Evaluating hypothetical carbon pricing for Saudi Arabia using a macroeconometric modeling framework

Carbon pricing is increasingly recognized as a key policy tool for reducing CO2 emissions. This study assesses the potential impact of hypothetical carbon pricing in Saudi Arabia using the KAPSARC Global Energy Macroeconometric Model (KGEMM), which integrates environmental and energy representations into a macroeconomic framework. We simulate the effect of carbon prices set at $20 and $50 per ton of CO2 emissions over the period 2023–2030, considering both an economy-wide implementation and a sector-specific approach targeting the industrial and utility sectors. Results show that, in 2030, these carbon prices could reduce economy-wide emissions by approximately 5.4 % and 9.5 %, respectively. This suggests a slightly nonlinear response of emissions to carbon pricing. Additionally, pricing carbon only in the industrial and utility sectors achieves about 74 % of the total emissions reduction of the economy-wide approach, while generating 72 % of the potential government CO2 revenue. The effects of investing the collected revenues to support the renewable energy transition are also simulated. The study highlights the effectiveness of targeting high-emission sectors, the nonlinear effect of carbon pricing, and the importance of reinvesting in renewable energy —all of which may offer insights for designing future climate mitigation policies in Saudi Arabia. • The impact of $20 and $50 carbon prices on the Saudi economy is simulated for 2023–2030. • The emission reduction effects of carbon pricing are slightly nonlinear. • Emissions drop by 5.4 % at $20/ton and by 9.5 % at $50/ton in 2030. • Pricing only the industry and utility sectors achieves 74 % of the total emissions reduction. • Re investing 50 % of carbon revenues in renewable energy leads to an additional 2.2 % reduction in emissions.