Analysis of Electricity Subsidies Removing in Iran on Air Pollution by Using of VECM

Abstract

In Iran, the government pays subsidy on electricity consumption. So, the price of electricity in Iran is lower than its actual levels. Payment of subside on electricity consumption, increase the consumption of this energy carrier and also increase environment pollution as a result. This paper analyzes the short-term and long-term impacts of removing of electricity subsidies on environment pollution. To do so, the dynamic relation between electricity consumption and its price is estimated by using of an vector error correction model. The short – run and long – run price elasticity of electricity, show the impact of increase in electricity price due to removing of electricity subsidies, on its consumption and environment pollution in the short – and long run. The short-run and long-run price elasticity of electricity is –0.03 and –0.14 respectively. So, a 1% increase in prices of electricity due to removing of electricity subsidies, will decrease the electricity consumption and its environmental pollution about 0.03% and 0.14% in the short and long-run respectively.