Paradoxically, a shortage of electricity has emerged in a region endowed with one-quarter of the world’s natural gas. This shortage has been caused by overheated demand stemming from deep underpricing of both gas and electricity. Gas is sold at rates far below those of the global market, allowing for electricity tariffs that can be a tenth of those in the United States. Pricing distortions have allowed buildings – and entire cities – to be built without regard for energy efficiency. Unrestrained consumption has, in turn, handed the Gulf states the embarrassing position of leading the world in per capita emissions of greenhouse gases. It has also created the impetus for action.
This policy brief outlines three policy options that Gulf Arab governments can consider to address the shortage. First, raise prices. Second, retrofit buildings for energy efficiency. Third, ban inefficient air conditioners and other appliances. The brief discusses the political obstacles involved in raising prices and eliminating a key subsidy used by governments to maintain domestic support. It concludes by recommending a policy of gradual price hikes and government-backed retrofitting of buildings. |