Carbon Pricing and Renewable Deployment in Saudi Arabia: Policy Strategies for Growth and Decarbonization

This study designs carbon-pricing policy scenarios to support Saudi Arabia’s twin goals of decarbonization and macro-fiscal development for 2025–2040. We propose three scenarios for a carbon tax: an early start with revenues spent under typical budget patterns; a two-year delayed start combined with short-term solar incentives financed by green bonds; and a similar delay, but with carbon price revenues recycled into continuous, long-term solar-capacity expansion programs. Using a semi-structural macro-sectoral econometric model extended with energy and emissions linkages, we find that if policymakers implement early carbon pricing without long-term renewable energy financing, this achieves emissions reduction but dampens economic growth. By contrast, channeling carbon price revenues into renewable financing brings even moderate economic growth, while deepening decarbonization.