A pathway to sustainable development in the GCC: Empirical evidence on how renewable energy and structural change mitigate natural capital's environmental effects

The GCC region has long relied on its abundant natural capital for development, but this dependence has driven significant CO2 emissions at a high environmental cost. In response, GCC countries are actively diversifying their economies by shifting from oil and gas dependence toward renewable energy and service sector growth. Using panel data and the PMG-ARDL approach for GCC countries (2003–2021), this study examines the long- and short-run impacts of GDP, natural capital, renewable energy, non-renewable energy, structural change, and urban population on CO2 emissions, specifically testing whether renewable energy and structural change can mitigate the detrimental effects of natural capital. FMOLS and DOLS methods test the robustness of long-run results. Our findings reveal that in the long run, GDP, non-renewable energy, natural capital, and urban population increase emissions, while renewable energy and structural change reduce them. A 1% increase in renewable energy reduces CO2 emissions by 2.25% and a 1% increase in structural change reduces them by 0.168%, whereas a 1% increase in natural capital raises emissions by 0.28%. Moreover, renewable energy reduces natural capital's emissions intensity by 0.61% and structural change reduces it by 0.04%, confirming that both factors successfully mitigate the positive effect of natural capital on emissions.We conclude that accelerating the transition towards a diversified green economy is not merely an economic imperative for the GCC but an environmental necessity. These findings offer a clear policy pathway, underscoring the dual benefits of renewable energy investment and structural reform for achieving sustainable development in the region.