Post‐Oil Transition and Capital Intensity: Firm‐Level Evidence on Renewable Energy and Environmental Performance in Saudi Arabia

ABSTRACT

We examine how renewable energy strategies under Saudi Arabia's Vision 2030 are associated with environmental sustainability outcomes in fossil fuel‐dependent economies. The study analyses data from 42 listed Saudi firms (2012–2023) using two‐step System Generalized Method of Moments (System GMM) with Windmeijer (Journal of Econometrics, 2005, 126) finite‐sample‐corrected standard errors and Impulse Response Functions (IRFs) derived from a panel vector autoregression. Under the log–log specification, estimates indicate that a 1% increase in clean energy investment is associated with reductions of 6.3%–8.1% in climate emissions and 10.2%–16.3% in water‐stress indicators, while a 1% increase in clean energy use is associated with reductions of 5.4%–7.6% in emissions and 3.2%–11.4% in water‐stress indicators. These magnitudes diverge from recent multi‐country evidence. The pattern documented here for Saudi Arabia—where the renewable–emission and renewable–water associations remain large and negative across firms and sectors—is therefore not a confirmation of a uniform global relationship but a contrast with the rebound and scale‐effect findings dominant in the recent literature, attributable in our reading to the centrally coordinated, mandate‐backed nature of Vision 2030's rollout. Policy interaction effects amplify these associations, with oil‐sector firms leveraging scale in renewable projects while non‐oil‐sector firms face pressures from oil price volatility. Findings are robust to alternative specifications, including fixed‐effects instrumental‐variable estimation, one‐step GMM, restricted lag structures, exclusion of the Vision‐2030 Launch transition years, and re‐specification of the dependent variables in logarithmic form. The study points to integrated policy levers—subsidy reallocation, low‐water renewables, and oil‐sector engagement—while acknowledging that generalization beyond the Tadawul‐listed corporate sector requires caution.