Track: Energy and Resource Efficiency

Abstract

Energy subsidies are commonly used by governments for many social and economic objectives.  In some rich countries, energy products are supplied to beneficiaries at subsidized prices as a way of wealth-sharing. Despite the objectives of energy subsidies, they have critical impacts on the efficiency of energy use. Saudi Arabia, which previously heavily subsidized fuel and electricity prices, recently reformed its energy subsidies as an incentive by which to increase the efficiency of domestic energy consumption. This paper estimates the impact of the residential electricity subsidy reform in Saudi Arabia. The price-gap approach is applied in this paper to estimate the cost of electricity subsidies in 2018 if the electricity prices remained unchanged. Additionally, the impact of the price gap removal on the elasticity of demand is estimated in order to measure the efficiency of current residential electricity consumption. Residential electricity subsidies accounted for 0.8% of Saudi Arabia’s GDP in 2017, which is equivalent to 5.382 billion USD. It is estimated that the energy subsidy reform will lower the government residential electricity subsidy bill by 52%. In addition, the efficiency of electricity consumption is estimated to increase and, thus, result in a 22,031 GWh decline in electricity demand.