Environmental Impacts of Phasing out Energy Subsidies

Here, we investigate the environmental impacts of removing these subsidies in terms of emission of air pollutants. The paper employs a multi-pollutant, multi-fuel and multi-sector Computable General Equilibrium (CGE) model calibrated using 2001 Energy Micro Consistent Matrix (EMCM) of Iranian Ministry of Energy. We consider the possibility of pollutant substitution, which may change the pollutants mix and cause new environmental problems. Our findings suggest that pollutant substitution may happen if a policy causes extreme changes in relative energy prices. The magnitude of this substitution depends on energy substitution elasticities as well as sectoral activity level changes, energy share parameters, and emission factors. For the Iran case, we found that CO and CH emissions would increase after rising in energy prices