Electricity incentives for agriculture in Saudi Arabia. Is that relevant to remove them?

Saudi Arabia has been implementing the domestic energy price reform (EPR) and fiscal reform since the end of 2015 under the Fiscal Balance Program (FBP), one of the key realization programs of Saudi Vision 2030 (SV2030). The EPR aims to increase the rational consumption of energy and budget revenues by gradually removing energy incentives across the economy by 2025 (FBP, 2019). This study assesses the impact of electricity incentives that the government provided for the development of the agricultural sector in the pre-reform period to find out how large its magnitude was and to determine whether removal of them in the sector is a relevant measure to take. We found that while these incentives had both short and long-run positive impacts on the agriculture growth, the magnitude of these impacts was quite small (the long-run elasticity is between 0.04 and 0.07 and the short-run elasticity is around 0.09-0.11). We also found that investing in capital stock and technological progress would lead to more and sustained development than a continuation of the government's electricity incentives in the sector. Additionally, we found that increases in temperature, primarily resulting from carbon emissions of fossil fuel consumption, is harmful to the sector's development. These empirical findings support the ongoing policy for the implementation of gradual removal of electricity incentives and suggest that some mitigation measures should be considered for the sector. In policy implementations, decision-makers should consider that the sector is capable of absorbing shocks, including policy interventions within two years.