Oman’s Green Horizon: Steering Towards Sustainability Through Decarbonization and Energy Transition

Abstract

This paper examines the determinants of CO2 emissions in Oman from 1990 to 2024, focusing on the impacts of energy consumption, economic growth, urbanization, financial development, and foreign direct investment. The analysis utilizes stepwise regression to systematically identify the most significant predictors, ensuring a parsimonious model. Robust least squares (ROLSs) are employed to account for potential outliers and heteroscedasticity in the data, providing more reliable estimates. Fully Modified Least Squares (FMOLSs) is applied to address issues of endogeneity and serial correlation, offering robust long-term coefficient estimates. Canonical cointegrating regression (CCR) further refines these estimates by handling non-stationary variables and ensuring consistency in the presence of cointegration. Cointegration tests, including the Johansen and Engle–Granger methods, confirm long-term equilibrium relationships among the variables; this study reveals several key findings. Energy use per capita (ENGY) and real GDP per capita (RGDPC) are consistently significant positive predictors of CO2 emissions. Urbanization (URB) also significantly contributes to higher emissions. Conversely, the Financial Development Index (FDX) and foreign direct investment (FDI) do not show significant effects on CO2 levels. The high R-squared values across models indicate that these variables explain a substantial portion of the variation in emissions. Cointegration tests confirm long-term equilibrium relationships among the variables, with the Johansen test identifying two cointegrating equations and the Engle–Granger test showing significant tau-statistics for FDX, ENGY, and URB. The VEC model further highlights the short-term dynamics and adjustment mechanisms. These findings underscore the importance of energy policy, economic development, and urban planning in Oman’s efforts towards sustainable development and decarbonization.