Swapping Fossil Fuel Subsidies for Renewable Energy in Saudi Arabia

This study provides the first empirically-grounded assessment of how fossil fuel subsidies constrain renewable energy generation in Saudi Arabia. Leveraging an autoregressive distributed lag (ARDL) model with structural break testing (Zivot-Andrews) on 1995–2023 data—encompassing both the 2016 and 2018 subsidy reform waves—we quantify the dynamic interplay between fossil fuel subsidies and renewable energy generation. The current undertaking has unearthed that a 1% reduction in fossil fuel subsidies increases renewable energy generation by 6.45% in the short run and 9.94% in the long run, with economic diversification emerging as a statistically robust accelerant. These findings empirically validate that suppressing fossil fuel subsidies and reallocating investments via economic diversification are pivotal to unlocking Saudi Arabia’s renewable energy potential. The results we gleaned could prove substantially important to policymakers and stakeholders seeking to maximize fossil fuel subsidy reform benefits and strategically redirect resulting revenues to jump-start the renewable energy industry.