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Revisiting Energy Subsidy Calculations: A Focus on Saudi Arabia

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  • Anwar A. Gasim
  • Walid Matar

Abstract

The implicit nature of many energy subsidies has led to disagreements over what defines a ‘subsidy’ while making it difficult to estimate their indirect fiscal cost. Most energy subsidies in Saudi Arabia are implicit, leading to forgone government revenue. Using a comprehensive dataset, we estimate energy subsidies in Saudi Arabia for ten fuels and electricity for the 2007–2018 period. We begin by applying the price-gap method, then introduce a formulation that better captures the forgone revenues from maintaining a subsidy, accounting for the domestic demand response to the removal of the subsidy, which in turn frees up exports that can reduce the international market price. Our method shows that the magnitude of Saudi Arabia’s implicit energy subsidies may be overestimated. For instance, we find that the crude oil subsidy can fall from $8.6 billion (the price-gap estimate) to as low as $3.3 billion in 2018.

Suggested Citation

  • Anwar A. Gasim & Walid Matar, 2023. "Revisiting Energy Subsidy Calculations: A Focus on Saudi Arabia," The Energy Journal, , vol. 44(1), pages 245-276, January.
    • Handle: RePEc:sae:enejou:v:44:y:2023:i:1:p:245-276
    DOI: 10.5547/01956574.44.1.agas
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    References listed on IDEAS

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    3. Karanfil, Fatih & Pierru, Axel, 2021. "The opportunity cost of domestic oil consumption for an oil exporter: Illustration for Saudi Arabia," Energy Economics, Elsevier, vol. 96(C).
    4. repec:aen:journl:ej43-3-soummane is not listed on IDEAS
    5. Alyousef, Yousef & Stevens, Paul, 2011. "The cost of domestic energy prices to Saudi Arabia," Energy Policy, Elsevier, vol. 39(11), pages 6900-6905.
    6. repec:aen:journl:ej38-si1-blazquez is not listed on IDEAS
    7. Mr. David Coady & Ian W.H. Parry & Nghia-Piotr Le & Baoping Shang, 2019. "Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates," IMF Working Papers 2019/089, International Monetary Fund.
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    Cited by:

    1. Ibrahim Shittu & Abdul Saqib & Abdul Rais Abdul Latiff & Siti ‘Aisyah Baharudin, 2024. "Energy Subsidies and Energy Access in Developing Countries: Does Institutional Quality Matter?," SAGE Open, , vol. 14(3), pages 21582440241, August.

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