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Oil Subsidies and Renewable Energy in Saudi Arabia: A General Equilibrium Approach

Blazquez, J, Hunt, Lester and Manzano, B (2017) Oil Subsidies and Renewable Energy in Saudi Arabia: A General Equilibrium Approach The Energy Journal, 38 (S11). pp. 29-45.

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Abstract

In 2016, the Kingdom of Saudi Arabia (KSA) announced its Vision 2030 strategic plan incorporating major changes to the economic structure of the country, including an intention to deploy 9.5 GW of renewable energy in an effort to reduce the penetration of oil in the electricity generation system. This paper assesses the macroeconomic impact of such changes in the KSA, coupled with reductions in implicit energy subsidies. Based on a dynamic general equilibrium model, our analysis suggests that if the KSA government were to deploy a relatively small quantity of renewable technology, consistent with the country’s Vision 2030 plans, there would be a positive impact on the KSA’s long run GDP and on households’ welfare. However, we demonstrate that if the integration costs of renewable technology were high, then households’ welfare would be maximized at around 30–40 percent renewables penetration. In addition, we show that a policy favoring renewable energy would increase the dependence of the KSA on oil, given that a larger share of GDP would be linked to oil exports and so, potentially, to oil price shocks. Finally, it is shown that exporting significantly more oil onto the international market could have a negative impact on the international oil price and thus could offset the potential gains from the renewable energy policy.

Item Type: Article
Subjects : Economics
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
NameEmailORCID
Blazquez, JUNSPECIFIEDUNSPECIFIED
Hunt, LesterL.Hunt@surrey.ac.ukUNSPECIFIED
Manzano, BUNSPECIFIEDUNSPECIFIED
Date : 2017
Identification Number : 10.5547/01956574.38.SI1.jbla
Copyright Disclaimer : Copyright 2017 by the IAEE. All rights reserved. Published under a CC-BY license.
Uncontrolled Keywords : Saudi Arabia, renewable penetration, implicit oil subsidy, oil exports, welfare costs, energy transition, general equilibrium model
Depositing User : Symplectic Elements
Date Deposited : 02 May 2017 10:06
Last Modified : 13 Sep 2017 14:26
URI: http://epubs.surrey.ac.uk/id/eprint/814073

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