“General Equilibrium Effects of Energy Subsidy Reform” by Badri Narayanan Gopalakrishnan, Sumathi Chakravarthy, Sindhu Bharathi, Sudha Varadhan, Anitha Vijayakumar, Albert Bakhtizin, and Irina Rostovtseva.
This report seeks to understand the size, impacts, and potential for energy subsidy reform in the Russian Federation to inform policymakers as they explore approaches to reducing such subsidies. Russia provides significant energy subsidies to both industrial and residential consumers and ultimately, issues surrounding the removal of energy subsidies in Russia need to be thought through carefully as part of a package of competitiveness, efficiency, governance, and social protection reforms, as Russia strives to join the ranks of high-income nations.
Chapter 2 in the report introduces a regionally disaggregated Computable General Equilibrium (CGE) Modelling framework for the Russian Federation. This model is used to analyze the economic impact of removing subsidies in the country’s oil, gas, and electricity sectors. It also estimates opportunity costs, which need to be accounted for when assessing the impact of fuel subsidy reform. In addition, the CGE model evaluates the effectiveness of fuel substitution options in response to energy price shocks at the regional and sectoral levels.