Exploring the relationship between economic diversification and energy-related CO2 emissions in a petroleum-producing country

Purpose - This study aims to quantify sectoral energy and carbon intensity, revisit the validity of the Environmental Kuznets Curve (EKC) and explore the relationship between economic diversification and CO2 emissions in Bahrain. Design/methodology/approach - Three stages were followed to understand the linkages between sectoral economic growth, energy consumption and CO2 emissions in Bahrain. Sectoral energy and carbon intensity were calculated, time series data trends were analyzed and two econometric models were built and analyzed using the autoregressive distributed lag method and time series data for the period 1980-2019. Findings - The results of the analysis suggest that energy and carbon intensity in Bahrain's industrial sector is higher than those of its services and agricultural sectors. The EKC was found to be invalid for Bahrain, where economic growth is still coupled with CO2 emissions. Whereas CO2 emissions have increased with growth in the manufacturing, and real estate subsectors, the emissions have decreased with growth in the hospitability, transportation and communications subsectors. These results indicate that economic diversification, specifically of the services sector, is aligned with Bahrain's carbon neutrality target. However, less energy-intensive industries, such as recycling-based industries, are needed to counter the environmental impacts of economic growth. Originality/value - The impacts of economic diversification on energy consumption and CO2 emissions in the Gulf Cooperation Council petroleum countries have rarely been explored. Findings from this study contribute to informing economic and environment-related policymaking in Bahrain.