Net Zero Emissions in Saudi Arabia by 2060: Least-Cost Pathways, Influence of International Oil Price, and Economic Consequences

Abstract

Saudi Arabia, the world’s largest oil exporter, aims to reach net zero emissions (NZE) by 2060 and heads to a drastic transformation of its energy sector amid a changing international oil market. This paper presents least-cost NZE trajectories for Saudi Arabia, consistent with alternative international oil prices and availability of carbon capture solutions. We use a hybrid forward-looking general equilibrium model where current and future mitigation technologies are represented explicitly. The results show that domestic price reforms alone can cut emissions by 13 percent to 27 percent below a baseline no-policy scenario by 2060. Lower international oil prices reduce the opportunity cost of fossil fuels and increase the implicit CO 2 price needed to reach NZE. Along with energy efficiency, renewables and clean hydrogen; NZE would need to rely on a large deployment of carbon capture technologies, whose scalability is still uncertain. In NZE, direct air capture (DAC) would need to offset residual emissions and would become a large consumer of electricity and gas. The massive energy sector investments needed for NZE tend to crowd out non-energy investments. In NZE, the GDP is 3 percent to 10 percent below the baseline, depending on whether the international oil price is high or low and on the scale of carbon capture availability. JEL Classification: C61, C68, H23, Q41, Q48