Advancing renewable energy in resource rich economies of the MENA
As much of the world pushes ahead with the deployment of renewable energy, resource-rich economies of the Middle East and North Africa are lagging behind. This article contends that while the main obstacles to deployment of renewables are grid infrastructure inadequacy, insufficient institutional capacity, and risks and uncertainties, the investment incentives lie on a policy instrument spectrum with two polar solutions: (1) the incentive is provided entirely through the market (removing all forms of fossil fuel subsidies and internalizing the cost of externalities), or (2) the incentive is provided through a full government subsidy programme (in addition to the existing fossil fuel subsidies). However, there is a trade-off between the two dimensions of the fiscal burden and political acceptance across the policy instrument spectrum, which implies that the two polar solutions themselves are not easily and fully implementable in these countries. The authors propose a new, dynamic, combined approach (partial subsidy programme and partial fossil fuel price adjustment) that gradually moves towards market-based incentive provision over the medium to long term and eventually phases out energy subsidies. The approach balances fiscal sustainability with political stability, enabling the gradual scaling up and development of markets for renewables.
Poudineh, R., Sen, A., and Fattouh, B. (2018). ‘Advancing renewable energy in resource rich economies of the MENA’, Renewable Energy, 123: 135–149.