Hard-linking a top-down economic model with a bottom-up energy system for an oil-exporting country with price controls

This paper presents the hard-linking between a bottom-up model of energy sectors and a top-down Computable General Equilibrium (CGE) model, for an oil-exporting country - Saudi Arabia - where domestic energy prices are set by the government. The integrated model is solved with a Jacobi algorithm where the bottom-up and the top-down model are formulated separately and solved iteratively until convergence. The model is used to assess the sectoral and economy-wide consequences of domestic energy price reforms. Removing energy price controls triggers fuel switching and energy efficiency gains, increases crude oil exports and leads to a massive deployment of solar photovoltaic. As a result of price reforms, at the 2030 horizon, Saudi Arabia's Gross Domestic Product (GDP) increases by 3 to 6% and energy-related CO2 emissions are reduced by one third.