KAPSARC released its second Discussion Paper in March 2014, entitled Lowering Saudi Arabia’s fuel consumption and energy system costs without increasing end consumer prices.

Saudi Arabia aims to reduce the growth of its energy demand. Using the newly-developed KAPSARC Energy Model, a multi-sector equilibrium model applicable to the Saudi energy economy and other systems of administered energy prices, we outline an approach that can reduce substantively the current fuel consumption and could result in a net economic gain without increasing current end consumer prices. The policies examined would have potentially generated economic benefits exceeding 23 billion USD in 2011, or about 4% of Saudi Arabia’s GDP. This economic benefit comes mainly from inter-sectoral pricing policies that incent shifting the mix in technologies that generate electricity and produce water. We show that when complemented by credits for investments in solar and nuclear power generation capacities, a modest increase in the transfer prices of fuels among sectors would produce economic benefits close to those achieved by deregulating transfer prices. An implication of the results is that through its domestic energy policies, Saudi Arabia can disconnect its energy-consumption growth from GDP growth.

The Energy Systems Modeling Discussion Paper can be accessed here