Hard-Linking a Top-Down Economic Model with a Bottom-Up Energy System in an Oil-Exporting Country Where Prices are Administered

This paper presents the hard-linking between a bottom-up model of energy sectors and a top-down CGE model, in the case of an oil-exporting country - Saudi Arabia - where domestic energy prices are administered. The integrated model is solved with a Jacobi algorithm where the bottom-up and the top-down model are formulated separately as MCP problems, linked through a few variables, and solved iteratively until convergence. We illustrate our model with an assessment of sectoral and economy-wide consequences of domestic energy prices reforms. We show how, in Saudi Arabia, deregulated energy prices trigger fuel switching and energy efficiency gains, increase crude oil exports and lead to a massive deployment of solar photovoltaic as thermal generation is no longer supported by low administered fuel prices. Price deregulation also increases GDP by 3 to 6% at the 2030 horizon and reduces energy-related CO 2 emissions by around one third