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Impacts of Energy Price Increase and Cash Subsidy Payments on Energy Demand

Davood Manzoor and Iman Haqiqi

MPRA Paper from University Library of Munich, Germany

Abstract: Energy demand is mainly a function of own price, price of substitute energies, the activity level of sectors, cost of materials and labor and capital, cost-share of energy, elasticity of substitution parameters and households income. The main purpose of this paper is to measure the changes in energy demand after energy price increase and cash subsidy payment to households. We apply a Computable General Equilibrium (CGE) model of Iran as a small open economy. The model is specialized in modeling energy market in Iran. We consider 7 energy goods; the discriminatory energy prices are considered between sectors, and energy markets are modeled to show how government controls the prices. The model is calibrated based on Energy Micro Consistent Matrix (EMCM) of Ministry of Energy. We found that chemical Industry and Transportation Services face the highest reduction in sectoral energy demand. In the counterfactual scenario, the relative price of electricity compared to other energies declines. Therefore electricity demand would increase in the long run when compared to short-run demand level. But as expected, the gas-oil and fuel demand would decrease in the long run.

Keywords: energy demand; energy price; price control; cash subsidy; computable general equilibrium; CGE (search for similar items in EconPapers)
JEL-codes: C68 D24 D58 Q4 Q41 Q43 Q48 (search for similar items in EconPapers)
Date: 2013
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Published in Journal of Trade Studies 67.17(2013): pp. 101-124

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