Ex-post analysis of energy subsidy removal through integrated energy systems modelling
Vahid Aryanpur, Mahsa Ghahremani, Siab Mamipour, Mahshid Fattahi, Brian Ó Gallachóir, Morgan Bazilian, James Glynn
Abstract
Energy subsidies can incentivise the overconsumption of energy resources and contribute to other economic or social distortions. In this paper, an ex-post analysis is presented that explores the extent to which electricity subsidy reform could have reduced Iran's energy demand during the period 1984–2017. It also quantifies the techno-economic and environmental benefits that could have been achieved through such reforms. A time-varying econometric model is linked to an energy systems optimisation model. The former estimates electricity demand under different subsidy removal scenarios, and the latter identifies the cost-optimal generation mix to meet the demand. The results of cost-optimal transition pathways under subsidy removal scenarios are compared with the real-world energy system development during the study horizon. The comparison reveals that the subsidy reform could have reduced the total cumulative electricity consumption by 22%. Renewable share in power generation could have increased from 5% to 15%. Moreover, the reform combined with a cost-optimal generation pathway would have saved $69 billion and avoided 944 million tons of CO2 emissions. The analysis also shows that every five-year delay in subsidy removal causes about 100 million tons of additional CO2 emissions. Finally, the paper presents lessons learnt for future energy modelling.