Energy consumption, carbon dioxide emissions and economic growth: The case of Saudi Arabia Atef Saad Alshehry a , Mounir Belloumi a,b,n a Faculty of Administrative Sciences, Najran University, Saudi Arabia b LAMIDED, University of Sousse, Tunisia article info Article history: Received 13 March 2014 Received in revised form 22 July 2014 Accepted 4 August 2014 Keywords: Energy consumption Economic growth Saudi Arabia abstract This paper investigates the dynamic causal relationships between energy consumption, energy price and economic activity in Saudi Arabia based on a demand side approach. We use a Johansen multivariate cointegration approach and incorporate CO 2 emissions as a control variable. The results indicate that there exists at least a long-run relationship between energy consumption, energy price, carbon dioxide emissions, and economic growth. Furthermore, a long-run unidirectional causality stands from energy consumption to economic growth and CO 2 emissions, bidirectional causality between carbon dioxide emissions and economic growth, and a long-run unidirectional causality runs from energy price to economic growth and CO 2 emissions. In the short-run, there is unidirectional causality running from CO 2 emissions to energy consumption and economic output and from energy price to CO 2 emissions. Even though, the energy-led growth hypothesis is valid, the share of energy consumption in explaining economic growth is minimal. Energy price is the most important factor in explaining economic growth. Hence, policies aimed at reducing energy consumption and controlling for CO 2 emissions may not reduce significantly Saudi's economic growth. Investing in the use of renewable energy sources like solar and wind power is an urgent necessity to control for fossil fuel consumption and CO 2 emissions. & 2014 Elsevier Ltd. All rights reserved. Contents 1. Introduction ........................................................................................................ 237 2. Material and methods ................................................................................................ 238 2.1. A brief literature review ........................................................................................ 238 2.2. Overview of energy sector in Saudi Arabia ......................................................................... 239 2.3. Data and methodology ......................................................................................... 241 3. Empirical results .................................................................................................... 242 3.1. Results of unit root tests ........................................................................................ 242 3.2. Results of Johansen cointegration test ............................................................................. 243 3.3. Results of Granger causality tests ................................................................................. 243 3.4. Results of variance decomposition and impulse response function ...................................................... 244 4. Discussion ......................................................................................................... 244 5. Conclusion and policy implications ..................................................................................... 245 Acknowledgement....................................................................................................... 247 References ............................................................................................................. 247 1. Introduction Energy use is essential to all economic activities and to human well-being. Lack of access to reliable and affordable modern energy represents a constraint to economic and social development in many parts of the world. By contrast, Saudi Arabia is from the countries Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/rser Renewable and Sustainable Energy Reviews http://dx.doi.org/10.1016/j.rser.2014.08.004 1364-0321/& 2014 Elsevier Ltd. All rights reserved. n Corresponding author at: Faculty of Administrative Sciences, Najran University, Saudi Arabia. Tel.: þ966 530948710; fax: þ966 75428887. E-mail addresses: asalshehry@nu.edu.sa (A.S. Alshehry), mounir.balloumi@gmail.com, mrbelloumi@nu.edu.sa (M. Belloumi). Renewable and Sustainable Energy Reviews 41 (2015) 237–247