The role of solar energy demand in the relationship between carbon pricing and environmental degradation: A blessing in disguise

Abstract

The importance of clean energy resources in the environmental sustainability agenda (ESA) widely documents the earlier literature that emphasized the need to use renewable energy (RE) sources in mitigating high mass carbon emissions across countries. Saudi Arabia's future vision focused on establishing RE markets, especially solar electricity generation (SEG) that would likely present an alternative source to meet energy challenges and allow the country to switch its oil-based economy to a renewable source economy by 2030. In this initiative, the present study intends to analyze the potential challenges and opportunities of SEG in a country that gives way toward a vibrant and thriving economy through green development. The study collected monthly time series data of solar energy and its potential contributors from 2010M01 to 2018M12. The study performs ex-ante and ex-post analysis using vector error correction estimates (VECM) and innovation accounting matrix to get parameter estimates at current and forecast settings. The study simulated the deployment of SEG under different contributory factors, including carbon taxes, emissions trading, and environmental regulations. The results show that carbon tax has a decisive role in limiting polluting industries and reducing carbon emissions. The emissions trading and SEG support the cleaner production agenda to attain its energy sustainable development goals. The environment-related trade regulations and carbon pricing were quite visible to support the country's SEG program. The simulation results show that SEG can potentially as high as 379.224 GWh till 2030 due to possibly be increasing financial and trade regulations that could limit carbon emissions down to 21.766 kg per oil equivalent energy use per annum.