Oil sector and CO2 emissions in Saudi Arabia: asymmetry analysis

Abstract

Saudi Arabia is an oil-abundant country, and gather a significant portion of its income from the oil sector. Owing to the country’s over-dependency on the oil sector, increasing greenhouse gas emissions due to economic growth have often been neglected. The present research aims to estimate the effects of non-oil income per capita, the oil sector income share, urbanisation, and gasoline price on the CO2 emissions per capita in Saudi Arabia throughout 1970–2014. We use the latest nonlinear cointegration technique to estimate the asymmetrical effects of the oil sector on CO2 emissions. We found a long-run relationship in our hypothesised model. We also found a positive impact of non-oil income and urbanisation on CO2 emissions per capita and a negative effect of gasoline price. Moreover, a positive asymmetrical impact of oil income share on CO2 emissions is observed. The increasing oil income share has a more significant positive impact on CO2 emissions than that of decreasing oil income share. Moreover, the effect of increasing oil income share is found greater than non-oil income, urbanisation, and gasoline price. It is suggested to use tight environmental policies while formulating economic growth and urbanisation policies. Further, the economy should cut down its dependency on the oil sector to ensure a cleaner environment.