An interactive environmental economy model for energy cycle in Iran

The growing world economy calls for saving natural resources withsustainable development framework. This paper intends to look at theenvironment-energy interface (impacts on the environment stemming formthe energy sector) and to propose measures for reducing this impactwithout trying to impede economic development. In addition, this paperestimates the amounts of energy subsidies about 20% of Gross DomesticProduct (GDP) in 2019 if the conditions do not change. Meanwhile,environmental damage from air pollution has been assessed by scalingaccording to GDP per capita measured in purchase power parity (PPP)terms. Using this approach, the total damage from air pollution in 2001was assessed about $7billion; equivalent to 8.4% of nominal GDP.Lacking price reform and control policies, the authors estimate thatdamage in Iran will grow to 10.9% of GDP by 2019. In line withdifficulties of eliminating subsidies, a list of 25 measures has beenanalyzed, using the environmental cost-benefit analysis and based oncost-effectiveness of the policies to verify which ones would beimplemented. Finally the financial effects of implementing differentcombinations of price reform and carrying out those policies on thestate budget, damage costs and subsidies have been calculated.