Beyond the barrels: The impact of resource wealth on the energy-economy-climate targets in oil-rich economies

Abstract

This study models the Kaya identity equation for carbon dioxide (CO₂) emissions in a panel of 20 oil-rich countries from 1994 to 2019. The estimators used are robust to cross-sectional dependence and allow for heterogeneous slope coefficients. The results indicate that natural resource extraction hinders environmental sustainability in oil-rich countries by altering the structural composition of their consumption mix towards energy- and carbon-intensive technologies. However, this relationship is only significant after reaching a turning point level of resource extraction. This suggests that the carbon curse is only triggered at higher levels of resource dependence, supporting a U-shaped relationship between natural resource extraction and CO₂ emissions. The threshold for the natural rents to GDP ratio, beyond which natural resource extraction triggers the carbon curse, is found to be 12.18 %. The vulnerability assessment reveals that 17 countries in the panel, including Algeria, Kazakhstan, the United Arab Emirates, Iran, Iraq, Kuwait, Qatar, Oman, Saudi Arabia, the Congo Republic, and Libya, are already within the carbon curse zone. From a policy perspective, promoting sustainable development in oil-rich economies requires a shift towards renewable energy sources, reducing reliance on fossil fuels, and widespread adoption of energy efficiency and conservation mechanisms.