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Impacts of Energy Price Increase and Cash Subsidy Payments on Energy Demand

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  • Manzoor, Davood
  • Haqiqi, Iman

Abstract

Energy demand is mainly a function of own price, price of substitute energies, the activity level of sectors, cost of materials and labor and capital, cost-share of energy, elasticity of substitution parameters and households income. The main purpose of this paper is to measure the changes in energy demand after energy price increase and cash subsidy payment to households. We apply a Computable General Equilibrium (CGE) model of Iran as a small open economy. The model is specialized in modeling energy market in Iran. We consider 7 energy goods; the discriminatory energy prices are considered between sectors, and energy markets are modeled to show how government controls the prices. The model is calibrated based on Energy Micro Consistent Matrix (EMCM) of Ministry of Energy. We found that chemical Industry and Transportation Services face the highest reduction in sectoral energy demand. In the counterfactual scenario, the relative price of electricity compared to other energies declines. Therefore electricity demand would increase in the long run when compared to short-run demand level. But as expected, the gas-oil and fuel demand would decrease in the long run.

Suggested Citation

  • Manzoor, Davood & Haqiqi, Iman, 2013. "Impacts of Energy Price Increase and Cash Subsidy Payments on Energy Demand," MPRA Paper 95826, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95826
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    References listed on IDEAS

    as
    1. AydIn, Levent & Acar, Mustafa, 2011. "Economic impact of oil price shocks on the Turkish economy in the coming decades: A dynamic CGE analysis," Energy Policy, Elsevier, vol. 39(3), pages 1722-1731, March.
    2. Sancho, Ferran, 2010. "Double dividend effectiveness of energy tax policies and the elasticity of substitution: A CGE appraisal," Energy Policy, Elsevier, vol. 38(6), pages 2927-2933, June.
    3. Jensen, Jesper & Tarr, David, 2002. "Trade, foreign exchange, and energy policies in the Islamic Republic of Iran : reform agenda, economic implications, and impact on the poor," Policy Research Working Paper Series 2768, The World Bank.
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    Cited by:

    1. Haqiqi, Iman & Yasharel, Sepideh, 2018. "Removing Fossil Fuel Subsidies to Help the Poor," MPRA Paper 95907, University Library of Munich, Germany.
    2. Aghababaei, Mohammad Ebrahim, 2019. "General Equilibrium Resource Elasticity in an Open Resource-Abundant Economy," MPRA Paper 97851, University Library of Munich, Germany.
    3. Haqiqi, Iman & Manzoor, Davood, 2012. "Environmental Impacts of Phasing out Energy Subsidies," MPRA Paper 95688, University Library of Munich, Germany, revised 2016.
    4. Haqiqi, Iman & Bahalou, Marziyeh & Hamidi, Razieh, 2014. "Measurement and Evaluation of Equality of Opportunity: A Numerical Look at Education, Health, and Income Inequality," MPRA Paper 95866, University Library of Munich, Germany.

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    More about this item

    Keywords

    energy demand; energy price; price control; cash subsidy; computable general equilibrium; CGE;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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