Inter-fuel substitution management and carbon mitigation in Saudi Arabia: Evidence based on carbon neutrality plan...

Saudi Arabia ranks as the ninth-largest primary energy consumer in the world, with oil, natural gas and renewables being the dominant fuels. This study analyzes both energy and non-energy factors to examine the output elasticity, substitution elasticity, technological progress of these factors, and fuel technology-based CO₂ emissions using the trans-log production model. To reduce the multicollinearity issues among the parameters, we employed the ridge regression technique. The results indicate that all the parameters in the regression analysis present positive values without any ambiguity. The output elasticities between energy and non-energy factors are rising returns to scale; however, capital, oil and gas consumption are the major contributors in the production process. The factor's elasticity of substitution presents that capital-electricity, gas-electricity and oil-electricity are the most substituting factors, while gas and electricity are the substitutes for oil, showing that the country has the potential to switch oil for low-carbon energy consumption. The technological progress between oil-electricity and gas-electricity is the major factor and can make possibilities from negative-positive progress. The net zero carbon neutrality scenario shows that oil-gas, oil-electricity and gas-electricity will contribute about zero emissions by 2060. Finally, the study recommends advancing technological development and adopting natural resources to achieve carbon neutrality targets.