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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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    1. Jorge Blazquez & Lester C Hunt & Baltasar Manzano, 2017. "Oil Subsidies and Renewable Energy in Saudi Arabia: A General Equilibrium Approach," The Energy Journal, , vol. 38(1_suppl), pages 29-46, June.
    2. Ansari, Dawud, 2017. "OPEC, Saudi Arabia, and the shale revolution: Insights from equilibrium modelling and oil politics," Energy Policy, Elsevier, vol. 111(C), pages 166-178.
    3. Salaheddine Soummane, Frédéric Ghersi, and Franck Lecocq, 2022. "Structural Transformation Options of the Saudi Economy Under Constraint of Depressed World Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    4. Frédéric Gonand & Fakhri J. Hasanov & Lester C. Hunt, 2019. "Estimating the Impact of Energy Price Reform on Saudi Arabian Intergenerational Welfare using the MEGIR-SA Model," The Energy Journal, , vol. 40(3), pages 101-124, May.
    5. 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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