ENERGY

CONSUMPTION,
CARBON DIOXIDE
EMISSIONS AND
ECONOMIC GROWTH:
THE CASE OF SAUDI
ARABIA

Name: RANJITH KUMAR J

Register Number: RA2252008010002

SUBJECT: MANAGERIAL ECONOMICS

TABLE OF
CONTENTS

INTRODUCTION…………………………………………………………1

CASE BACKGROUND……………………………………………….….2

PROBLEM ANALYSIS……………………………………………….….3

PROPOSED SOLUTIONS……………………………………………...6

SUGGESTIONS AND RECOMMENDATIONS………………….…...7

LEARNING NOTES…………………………………………………..…8

CONCLUSION…………………………………………………..………11

BIBLIOGRAPHY…………………………………………………………13
INTRODUCTION
TO THE CASE
The Standard Oil Company started its operations around the mid 1800s
and survived through the first few decades of the 20th century before going
out of business during the Great Depression. The company was first
established by John D. Rockefeller who eventually expanded his business
not just to U.S. but around the world as well.

In terms of demand, oil was already being consumed in 1859, but the
consumption slowly increased from 1 million barrels per day to 10 million
at the turn of the 19th century. World population was also growing and
energy consumption kept increasing due to industrialization and
urbanization across Europe and Asia during this period.

The Saudi Arabia is a country located on the eastern coast of the Arabian
Peninsula. It is famous for its oil and natural gas resources. Saudi Arabia
is estimated to be the third largest oil producer in the world and home to
the largest oil reserves in the Middle East by US Geological Survey.

In the past, natural gas and crude oil were traded directly. The current
market is composed of hundreds of oil companies, traders, refiners,
importers and exporters that compete with each other to overcome
challenges such as volatility and levelized prices changes.

In this paper, we explore the relationship between oil and economic growth
across the middle east. We also explore the historical relationship between
oil consumption and CO2 emissions.

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CASE
BACKGROUND
Saudi Arabia is one of the largest producers of oil, but domestic energy
consumption has been very low, most of the produced oil of the Saudi is
being exported to various countries which led to Saudi becoming the
market leader. We use Karl Persons coefficient of correlation technique to
examine the causal relationship between per capita energy consumption,
energy prices and real per capita gross domestic product for Saudi Arabia.
As Saudi Arabia is one of the largest producers of oil.

Oil production can cause various types of pollution, including water, soil
and air pollution. These effects are usually long-lasting. Another debate
that arises from this idea is the fact that oil production increases income.
This income can improve the overall infrastructure of the country and result
in an overall increase in greenhouse gas emissions. CO2 emissions count
for a substantial proportion of global warming and are responsible for
increasing global warming. These activities release emissions into the
atmosphere which have adverse health effects

This study examines the causal relationship between per capita energy
consumption, energy prices, per capita carbon dioxide emissions and real
per capita gross domestic product for Saudi Arabia. Energy prices in Saudi
Arabia have been so low that it has allowed the country to reap huge
benefits from its fossil fuel exploitation as well as subsidized industrial
activities. This study therefore seeks to examine the appropriate model
structure for investigating this important sector of Saudi Arabia.
Furthermore, the applicability of Karl Persons coefficient of correlation
technique is studied to develop an efficient econometric model.

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PROBLEM
ANALYSIS
In the early years, oil production was the main source of income for the
country, but now it has become a burden. Oil prices skyrocketed in the last
few years and this has led to a major budget deficit for the government.
The government has been trying to devalue its currency by cutting
expenses and increasing taxes, but this has not helped much as high oil
prices continue to stay at high levels. The result is that Saudi Arabia will
have to cut down on its oil production or find other ways of generating
revenue from its natural resources.

There is a positive relationship between oil production and CO2 emission

in Saudi Arabia. In the past, there was a large gap between the two
variables. But as time went by and oil production increased, CO2 emissions
also increased. This is because of the high cost of producing oil and its
subsequent use. As such, people started to use their cars more often than
before and this led to an increase in CO2 emission.

The reason why there is a positive relationship between these two variables
is that they have similar origins. Both are caused by human activities, which
means they can be affected by human actions as well. However, while one
can be affected by human actions, the other cannot be affected until
humans stop using cars, which will reduce oil demand and thus CO2
emissions as well.

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PROBLEM
ANALYSIS CONT.
Let us take statistical data below to accommodate the growth of Saudi
Arabia’s GDP and the Co2 emissions over a period between 1980-2010

The above data shows that both GDP and CO2 emissions are at a steady
raise in Saudi Arabia. This means that the country has a great future ahead
of it, as well as a big responsibility to the rest of the world.

The country has been able to achieve this by implementing various reforms
such as privatizing state-owned companies, reforming its education
system, boosting oil production and diversifying its economy. Saudi Arabia
is also one of the largest suppliers of oil in the world and is expected to be
one of the leading exporters in future years {It currently stands the 3rd}

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PROBLEM
ANALYSIS CONT.
It is easy to take a look at a headline and say that Saudi Arabia is the
world's biggest carbon emitter. But it's not just mere numbers, even
statistical data shows that there is a positive co-relation between Saudi's
GDP growth and its CO2 emissions. In fact, the country has been
increasing its output for decades now.

For example, in 2010, according to the US Energy Information

Administration (EIA), Saudi Arabia's oil production was 9 million bpd. Now,
in 2019, it has grown to 10 million bpd. This means that every year since
2010, the country has produced more oil than ever before.

The below table shows us the statistical outlook of the relations between
the both.

However, there are many factors that contribute towards this growth in oil
production and these include factors such as new discoveries of oil and
gas deposits and improved technology used in extracting them from wells
or undersea pipelines etc.

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PROPOSED
SOLUTIONS
Saudi Arabia has come up with Saudi Green Initiative {SGI} to tackle the
problem of its growing energy needs and CO2 emissions. It is never less
to say the carbon footprint that Saudi has left over the past and is now
trying to resolve it by bringing various structural changes to its framework.

Some of them are listed below:

 Enhance Saudi Arabia’s Energy Efficiency Program (SEEP)

 Use captured carbon to produce chemicals and synthetic fuels
 Changing the energy mix towards a more sustainable one
 Become the world’s leading hydrogen producer & exporter
 Waste management transformation in Riyadh

All though the above seems to be over ambitious the Saudi government
has already kick started the path to reduce its carbon foot print. It is now
one of the leading producers of Hydrogen fuel and has already started to
use its produce as well as export surplus to its fellow countries including
India.

The Kingdom's plan to reduce CO2 emissions is expected to have

significant effects on global greenhouse gas levels. According to a report
from the International Energy Agency (IEA), if all member countries were
to commit to the same level of action as Saudi Arabia, it would lead to a
reduction in global CO2 emissions by three percent over the next five
years.

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SUGGESTIONS AND
RECOMMENDATIONS

1. Eat more plant foods and less animal foods

2. Try other modes of transport
3. Switch to a low-carbon energy provider
4. Reduce, reuse, and recycle to waste less
5. Rethink your fashion choices
6. Choose energy-efficient appliances
7. Travel less or travel wisely
8. Turn down the temperature at home
9. Join the rebellion

The above changes are not only to be done at the government level but we
as citizens need to make sure we contribute for a globally sustainable
living. The first step towards this is by taking action on our own behalf and
doing something positive towards making this a better place to live in.

The second step is by sharing what you know or learn with others so that
they too can take actions that will help make our lives better in the long run.

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LEARNING
NOTES
What can we learn from Saudi’s past mistakes and their ambitious plan to
rectify the same in the future?

Well, the below are the observations that are crucial to note and worthy of
implementing in any environment i.e., household, firm etc.

We expect the results of this study to be similar to those of other studies,

given that energy consumption is an important part of economic activities
in Saudi Arabia. The growth of the economy seems to be more important
than energy prices and CO2 emissions in explaining variation in energy
consumption for the next 10 years.

Who should not make these mistakes again?

We know that the race to oil and its reserves are at an alarming rate for
developed and developing countries like India. The US who is advocating
for green alternatives is by itself the 1st leading producer of oil in the world
and it is not mining the existing oils reserves as its scarce in the country,
but uses a method called fracking which involves pumping harmful
chemicals into the earth’s crust and turning the rocky crust and turning it
into crude oil which is much worse than mining natural crude oil.

We find that for Saudi Arabia, energy consumption Granger causes

economic output in the short and long term. The effects of energy
consumption on economic growth are not immediate but rather occur over
a period of time. When we examine the Granger causality between

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LEARNING
NOTES CONT.
energy consumption and economic growth, we find that there is a positive
correlation between them. Our results suggest that as economic activity
increases, the demand for energy will also increase, which in turn will
increase the demand for energy related products such as transportation
fuels and electricity production. This will lead to an increase in energy
consumption and consequently an increase in GDP.

In contrast to the neo-classical theory which states that energy is neutral to

economic growth, we find that for Saudi Arabia, energy consumption
Granger causes economic output in the short and long term. The effects of
energy consumption on economic growth are not immediate but rather
occur over a period of time. Our findings suggest that as economic activity
increases, the demand for energy will also increase, which in turn will
increase the demand for energy related products such as transportation
fuels and electricity production. This will lead to an increase in energy
consumption and consequently an increase in GDP.

A lot of people think that economic growth is the be-all and end-all of
environmental policy. But there are other ways by which you could trigger
economic growth, negative externalities and its relents cause more harm
than good to the earth in general. In order to have a healthy environment,
we have to have a balanced economy. We need to keep our manufacturing
jobs here in America, but also make sure that our goods can be made with
less pollution and less waste. When we do this, we will be able to save
money in the long run-on pollution control technology, and make sure that
everyone has access to clean drinking water.

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LEARNING
NOTES CONT.
The biggest problem with pollution control technology is that it costs money.
And if you don't have enough money available for new technologies then
you won't be able to afford them at all. This means that when an economy
grows it may not do so evenly across the board - there will be some areas
where more jobs are created than others because they happen to be
located close together or near a source of pollution (like an oil refinery).

We can solve this problem by taxing heavily businesses who create lots of
pollution AND by investing heavily in clean energy research and
development (both public and private).

If we are to survive on this planet, we must learn to understand that the

world is a part of us. We need to understand that exploiting it will only lead
to a faster depleting of our sustainability on planet earth. The world has
been at war for thousands of years. It has been at war with itself and with
the rest of nature. This war was fought by humans who sought control over
each other, over other species and over their environment.

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CASE
CONCLUSION
I would like to conclude the case by saying that, the statistical data shows
the relation between the GDP growth of Saudi Arabia and its related
affiliates to be positive and there is solid evidence to support the same.

The below graph shows us a visual and helps us grasp the reality in
an instance:

The LNPCGDP {GDP, GREEN} &

LNPCCO2 {CO2, BLUE} CURVES LOOK
VERY SIMILAR AND SHOWS THE
GRADUAL POSITIVE RELATIONSHIP
BETWEEN THE BOTH.WHILE THEY
LOOK LIKE THEY ARE A STRAIGHT
LINE AND THERE SEEMS TO BE NO
INCREASE, THE ACTUAL CASE IS THAT
THE SCALE OF THE GRAPH IS VERY
HIGH AND DENOTES A VERY MASSIVE
INCREASE OF THEM BOTH AND
CONCLUDES THAT THE RELATION IS
POSITIVE

With that being said we had earlier also discussed the long run plan of the
Saudi government in tackling the problem and they have a very ambitious
plan of reducing the carbon footprint that they have been laying in the past
ten decades.

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CASE
CONCLUSION CONT.
How much really of a difference can these reforms can bring as in
value?

That’s something only time can answer, although it might seem a little too
over ambiguous for one who oversees it there are studies showing that the
nation has already started to see drastic changes in the environmental and
socio environmental changes that all point that the reforms have brought in
significantly. The world is on fire. The Saudis have been burning fossil fuels
for more than two decades, and the world has begun to notice.

The Kingdom of Saudi Arabia recently announced that it would begin to

reduce its carbon emissions by 200,000 tons per year by 2020. That's a big
deal in an oil-dependent world.

It's also a big deal because the Saudis are among the first countries to take
such action. They're not just talking about it; they're doing it. And that's a
good thing, because as long as there are countries like Saudi Arabia willing
to take on tough issues like climate change, we can hope for more progress
around the world.

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BIBLIOGRAPHY &
KEY REFRENCES
 https://www.saudigreeninitiative.org/targets/reducing-
emissions/
 https://scholar.google.com/
 https://www.wec.org/
 https://www.eia.gov/
 https://www.irena.org/mena
 https://www.seia.org/

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