Regional Fuel Consumption and CO2 Emissions In Saudi Arabia: Impacts of Electricity Price Reforms

Abstract

Abstract Evaluating potential outcomes of energy price reforms is essential for policymakers to assess their effectiveness. In 2016 and 2018, the Saudi government enacted two waves of energy price reforms to curb historically fast-growing electricity demand. We quantify the effects of these measures on regional fuel consumption and carbon emissions. We develop an econometric model using Autometrics and Structural Time Series Modelling approach to assess demand changes following price reforms. These approaches, utilizing different channels, detect exogenous interventions leading to biased parameter estimations if not addressed. We model the resulting emissions and fuel savings on the supply side using an optimization model representing Saudi Arabia’s power generation sector. We estimate that between 2016 and 2019, electricity demand is lower by 8.8% per year on average following price reforms, resulting in USD 1.4 billion in fuel savings. Considering international oil prices would bring the total savings up to USD 9.8 billion. Moreover, we show that the two waves of reforming electricity prices avoided 81–102 million tons of carbon dioxide emissions, i.e., a potential increase of 8.2%-10.4% of the power sector's emissions. Our results for Saudi Arabia demonstrate the benefits of reforming energy prices for countries with administered tariffs as an effective tool to reduce inefficient demand and carbon emissions to achieve climate pledges. JEL codes: C3, C5, C32, Q410, Q430, O210