Subsidy removal, regional trade and CO2 mitigation in the electricity sector in the Middle East and North Africa region

This study analyzes the impacts on the power sector in the Middle East and North Africa region of three policies: removal of fuel subsidies, enhanced cross-border electricity trade, and a cap on carbon dioxide emissions. The analysis uses a power system planning model that minimizes the total electricity supply cost over 2018-2035 by satisfying specified technical, economic, environmental, and policy constraints. The study shows that the region would save between US$26.3 billion and US$27.5 billion, measured in 2018 prices, by removing subsidies to natural gas used for power generation. Cross-border electricity trade would save US$83.6 billion to US$90.9 billion. The two policies together would yield a reduction of 10 percent in cumulative power-sector CO2 emissions in the region, with a net cost savings of US$111 billion. If a carbon emission-constraining policy is considered to achieve the same level of emissions reduction, the power supply costs will increase by US$97 billion. The study also reveals that the removal of fossil fuel subsidies and expanded cross-border electricity trade significantly complement each other and also to achieve climate change mitigation targets in the MENA region.

Automated summary

This study examines the impacts of three policies on the power sector in the Middle East and North Africa region: removal of fuel subsidies, enhanced cross-border electricity trade, and a cap on carbon dioxide emissions. The results show that removing subsidies to natural gas for power generation would save the region $26.3-$27.5 billion, while cross-border electricity trade would save $83.6-$90.9 billion. Implementing both policies would reduce CO2 emissions in the power sector by 10% and save a net cost of $111 billion. However, introducing carbon emission-constraining policy would increase power supply costs by $97 billion. The study also highlights the complementary nature of removing fossil fuel subsidies and expanding cross-border electricity trade in achieving climate change mitigation goals in the MENA region.