is concentrated in areas with high flood risks, although the impact of flood
damages on the banking sector is expected to be low. Although more than 40 percent of credit exposures are
concentrated in Tunis, which has a relatively low flood risk, about 18 percent is located in the six governorates with
the highest flood risk.195 Of the six governorates with the highest flood risk based on modeled damage ratio (Manouba,
Jendouba, Beja, Bizerte, Ariana, and Medenine), Ariana has the highest concentration of lending exposures (12
percent of total end-2021 exposures), while lending exposures in the other governorates is lower (between 0.2
percent and 2.7 percent). A micro-level banking-sector vulnerability assessment indicates that the impact of direct
damages due to floods on the banking sector are likely to be relatively modest. Across the banks modeled, the
impact of a 1-in-100-year flood in all governorates on non-performing loans is relatively small (increases of less than
0.3 percentage points, though with substantial variability between banks), as is the estimated bank-level capital
adequacy rating impact (decreases of less than 0.15 percentage points). 196
Coastal flood and erosion risks may be transmitted to the financial sector via several channels, including via
the impacts on tourism in coastal areas. Based on data from Banque Centrale de Tunisie (BCT, Central Bank of
Tunisia), in 2021 about 85 percent of productive lending was located in coastal governorates. Loans to the tourism
sector (accommodation and food services) constituted approximately 6 percent of total productive lending in Tunisia
and were also concentrated in coastal governorates (95 percent of tourism sector loans). For some banks, this
percentage was as high as 13 percent. Not all exposures in coastal governorates were in areas that are likely to
be directly impacted by coastal flooding and erosion. Nonetheless, the initial analysis of banking sector exposures
indicates potential for considerable risk from coastal flooding and erosion.
The portfolio of Tunisian banks includes multiple sectors that could be directly or indirectly exposed to drought and
water scarcity risks, although the severity of potential impacts may be relatively modest for agricultural lending.
This is due to the low proportion of lending to agriculture, which is one of the sectors most directly at risk from
drought. Based on data from the BCT, agricultural loans constituted about 3 percent of productive lending in 2021,
with no bank exposed to more than 8 percent. However, banks may also be affected by droughts and water scarcity
directly through other water-intensive sectors and indirectly through effects on the economy.
Banks’ exposure to transition-sensitive sectors is potentially material in Tunisia, representing 38 percent of total
lending. Transition-sensitive sectors (industries that are large carbon dioxide emitters relative to their production, that
is, they have high emission intensity) 197 include electricity, transport, and utilities, while manufacturing, agriculture,
and mining and quarrying are regarded as moderately transition sensitive. The manufacturing sector accounts for the
bulk of exposure (35 percent), while exposure to highly transition-sensitive sectors is limited (4 percent). Exposure
to the electricity sector—which may be the most transition-sensitive of all the sectors considered—is negligible, at
0.3 percent. Consistent with these figures, individual banks’ exposure to transition-sensitive sectors ranges from 32
percent to 52 percent. Some banks are more exposed to certain transition-sensitive sectors, which could be a source
of risk should transition policies target a particular sector.
195
Data from the Central Bank of Tunisia indicates that more than 42 percent of lending exposures (end-2021) for which location is reported are in Tunis. However, this could
be partly due to lending companies being headquartered in Tunis, while production facilities may be located across the country.
196
While these initial modeled estimates may be seen as non-material, it is important to note that the analysis relies on substantial assumptions and does not consider flood
impacts beyond the direct damages modeled using a flood catastrophe risk model.
197
Sectoral GHG emission intensity data is extracted from the World Bank’s Prototype Emissions Intensity and Trade Exposure Country Comparison Tool, which uses 2014
Global Trade Analysis Project emissions and production data.
62
The potential impact of climate-related physical and transition risks on the Tunisian banking system calls for a solid
regulatory and supervisory framework. The Central Bank of Tunisia could conduct a more granular assessment of
the financial sector’s exposure to climate risk than what is offered here to raise awareness and build capacity, both
internally and within the financial sector. This assessment would inform dialogue between stakeholders and support
the improvement of risk-management practices, with the objective of integrating climate-related financial risks into
the supervisory framework in the longer term. This work could be considered in the broader context of the multiple
challenges faced by the financial sector, also noting the potential for climate-related risks to compound other risks to
which the banking sector is highly vulnerable.
4.4. Empowering and Protecting People in the Climate Transition

Preparing people for the jobs needed to realize a green economy and building people’s resilience to new climate
realities will be of paramount importance in future. Alongside educational reforms, strong health and social
protection systems are critical cross-cutting priorities for the adaptive capacity of Tunisia’s people. Ultimately, the
well-being, livelihoods, and aspirations of individuals and communities are at stake.
Emergency preparedness, including prepared health systems, helps maintain access to basic services while
minimizing the negative impacts of quick-onset climate shocks. Tunisia’s emergency financing, management
policies, and health response systems to climate stress were all ranked as “developing” in a joint 2023 analysis
by the GoT and the World Bank.198 While the national budget has a line item for “unforeseen and unallocated
expenditures”, to which about 1.6 percent of annual expenditure is allocated, health is not explicitly mentioned and
the processes for determining and allocating these funds at the sectoral level are not clarified. The Ministry of Health
also faces substantial constraints in terms of epidemiological surveillance and early warning systems. Public financial
management and procurement policy bottlenecks at the Ministry of Health further restrict a rapid response to climate
disasters. Even though the Ministry of Health has agreements with 14 other ministries within the International Health
Regulations framework, the focal points of these ministries have no decision-making power. Collaboration is largely
for monitoring, and the multitude of decision-makers across different functions without the presence of coordination
mechanisms has hindered effective and timely decision-making. Health system preparedness would build resilience
to the direct and indirect health risks of climate change.199
Developing appropriate skills is another imperative. Having the right skills and capacity across skill levels could
contribute the success of the climate transition itself. This starts with integrating climate change education into the
national curriculum and raising public awareness about climate change to empower individuals to make informed
decisions, act, and foster a culture of resilience and sustainable development. Without concerted effort across
education and training institutions—which would benefit from being closely linked to private sector demand—Tunisia
will not have a qualified workforce to do the jobs its climate goals require. The GoT has made important strides in
buildings its research and development capacity and has committed to prioritizing investment in human capital
for green jobs, including through a proposed Center of Excellence for Renewable Energy, which is envisioned as a
hub for training and skills development for the African continent that meets international quality standards.200 To
further support evidence-based climate change solutions through research and development, Tunisia could scale
activities such as climate modeling and forecasting, studying the impacts of climate change on vulnerable sectors
like agriculture and coastal areas, developing climate-resilient technologies and practices, exploring renewable
energy options, and assessing the effectiveness of climate change mitigation and adaptation strategies.201
198
World Bank (Forthcoming). The “Tunisia Pandemic Preparedness Assessment” methodology looks at 99 indicators of health system preparedness and ranks them on a
four-tier scale as “beginning”, “developing”, “emerging”, or “mature”.
199
Flooding can impact human health directly through drowning or traumatic injuries and ecological health risks due to increases in vector- or water-borne diseases, and
indirectly by affecting mental health, access to nutrition, and food security. These disasters can directly affect the health system’s ability to respond to the existing disease
burden by damaging health infrastructure.
200
In 2022, Tunisia was ranked 12th out of a total of 132 countries in terms of quality scientific production and placed 5th globally in terms of graduates in STEM. Tunisia’s
research capacity on climate change is reflected in the establishment of dedicated research centers and laboratories, collaborations with international institutions, and
the engagement of universities in climate-related studies. Chapter 3 (Boxes 6, 8, and 9) outline remaining skills gaps for the transition.
201
Such research and development is already taking place at the National Center for Research in Materials Sciences, the Biotechnology Center of Sfax, and three centers of
Borj Cedria (Centre for Research and Water Technologies, Center for Energy Research and Technologies, Biotechnology Center), to name a few. Scaling support to such
research centers will be important in the short and long term.
63
The measures discussed above could play a crucial role in mitigating distributional impacts. However, it is imperative
to prioritize vulnerable groups and women. Strengthening social protection systems and ensuring equitable access
to resources, health systems, and education could provide a strong foundation for those who are likely to be most
affected by climate change. Policies that prioritize these vulnerable populations and provide targeted support to
regions and groups facing the greatest climate risks are needed. This includes recognizing and addressing the
gender-specific impacts of climate change and promoting gender equality by ensuring women’s participation in
decision-making processes and providing equal access to resources and opportunities.
Finally, transparency for non-state actors can help realize the “whole of society” paradigm for climate action. This
could entail: (i) organizing iterative outreach campaigns on climate change tailored towards the information needs
of respective stakeholders, including vulnerable groups; (ii) setting up a resourced, national-level multistakeholder
network to collaborate on climate change policy planning and monitor climate change commitments, targets,
and financing; and (iii) providing support for program investments and technical assistance for community-based
interventions for climate change mitigation and adaptation.
64
5. Summary of Solutions
Tunisia is a country with tight fiscal space, numerous development gaps, and jarring climate impacts. This report
identifies the costs of inaction while highlighting the huge potential benefits of addressing climate impacts and
decarbonizing the economy. Tackling climate challenges will decrease the costs for the economy, resulting in
massive economic gains and enabling Tunisia to achieve its development goals. The recommendations highlighted
would allow the country to focus its public expenditure on investments with high economic and social returns while
leveraging the private sector for additional investments, so creating jobs and increasing fiscal space. As an example,
a profound structural transformation of the energy sector is expected to have significant additional benefits in terms
of new jobs relating to the clean energy value chain while spurring innovation and entrepreneurship and opening
new export opportunities. Achieving the goals of this report would allow for the more sustainable use of water, land,
and energy resources, while reducing wastage and leveraging Tunisia’s large renewable resource potential.
In light of Tunisia’s current macro-financial constraints, the CCDR also proposes a condensed package of urgent
actions that are affordable while delivering high impacts in the near term. The package is built around two key,
urgent objectives for the Tunisian economy: addressing water shortages and transitioning the energy sector from
fossil fuels to renewables. Because Tunisia cannot currently expand its debt, the country would also need to urgently
pursue a third objective: creating the right macro-financial conditions for public and private investments to fund
these objectives (Figure 37).
Figure 37: Recommended high-impact actions with near-term benefits for a green, resilient, and inclusive transition
Transitioning energy Creating the right

Addressing macro-financial conditions for
water scarcity supply from fossil fuels to
renewables public and private investments
• Control water demand • Enhance coordination and • Redirect recurrent public

through pricing and streamline the development expenditures (including
metering methods. of renewable energy, including expenditures on fuels and
coordinating approvals at the electricity) towards the most
• Modernize, rehabilitate, Council of Ministers level, limiting urgent public adaptation
and extend water networks the number of authorizations investments.
to reduce water losses required, establishing clear
and waste, and improve procedures for land access, • Enhance private sector entry
network monitoring and securing financing and for green activities, including
management through guarantees for better risk- eliminating preventative
digitalization of the water sharing, and restoring the prohibitive authorizations,
sector. financial viability of the sector. sectoral specifications (cahier
de charges), capital outflow
• Incentivize (for example • Develop adequate technical restrictions and non-tariff
through subsidies and and market conditions to barriers; simplifying
tax incentives) and provide flexibility services investment authorizations,
invest in protection to facilitate large-scale especially around clean energy;
and rehabilitation of renewable energy integration, and reducing the regulatory
ecosystems, especially including storage, demand- power of the
watersheds, oasis side response, regional sectoral incumbent.
ecosystems, forests, and electricity market integration,
wetlands. and transmission network
reinforcement where required.
65
Table 12 summarizes all actions identified in this report, creating a roadmap to sustainable development while
rationally managing climate change-related physical, transitional, and financial risks. This Country Climate and
Development Report presents three key objectives to pursue and describes an enabling macroeconomic and
institutional framework. Each objective is underpinned by engagement dimensions that, if pursued, could support
the country in shifting onto a climate-resilient development pathway. To highlight the impact and feasibility of the
identified recommendations, they were assessed along six dimensions.202 The ones in bold are considered high-
impact actions that could be pursued in each of these objectives in the short-term.
Table 12: Recommendations for a green, resilient, and inclusive transition
Recommendations
Development impact (DI) Very high High Moderate
Climate benefits (CB) Very high High Moderate
Financial feasibility (FF) Affordable Moderate Costly
Political economy (PE) No/little resistance Moderate High resistance
Readiness (RE) Very high High Moderate
Urgency (UR) Very high High Moderate
Recommendations DI CB FF PE RE UR
1. Address water scarcity
1.1. Increase water supply and enhance water management
Control water demand through pricing (tariff review and enforcement) and metering method.
Modernize, rehabilitate, and extend water networks to reduce water losses and waste, and
improve network monitoring and management through digitalization of the water sector.
Expand and improve the quality of the supply and distribution of non-conventional water sources
such as treated wastewater and desalination, including through the promotion of PPPs.
Protect water (including groundwater) against misuse and agricultural pollution, including by
establishing safeguard zones and by revising, approving, and implementing the new Water Code.
Improve water management by developing action (contingency) plans during drought period
and by carrying out a water withdrawal inventory.
1.2. Increase the resilience and efficiency of the agricultural sector and leverage nature-based solutions
Incentivize (for example through subsidies and tax incentives) and invest in protection
and rehabilitation of ecosystems, especially watersheds, oasis ecosystems, forests, and
wetlands.203 Implement widespread sustainable land-use planning, water management
practices,204 and agroforestry.
Develop and promote205 usage of, and research in, climate smart agriculture and animal
husbandry, including innovative irrigation technologies206 and agricultural drainage (notably oases).
Fight against food loss and waste all along agriculture, fisheries, and livestock value chain
segments, including at distribution and consumer stages.
202
The assessment was based on professional analysis by team members.
203
For instance, establishing forest belts can protect dams from siltation and enable the recharge of aquifers, and incentivizing afforestation and reforestation through
subsidies and tax incentives can increase surface water and foster carbon sinks.
204
Including soil and water conservation techniques (such as contour farming, terracing, and mulching), the use of native species, and so on (see Chapter 3).
205
This includes raising farmers’ awareness of water scarcity and training them in new irrigation practices.
206
Examples include irrigator helplines for irrigation management to enhance irrigation efficiency.
66
2. Enhance the resilience of urban and coastal areas
2.1. Defend coastal zones against sea-level rise and flooding
Prepare and implement participatory integrated coastal zone management plans and protect
coastlines through soft (for example, beach nourishment or installation of ganivelle fencing)207
and nature-based defense solutions.
Freeze construction in affected natural space/urbanized areas and, if needed, protect
urbanized areas through additional sustainable hard defense solutions (breakwaters).208
Preserve ecosystem services in coastal areas by developing a sustainable coastal tourism and
diversified tourism offering
2.2. Protect people and infrastructure
Transfer governance of disaster risk management to municipalities and identify infrastructure

of critical importance (such as schools and hospitals) for retrofitting or upgrades.209
Develop asset-management systems and plans for essential infrastructure that incorporate
climate risks and optimize operations and maintenance lifecycle costs.
2.3. Enhance social protection and develop risk-based insurance themes
Further advance disaster risk financing (DRF), including: capacity building, formalizing a DRF
strategy, implementing a public fi-nance mechanism,210 and expanding the scope of financial
protec-tion by enabling the local private insurance sector to supply cov-erage (including index
insurance).
Strengthen targeting arrangements for ensuring improved access to financial risk protection
and ensure linkages between social registry and insurance eligibility. Maintain enough
emergency contingency resources to quickly respond to climate-related shocks.
Strengthen early warning systems and conduct a functional re-view of coordination

mechanisms for emergencies to prepare an emergency preparedness and response plan211
and streamline emergency response.212
3. Decarbonize the energy sector
3.1. Decarbonize demand in the end-use sectors
All sectors: Enforce the existing legal framework for energy efficiency/conservation213 and
implement energy conservation/efficiency programs with demonstrable effects (for example,
in public buildings, public lighting, and public transport). Encourage the use of renewable
energy in all sectors (for example, solar pumping in agriculture).
Transport: Promote alternatives to road and private vehicle transport and reduce congestion.
Enforce emission standards, retire aged fleet, and establish incentives and infrastructure for
electric vehicles.214
207
Beach nourishment is the addition of sand and sediment. Ganivelles are wooden fences installed to preserve dunes.
208
Hard defense measures need to be sustainable coastal protection investments that do not cause further coastal erosion elsewhere.
209
This requires adequate human, financial, and operational resources.
210
The design and operationalization modalities of the potential public mechanism are to be defined as part of the DRF strategy. As part of a dual public/private approach,
the public mechanism would complement the private natural catastrophe insurance regime to support financial protection against disasters and climate-related shocks,
including for poor and vulnerable populations.
211
The plan should define a set of actions to be taken in different crisis situations, from flooding to drought to health emergencies.
212
A functional review can identify potential duplication in effort and help improve coordination across different emergency response functions.
213
Examples include the issuance of minimum energy performance standards and a compulsory energy labeling system for appliances or building codes.
214
Develop regulations, standards, incentives, and infrastructure to develop the electric vehicles market, with a focus on the public transport fleet.
67
Industry: Enforce and scale up energy audits, energy manage-ment programs, and
energy certification for energy intensive sec-tors, accompanied by capacity building and
financing mecha-nisms (including the Energy Transition Fund). Pilot the use of innovative
decarbonization technologies (for example, green hy-drogen or sustainable bioenergy) and
accelerate the self-generation and cogeneration program.
Buildings: Scale up the Prosol Elec and Prosol thermique (rooftop solar PV and solar water
heating) and the appliance replacement and retrofitting programs.
3.2. Decarbonize electricity generation
Enhance coordination and streamline the develop-ment of renewable energy, including

coordinating approvals at the Council of Ministers level, limiting the number of authorizations
required, establishing clear procedures for land access, securing financing and guarantees
for better risk-sharing, and restoring the financial viability of the sector.
Develop adequate technical and market conditions to promote flexibility services to facilitate
renewable energy integration, including storage, demand-side response, regional electricity
market integration, and transmission network reinforcement where required.
Prepare a roadmap for green hydrogen and set up an intersectoral Green Hydrogen Council for
its implementation.
Invest in and promote traceability-testing-certification systems, including green hydrogen and
electricity for exports.215
Adopt a whole-system approach for planning and operating the electricity system, including
sector integration and coupling.216
4. Build macroeconomic, financial, and human capital
4.1. Enhance human capital
Expand skilling, re-skilling and up-skilling short-term programs, apprenticeship, and on-the-job
training, especially on the energy transition.217
At the higher education and vocational training level, expand cli-mate-related programs
(renewable energy, water resource man-agement, and so on). Involve industries in the
development of the curricula to ensure relevance and quality, raise awareness about climate
change and green practices in the national curricu-lum, and train teachers and educators.
Strengthen the capacity of primary-level health facilities, given their role in local service
delivery and the implementation of inte-grated surveillance systems and electronic medical
records to improve climate responsiveness.
215
The systems help to verify conformity with carbon-related requirements of buyers in overseas markets.
216
Sector integration refers to coordination between electricity and gas systems, while sector coupling refers to linking of energy supply and energy demand. Integrating
these considerations in planning and policies could enable end-use sectors to contribute to electricity system flexibility to integrate intermittent renewable energy.
217
Programs can leverage existing training centers and platforms, notably the inter-enterprises training center hosted by UTICA or the Alliance of Communities for Energy
Transition.
68
4.2. Improve institutions and engagement
Establish an intersectoral National Climate Council218 chaired by the head of government and
adopt climate change legislation to cover existing gaps.
Adopt climate indicators to measure adaptation progress for pub-lishing on the government’s
climate portal. Starting with SOEs, adopt international best practice on reporting and
disclosure standards.219
Establish climate focal points and provide support for community-based program investments
in municipalities.
Engage with affected stakeholders, including by organizing itera-tive outreach campaigns on

climate change and establishing a national-level multistakeholder network on climate change
public policy planning and monitoring.
4.3. Create the right macro-financial conditions for public and pri-vate investments
Repurpose recurrent public expenditures (including expenditures on fuels and electricity)

towards the most urgent public investments in adaptation while compensating vulnerable
households. 220
Leverage public mechanisms by including climate-related criteria to evaluate public investment
projects, greening public procure-ment, adopting methodology to integrate climate indicators in
program budgets, and launching a green taxonomy process.221
Enhance private sector entry for green activities, including eliminating prohibitive
authorizations, sec-toral specifications (cahier de charges), capital out-flow restrictions and
non-tariff barriers; simplifying investment authorizations,222 especially around clean energy;
and reducing the regulatory power of sectoral incumbent.
Prepare financial institutions by assessing the sector’s exposure to climate risk through the
Central Bank of Tunisia and build ca-pacity to diversify funding sources.223
Create an enabling platform to accelerate procedures for climate investments and aggregate
projects into bankable portfolios for concessional funds and blended finance, and provide
climate finance offering for vulnerable groups.224
Increase and integrate private participation, including by develop-ing a PPP framework
(water, energy, waste) and a regulatory framework for adopting new technologies and the
commercializa-tion of related products.225 Incentivize green certification.
218
This has been proposed as part of the draft Environmental Code, submitted to the Office of the Prime Minister for review on August 2023 ,3.
219
Sustainability standards for SOE operations and climate-related disclosure in their annual reports could, for example, be implemented through a pilot with STEG. The
adoption would serve as an example for businesses.
220
This includes compensating vulnerable households and businesses in conjunction with efforts to consult with consumer groups to adopt a systematic and socially
inclusive approach.
221
Develop a national green taxonomy classification of economic activities with inputs from civil society, academia, and other stakeholders.
222
It is important to respect environmental regulations in the process.
223
This includes aligning and coordinating various financial policies and incentives with sustainable development or climate goals by creating a taskforce on sustainable
finance; developing a national sustainable finance strategy or roadmap aligned with national climate targets; developing skills and local capacity to meet domestic
climate goals; and scaling up sustainable finance. The sector could also test and build capacity on new green finance instruments (through risk-sharing mechanisms,
securitized products, and compliance with voluntary carbon offsetting mechanisms to de-risk and incentivize private sector participation).
224
Possible interventions for vulnerable groups include micro-credits and targeted subsidies.
225
For instance, to reduce water, land, and energy resources usage, Tunisia could produce animal proteins such as bacterial or fungi fermentation and allow for their
commercialization.
69
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MIDDLE EAST AND

Rights and Permissions

Alignment with and contribution to country strategies

Development Plan 2023-2025, Strategy for the ecological transition

Source: Country Climate and Development Report

Figure 1: Summary of economic development and climate challenges

Water demand Water supply

Source: World Bank staff estimation.

Source: World Bank staff estimation.

Source: World Bank staff estimation.

Coastal zones defended against sea-level rise

Critical infrastructure protected against flooding and sea-level rise

Social protection enhanced and insurance schemes developed

Decarbonized energy demand in end-use sectors

Decarbonized energy supply

Scenario C: Deep decarbonization Scenario B: Green Scenario A: Least-cost

2030 2050 2030 2050 2030 2050

Real GDP 1.1 1.4 1.1 1.4 1.7 1.4

Private 0.5 1.2 0.9 0.9 3.1 7.9

Agriculture 0.3 0.9 0.3 0.8 3.2 5.6

Industry 1.2 1.7 1.3 1.7 1.8 1.2

Services 1.1 1.4 1.2 1.4 1.5 0.9

Source: World Bank staff estimation.

Total investment needs by 2050

Public 3,069 10,505 13,574

Public 4,427 8,683 13,110

Public 9,032 19,973 29,004

Source: Compiled by World Bank staff.

Human risks and opportunities

Transitioning energy Creating the right

• Control water demand • Enhance coordination and • Redirect recurrent public

“WHOLE OF GOVERNMENT” AND “WHOLE OF SOCIETY” APPROACH

ENHANCE THE RESILIENCE OF URBAN AND COASTAL AREAS

Public Wage Bill

1.2. Climate Change and Development Challenges

Source: World Bank. Source: World Bank.

Box 2: Climate modelling for the CCDR

Recent policies and highly dangerous

Recent commitment and dangerous

Successful decarbonization and limited

Source: Compiled by World Bank staff.

1.2.2. Sea-level rise and flooding

Figure 12: Coastal erosion in the Mediterranean (1984 to 2016 average) 50

Source: Based on data from World Bank 2021b.

Public Wage Bill

Table 3: Current disaster risk finance instruments in Tunisia63

Source: World Bank team assessment.

1.2.3. Dependence on fossil fuel imports

350 6 13,000 3,600

2017 2018 2019 2020 2021

Subsidies (%GDP) (rhs)

60% 24.3 26.9 60%

20% 29.9 32.6 20%

Figure 17: Assessment of Tunisia’s climate change governance functions

Climate change framework law No

LTS or 2050 climate change plan Yes

Coordination mechanism Partial

Climate-informed local level risk assessments No

Climate-informed fiscal risk statements No

Climate-informed budget guidelines Partial