Mediating role of finance amidst resource and energy policies in carbon control: A sustainable development study of Saudi Arabia

Abstract

This study examines how best to achieve inclusive sustainable development and meeting of carbon target in Saudi Arabia. With a track record of high economic performance due to its richness in natural resources, specifically oil resources, Saudi Arabia is characterized by heavy economic activities that are anchored on natural resources and excessive energy utilization. Two scientific approaches, non-linear autoregressive distributed lag (NARDL) and dynamic ordinary least square (DOLS), are adopted to analyze annual data spanning the period 1990–2019. Also, policy-based variables (financial development, renewable energy and natural resources) are selected for the analyses. Findings from NARDL show that carbon emission (CO2) is reduced by a positive shock to both financial development and renewable energy, and increased by an adverse shock to financial development and renewable energy. However, a positive shock to both economic growth and natural resources increases carbon emission, thereby impacting negatively on the environment. Quantitatively, for every 1% increase in natural resource rent, the environmental quality worsens by 0.093%. Additionally, the country's average CO2 emission level increases by 1.093% for every 1% increase in economic growth, thus lowering long-term environmental quality. Findings from DOLS align with the findings from NARDL, thereby supporting the moderating effects of financial development and renewable energy. The study findings suggest policies based on finance and renewable energy to aid sustainable development.