Energy Subsidy Reform Research Articles

Analysis of solution strategies for the transition to renewable energy in Saudi Arabia

The shift from fossil fuels to low-carbon energy solutions is crucial to mitigate the effects of climate change. The Kingdom of Saudi Arabia (KSA) has formulated a policy framework to accelerate the development of renewable energy (RE) as part of Vision 2030. Therefore, the transition to RE is vital for reducing dependence on fossil fuels and mitigating climate change. Nevertheless, critical barriers hinder RE adoption in the KSA. This study identified several main barriers, sub-barriers, and solution strategies for the analysis. Therefore, the fuzzy Analytical Hierarchy Process (AHP) method was incorporated to evaluate seven barriers and twenty-eight sub-barriers. Later, the fuzzy Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS) method was used to prioritize the nine solution strategies for adopting RE technologies in the KSA. The fuzzy AHP results emphasize that technological, environmental, and market barriers obstruct RE adoption. Fuzzy TOPSIS indicates that public awareness campaigns, energy subsidy reforms, and modernization of the energy grid are the most suitable solutions for the adoption of RE technologies in the KSA. Consequently, this research will help governments, stakeholders, and policymakers expedite RE adoption by determining these barriers and strategies to achieve the Saudi Vision 2030 goal.

The Vital Role of Cash Transfers: Lessons from the Largest Energy Subsidy Reform in the Developing World

The Vital Role of Cash Transfers: Lessons from the Largest Energy Subsidy Reform in the Developing World

The dynamic of discriminatory reform: how does discretionary pricing neutralize the productivity gains of energy subsidy reform in Iran?

ABSTRACT A distortion caused by previous policies could distort the results of reforms. This may explain why policies to reduce industrial fuel subsidies have not necessarily resulted in increases in aggregate productivity in countries with mandated pricing. To identify and measure these distortions’ effects, we estimate a structural dynamic firm model with endogenous technology adaptation using data from the manufacturing firms in Iran. By connecting two price distortions and their results on the real sector, results suggest significant room for a distributional policy. We estimated dispersion elasticity comparable to the price elasticity of energy consumption in the manufacturing sector. Results suggest that the intensive margin is the primary driver of energy price elasticity, whereas the other channels mostly offset it. Moreover, total factor productivity slightly improves in light of a reduction in energy consumption if, at the same time, the redistribution policy boosts the aggregate demands.

How manufacturing firms respond to energy subsidy reforms? An impact assessment of the Iranian Energy Subsidy Reform

Energy prices increased several folds due to the 2010 Iranian Energy Subsidy Reform. This study assesses the impact of the reform on the performance of the manufacturing sector using a detailed micro-panel dataset at the 4-digit ISIC level for the period 2009 to 2013. Since the reform universally affected all firms, the analysis relies on a quasi-experimental framework implementing first an explorative before-after design with structural fixed-effects and second a difference-in-difference analysis exploiting the energy-sensitivity of the studied firm-groups. The subsidy reform reduced output and value-added by 3 and 7%, respectively. Profits decreased by nearly 9%. Heterogeneity analyses show that the manufacturing sector has been affected through three channels: increasing costs of direct energy inputs, pass-through costs for inputs from upstream firms and an energy-price-induced demand contraction. We conclude that for successfully implementing an energy subsidy reform while maintaining growth in the manufacturing sector, direct and indirect costs have to be considered. Importantly, the results can inform expected energy reforms to mitigate climate change.

Evaluating the mediating role of energy subsidies on social well-being and energy poverty alleviation in Bangladesh

Energy subsidies are a widespread policy instrument employed by national governments to regulate the mechanism of energy resource allocation in contemporary market economies. The economic impact of these subsidies has been quantitatively evaluated for various nations in the literature using different approaches. However, the impact of energy subsidies on social wellbeing tracked by looking at school drop-out, health status, and earning capacity through mediating effects of energy poverty employing mediation analysis using household-level data is rarely investigated, particularly for energy-poor countries. Thus, by employing mediation analysis with data from three waves of the national Household Income and Expenditure Survey (HIES) of Bangladesh for the years 2005, 2010, and 2016, this study intends to reveal the mediating effects of energy subsidies on social wellbeing via energy poverty. The results obtained utilizing a mixed-effect regression approach suggest that energy subsidies and energy poverty are significantly linked, and energy subsidies improve social wellbeing by mediating effects of energy poverty. This finding is robust to alternative ways of addressing endogeneity using Lewbel's two-stage least squares (2SLS) method. Additionally, the richer households realize better social wellbeing and have less energy poverty, gaining more than other households from energy subsidies. The policy relevance of this paper advocates further innovation in energy subsidy reforms in energy-poor countries for combating energy poverty and ensuring clean, sustainable, and affordable energy for all in line with the aims of the sustainable development goals (SDGs) 7, affordable and clean energy.

Energy subsidy reform and energy sustainability in Malaysia

The 12th Sustainable Development Goals (SDGs) highlighted the importance of ensuring sustainable consumption and production patterns. Researchers have found that energy subsidies may encourage overconsumption, misuse, and moral hazard problems. Hence, there is a need to rationalize inefficient energy subsidies. Consequently, the Malaysian government has been implementing a subsidy reformation program to improve energy efficiency and reduce fiscal burdens. This study aims to identify and compare the impacts of energy subsidies and oil prices on energy consumption across the agricultural, industrial and service sectors in Malaysia. It is critical for policymakers to better understand the role of energy subsidies in influencing energy consumption, especially the magnitude to which energy subsidies influence energy consumption, in order to structure a subsidy reform strategy which effectively addresses the energy overconsumption issue.In this study, a time series dataset covering the years of 1978 through 2018 is analyzed. The ARDL approach and Granger causality test were employed to determine meaningful statistical evidence and revealed four important findings. Firstly, energy subsidies have a positive relationship with energy consumption. Secondly, oil prices have a negative relationship with energy consumption and energy subsidies significantly interact with oil prices to affect energy consumption. This significant positive moderating effect suggests that energy subsidies may counteract the negative impact of oil prices on energy consumption. Thirdly, output has the greatest (positive) impact on energy consumption. And finally, energy subsidies drive higher outputs in the agricultural sector.

Short- and long-run macroeconomic impacts of the 2010 Iranian energy subsidy reform

This paper examines the short- and long-run effects of the 2010 Iranian energy subsidy reform on macro indicators including GDP and inflation. The subsidy reform, which consists of a simultaneous energy subsidy cut and a cash transfer to households, is not fiscally motivated but instead aims to reduce energy consumption. Using timeseries to analyse the dynamics of the macro variables in response to the subsidy reform elements (energy price increase, and cash transfer), this study reveals that the subsidy reform has a negative effect on the economy in the short- and mid-term, and the cash transfer to households does not fully compensate for this adverse effect. These results are robust and consistent across specifications. The main channel that transmits the effect of energy price to GDP is value-added of industry and service sectors. The long-run analysis rejects the existence of a long-run relationship between the energy subsidy reform and GDP. The findings indicate that the energy subsidy reform does not result in a reduction in energy consumption. These findings challenge the environmental aspect of the fossil fuel subsidy reforms as stand-alone policies without major reforms in the energy efficiency of economic sectors.

Deriving electricity consumption patterns using a decomposition approach

Studying the effectiveness of certain policies on load management requires detailed knowledge about the consumption pattern of end-use sectors. The consumption pattern includes both short-time scale variations and long-term trends in electricity consumption. This paper proposes a decomposition method to extract the seasonal (spring, summer cooling, autumn, and winter heating), day-of-week (working day, weekend), and time-of-day load curves of end-use sectors from aggregate load data of the electricity distribution network. The obtained data is used to study variations in the consumption patterns of end-use sectors such as households. The estimated load profiles represent the behavior of a large group of consumers for several years. The model is used to disaggregate the load data of Tehran province in Iran from 2006 to 2018. Resultsshow that during years, industrial power consumption has decreased during peak hours at night due to the shrinkage of two-shift industries. By contrast, the households’ load profiles in the autumn and spring load have shifted upward. This is the net effect of reduced lighting electricity consumption and increased access to electricity-consuming devices. Regression analysis on load decomposition results shows a mild effect of energy subsidy reform on lighting and cooling demand.

How energy subsidy reform can drive the Iranian power sector towards a low-carbon future

Substantial energy subsidies are recognised as the leading cause of Iran's inefficient electricity generation and consumption. This paper investigates the impacts of subsidy removal on future electricity demand and the required generation mix. A hybrid modelling framework is developed to analyse supply and demand sides under harmonised assumptions. An autoregressive distributed lag (ARDL) model combined with an autoregressive integrated moving average (ARIMA) model forecast electricity demand under subsidy removal scenarios at different paces. A partial equilibrium energy systems model (MESSAGE) offers a cost-optimal configuration of power generation technologies to meet the forecasted demand during the period 2017–2050. The findings demonstrate that energy subsidy reforms can reduce total electricity demand by 16% and could ensure a 31% cut in cumulative CO2 emissions. The scenario analysis also shows that under an early and steady reform scenario and with gradual removal, the development of renewable energy technologies and energy efficiency plans become cost-competitive. In contrast, the late and rapid subsidy removal path should tackle the lock-in effect's risk. This reveals that the early action in energy subsidy reform should be considered a priority over the removal speed. Finally, this paper discusses the potential policy implications beyond Iran.

Cash instead of subsidy: Assessing the impact of the iranian energy subsidy reform on households

The 2010 energy subsidy reform in Iran is a unique case of redistributive policy as the savings from the subsidy cut have been redirected to households as unconditional, universal cash transfer. While theoretically, the cash transfer was large enough to keep the utility of the average household at the initial level, this study explores the practical impacts of the reform. We analyze panel data on income/expenditure of Iranian households for the period 2010–2012. Since this is a universal reform, we exploit the time dimension and the intensity of energy consumption in the identification and assess the robustness of the results with sub-sample and placebo analyses. Overall, the energy subsidy reform caused a significant shrinkage (7%–9%) in households' real consumption. The cash transfer failed to fully compensate the negative impact of the subsidy removal. The impact is heterogeneous, varying along the intensity of energy consumption, geographical location, income and the share of the cash transfer in a household's income. A non-negligible policy accomplishment of the reform is that within its first two years poverty was mitigated in absolute and relative terms and income inequality slightly improved. Nevertheless, the government is under pressure because inflation counteracts these gains.

Energy transition in Saudi Arabia: Giant leap or necessary adjustment for a large carbon economy?

Since 2016 and guided by the National Vision 2030, the energy transition in Saudi Arabia has gained significant momentum. There have been important energy subsidy reforms and dynamic developments in the renewable energy sector. This paper provides a systematic view of the Saudi energy transition by highlighting drivers, sectors, targets and processes. It analyzes the progress with regard to lowering carbon emissions and consumption, as well as introducing ambitious new targets and solar energy projects. The energy subsidy reforms have delivered the needed funds for the energy transition and allowed for more participation in the energy markets. Other aspects of the energy transition included low-carbon urban developments and energy efficiency measures in the building sectors. Besides, key energy-intensive industries such as petrochemicals and desalination are incorporating renewables and facilitating the use of clean energy. Overall, the Saudi energy transition is underway, and it holds significant and necessary adjustments to the most important economy in the Middle East region. It needs to be complemented by environmental awareness and sustainable lifestyles. Reforming the large carbon economy of Saudi Arabia towards more sustainability and environmental responsibility can have positive spillovers and powerful messages about the future of carbon-fuel exporting states.

Distributional and Dynamic Impact of Energy Subsidy Reform

Distributional and Dynamic Impact of Energy Subsidy Reform

Increasing the Acceptance of Energy Subsidy Reforms: A Cross-Country Survey Experiment in Latin America and the Caribbean

Increasing the Acceptance of Energy Subsidy Reforms: A Cross-Country Survey Experiment in Latin America and the Caribbean

THE IMPACT OF ENERGY SUBSIDY REFORM ON ECONOMIC GROWTH IN EGYPT OVER THE PERIOD FROM 2013 TO 2020

In most developing countries, and the Middle East region in particular, "Energy Subsidy" is an issue of special importance for policymakers. To this day, there are no conclusive results concerning the possible impacts of the energy subsidies reform on economic growth. On this basis, this current study aims to examine the impacts of the energy subsidies reform on the economic growth in Egypt. To achieve the study's objective, the impacts of the energy subsidies reform have been divided into the following: a) indirect impacts: estimated through the use of AMOS OR WARP PLS program, and b) direct impacts: determined on basis of the Autoregressive Distributed Lag Model. So, this study evaluates the indirect effects of energy subsidy reform on economic growth. So, this current study has concluded that the energy subsidies reform in Egypt has significant negative effects on economic growth in both the short and long terms, whether they are direct or indirect impacts. Therefore, this research recommends that when it comes to reducing the energy subsidies, the Egyptian government shall adopt a lenient approach, to avoid the relevant negative impacts; thus, such measures shall be executed over many stages that extend for a longer period of time, with the provision of a social fund that supports the low-income people more comprehensively.Keywords: Energy subsidy reform, economic growth, EgyptJEL Classifications: O4, C5, Q4DOI: https://doi.org/10.32479/ijeep.11210

Energy subsidy reform evaluation research – reviews in Iran

AbstractThis paper provides an ex post evaluation of Iran's energy subsidy reform of main law, definitions, its aims and scope, its effectiveness, and problems. Based on an assessment of policy reports, actual data, peer‐reviewed studies, and regression models, this study suggests evidence that the removal of energy subsidies in Iran was effective in reducing energy consumption and greenhouse gas emissions only in the first 2 years of policy implementation. But, over the next years, the demand for energy commodities increased because of the incomplete implementation of the policy. Besides some local and international economic, social, and political challenges, the policy was not completed in the subsequent years because the government did not prepare its preliminary theoretical framework and requirements in the three stages of legislation and transparency – implementation and management, control, and adjustment of the negative policy impacts. Moreover, the decline in environmental emissions occurred mainly due to fuel switching, as natural gas consumption in power plants, industries, and transport, and rather the use of renewable energies, increased substantially. Likewise, at the time of removal of energy subsidies, the government introduced a cash transfer scheme until the present. This compensation scheme has had significant burdens on the government budget and reaches the trillions of rials each year, while in the first year of the policy, it improved the socioeconomic welfare. The econometric results showed that removing energy subsidies is an effective policy in reducing energy consumption and CO2 emissions in Iran. This study provides important policy recommendations for sustainable energy security and economic development in Iran. © 2021 Society of Chemical Industry and John Wiley & Sons, Ltd.

Navigating policy dilemmas in fuel-subsidy reductions: learning from Indonesia’s experiences

Fuel subsidies are policy instruments that have historically been used to assist the poor in affording energy for essential household activities. The subventions have, however, been the subject of considerable criticism that they in practice exacerbate inequalities and enrich fuel producers and well-to-do households that do not require support from fuel subsidies. When efforts to resolve tensions across different stakeholder needs lead to unintended, undesirable, and differential impacts across groups and across different time horizons, a policy dilemma emerges. Actors looking to understand or inform fuel-subsidy reform face an analytical challenge in knowing how to effectively frame important interlinkages and identify strategies for intervention. This policy brief responds to this analytical challenge in understanding interlinkages that frame these policy dilemmas by using John Kingdon’s multiple-policy stream framework to analyze how the Indonesian government navigated its energy subsidy reform policy dilemma during 1998–2016. It shares lessons on how the country has managed this situation and discusses implications for further domestic reforms. The Indonesian experience may provide useful insights and lessons for other developing countries looking to navigate the multiple interlinkages across fuel-subsidy dilemmas.

Is Energy Subsidy Reform in an Oil-Exporting Small Economy Beneficial to Trade? Illustrations from Kuwait

AbstractThis article fills a gap in the literature by quantifying impacts of fossil fuel subsidy reform on trade (inflow and outflow) in an oil-producing, “almost small”, economy, using Kuwait as an example. It employs a two-region economy-wide model with oligopoly behaviour in a general equilibrium framework. The model embodies unique elements of Kuwait's economic structure, idiosyncratic rigidities, and distortions, including oligopolistic industrial structure and labour markets. Simulations show that energy subsidies have minimal effects on trade and on non-energy exports, largely due to the pervasiveness of oligopolies that sustain large markups and their collusive pricing. Reforming energy subsidies generates higher pro-trade effects if implemented during low (not high) oil prices because its negative effects are partially offset by efficiency gains and reduction in oligopoly markups. Yet, contrary to claims by proponents of reforms, these effects remain largely constrained unless appropriate incentives are introduced. These results have important policy implications. In developing oil-exporting economies with pervasive oligopolies, microeconomic reform can be a channel through which to achieve pro-trade effects of energy subsidy reform. Further, benefits beyond export expansion, such as higher economic efficiency, could be better motivators of energy subsidy reform in oil economies.

ASSESSING THE ENERGY SUBSIDY REFORM IN INDONESIA THROUGH DIFFERENT SCENARIOS

This paper provides a comprehensive study on energy subsidy reform simulations in Indonesia by employing two new approaches, namely, the Almost-Ideal Demand System Iterated Linear Least-Square and SUBSIM. Periods of low and high oil prices are also accounted in this paper; further, it reveals that in 1999, when oil prices were low, this reform was possible due to Indonesia’s status as a net oil exporter and precise selected-reformed energy goods; however, the major concerns were the unsupporting welfare situations and the depreciation of the rupiah after the Asian Financial Crisis in 1997. In 2012, the evidence shows that despite high oil prices and Indonesia being a net oil importer, this reform saved more for the government and made significant welfare impacts. Overall, this paper suggests that this reform is feasible when at least some factors, i.e., stable national exchange rate, conducive welfare situations, availability of potential recipients’ database, and functioning government, are well-established. Keywords : Almost-Ideal Demand System; Energy goods; Simulation; Subsidy reform; Indonesia. JEL Classifications: D12, H53, I38, Q48 DOI: https://doi.org/10.32479/ijeep.9223

Phasing out Energy Subsidies to Improve Energy Mix: A Dead End

A major energy transformation is required to prolong the rise in global temperature below 2 °C. The Indonesian government (GoI) has set a strategy to gradually remove fuel subsidies to meet its 2050 ambitious energy targets. Using a recursive dynamic computable general equilibrium (CGE) model, the present study aimed to determine whether or not the current energy subsidy reforms would meet the targets of both energy mix and energy intensity. It also incorporated the environmental aspect while developing a source of a detailed database in the energy sector. The energy subsidy reform policy (followed by an increase in infrastructure and renewable energy investments) could be the most appropriate alternative policy if the government aims to reduce energy intensity and emission, as well as improve energy diversification without pronounced reductions in the sectorial and overall economy. However, all simulations suggested that the removal of energy subsidy does not enough in attaining the targeted energy mix and energy intensity goals. Thus, the Indonesian government should also introduce progressive programs in renewable energy.

Economics of energy subsidy reforms in Bangladesh

As in many countries around the world, subsidies to energy in Bangladesh impose a significant fiscal burden, with benefits that disproportionately accrue to high-income households. Using a computable general equilibrium model, this study investigates the economy-wide impacts of the removal of direct subsidies in the electricity sector and indirect subsidy in natural gas in Bangladesh. The study finds that the removal of energy subsidies would be beneficial to the economy and would increase GDP. The magnitude of the economic impact depends on how the budgetary savings from the removal of electricity subsidy and the increased revenues due to the removal of indirect subsidies to natural gas are reallocated to the economy. Recycling the savings (or the new revenues) to fund investment would benefit the country most, followed by the case of utilizing them to fund cuts in income taxes, and finally to fund cuts in indirect taxes. While the reallocation of budgetary savings to households through lump-sum transfers is found inferior to other recycling options considered, it could be the preferred from the distributional perspective. However, further analysis is needed to confirm this.