Does Governance Reduce Carbon Intensity? Evidence from Saudi Arabia

This study examines the relationship between governance quality and carbon intensity in Saudi Arabia over the period 2002–2024, with particular attention to the role of structural reform and institutional change. Using an autoregressive distributed lag (ARDL) framework, the analysis distinguishes between long-run equilibrium relationships and short-run adjustment dynamics in a resource-dependent economy undergoing economic transition. The long-run results indicate that capital formation significantly increases carbon intensity, suggesting that economic expansion and investment activities remain closely tied to carbon-intensive production structures and fossil-based industrial development. Renewable energy exhibits a modest mitigating effect, implying that recent progress in energy diversification has contributed to emissions efficiency, although its overall impact remains limited relative to the scale of hydrocarbon dependence. Governance does not display a robust independent long-run effect on carbon intensity. However, the interaction between governance and the post-2016 reform period is associated with lower carbon intensity, indicating that institutional quality becomes more effective when supported by broader structural transformation and policy reform initiatives. Short-run dynamics further suggest that improvements in governance may initially coincide with higher emissions intensity during transitional phases of economic adjustment and infrastructure expansion. The findings highlight that governance influences environmental performance not in isolation, but through its interaction with structural diversification, energy transition, and reform-oriented institutional change in a resource-dependent economy.