Coherent or conflicting? Assessing natural gas subsidy and energy efficiency policy interactions amid CO2 emissions reduction in Malaysia electricity sector

Abstract One of the negative environmental consequences of natural gas subsidy (NGS) is that it stimulates the substitution from low carbon generating technologies to natural gas, and thus hinders the timely electricity decarbonisation. To manage Malaysia’s energy consumption and consequently reduce its energy-related carbon dioxide (CO2) emission, there has been renewed interest in removing NGS. In policy debates, it is a commonly held belief that NGS stimulates excessive energy consumption, and thus phasing NGS out would reduce electricity-related greenhouse gas emissions. However, whether this is the real situation and the emission reduction potential of phasing out NGS along with energy efficiency measures are still unanswered. Here we build an agent-based computational economic model with six types of agents (electricity producer, government, consumer, environment, electricity, and fuel markets). A simulation toolbox is developed to explore the dynamics of the electricity sector under different scenarios between 2015 and 2050. It is shown that removing NGS alone cannot lead to low carbon emissions because its removal would only instigate the substitution from low carbon technologies to the coal-fired plants. Two average annual growth rates of electricity demand have been simulated for energy efficiency policies. The simulation results show that the lower the rate of annual demand growth, the lower the growth rate of electricity output, and ultimately, the lower the energy-related CO2 emissions. With these two policies alone, CO2 emissions will continue to grow. Our results finally demonstrate that for the Malaysian government to achieve its emission reduction targets, additional efforts and policies will be required.