Environmental Cost, Fiscal Policy, and Energy Transition in Saudi Arabia: A Macro-Level Time-Series Analysis of Carbon Intensity

In the context of global climate issues and the transition towards sustainable development, this study examines the relationship between environmental cost, public expenditure, energy structure, and institutional quality in Saudi Arabia over the period 1994–2023, where environmental cost is proxied by the carbon intensity of GDP. To capture both long-run relationships and short-run dynamics, the study applies the Autoregressive Distributed Lag (ARDL)-Error Correction Model (ECM) framework. The results confirm the existence of a stable long-run equilibrium relationship among the variables. Public expenditure and energy use significantly increase carbon intensity, indicating that fiscal expansion and energy intensity remain important sources of environmental pressure. In contrast, renewable electricity generation and improvements in institutional quality significantly reduce carbon intensity, highlighting the importance of clean energy deployment and effective governance. Economic growth exhibits a small but statistically significant negative effect on carbon intensity, suggesting gradual progress toward relative decoupling between economic activity and environmental cost. The error-correction coefficient indicates rapid adjustment toward the long-run equilibrium following short-run shocks. These findings provide policy-relevant evidence for aligning fiscal policy, energy transition strategies, and institutional reforms with Saudi Arabia’s Vision 2030 and broader sustainability objectives in resource-dependent economies.