Impacts of energy subsidy reform on the Malaysian economy and transportation sector

Saeed Solaymani and Fatimah Kari

Energy Policy, 2014, vol. 70, issue C, 115-125

Abstract: Malaysia is paying a high level of subsidies on the consumption of energy (about 5% of its GDP). Therefore, reforming the energy subsidies, as planned by the government, will have a significant impact on household welfare and energy-intensive sectors, such as the transport sector. This study employs a computable general equilibrium (CGE) model to highlight the transmission channels through which the removal of energy subsidies affects the domestic economy. The findings show that the shock increases real GDP and real investment, while decreasing Malaysian total exports and imports. The removal of energy subsidies also decreases the aggregate energy demand, and, consequently, decreases the level of carbon emissions in the Malaysian economy. In addition, households experience significant falls in their consumption and welfare. The transport sector is significantly influenced through an increase in production costs due to an increase in the prices of intermediate inputs. The total output and total exports of the whole transport sector decrease while its imports increase. In addition, the use of all kinds of transport by households decreases significantly. The Malaysian energy subsidy reform, leads to an initial decrease in CO2 emissions and demand for electricity, gas, and petroleum products in the entire transport sector.

Keywords: Energy subsidy reform; Energy demand; Emission; Transportation sector; Computable general equilibrium (CGE) (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:70:y:2014:i:c:p:115-125

DOI: 10.1016/j.enpol.2014.03.035

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