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Hard-linking a top-down economic model with a bottom-up energy system for an oil-exporting country with price controls

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  • Durand-Lasserve, Olivier
  • Almutairi, Hossa
  • Aljarboua, Abdullah
  • Pierru, Axel
  • Pradhan, Shreekar
  • Murphy, Frederic

Abstract

This paper presents the hard-linking between a bottom-up model of energy sectors and a top-down Computable General Equilibrium (CGE) model, for an oil-exporting country - Saudi Arabia - where domestic energy prices are set by the government. The integrated model is solved with a Jacobi algorithm where the bottom-up and the top-down model are formulated separately and solved iteratively until convergence. The model is used to assess the sectoral and economy-wide consequences of domestic energy price reforms. Removing energy price controls triggers fuel switching and energy efficiency gains, increases crude oil exports and leads to a massive deployment of solar photovoltaic. As a result of price reforms, at the 2030 horizon, Saudi Arabia's Gross Domestic Product (GDP) increases by 3 to 6% and energy-related CO2 emissions are reduced by one third.

Suggested Citation

  • Durand-Lasserve, Olivier & Almutairi, Hossa & Aljarboua, Abdullah & Pierru, Axel & Pradhan, Shreekar & Murphy, Frederic, 2023. "Hard-linking a top-down economic model with a bottom-up energy system for an oil-exporting country with price controls," Energy, Elsevier, vol. 266(C).
    • Handle: RePEc:eee:energy:v:266:y:2023:i:c:s0360544222033369
    DOI: 10.1016/j.energy.2022.126450
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    More about this item

    Keywords

    Energy model; General equilibrium; Hard-link; Mixed complementarity problem; Price controls; Saudi Arabia;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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