Spatial Spillovers of Energy Subsidy Reform on Industrial Emissions across Arab Economies

Abstract

Reforms in subsidies will lead to changes in industrial costs; however, changes in regional emissions will be dictated by domestic adjustments and cross-border transfers. This literature review analyzed 21 journal articles and a single regional policy report, with an addition of a numerical analysis that can be replicated. Using Saudi data, a demand for industrial natural gas and electricity is predicted to decrease by 10.36% and 2.70%, respectively, for a 20% price hike assuming activities remain constant. Should there be activity growth, the predicted demand for electricity will likely change from a decrease to an increase. A 4 unit spatial model demonstrates that feedback changes in the indirect effects and that marginal coefficients need to be converted to reflect shocks of finite magnitude. The reforming unit in a hypothesized 20% scenario is predicted to decrease emissions by 5.25%, whereas emissions from other units will increase by 15.94%, with the overall emissions from the units decreasing by 1.10%. These values, however, do not reflect estimates for the Arab countries. Equal-log-shock comparisons distinguish treatment scale from nonlinear aggregation. In addition to a taxonomy of efficiency, substitution, contraction and relocation, this review makes a distinction between industrial emissions from source and trade of embodied goods and services from upstream sectors. In addition to clear policies and regulations regarding implementation, compensation mechanisms and effective industrial prices need to be correlated with their impact on industry specific activities.