Investigating the Welfare and Environmental Effects of Research and Development Subsidies and Energy Consumption Taxation to Reduce Air Pollution in Iran

Recently, sustainable development and policy on improving the quality of the environment have attracted economists. The use of fossil fuel tax and subsidies to research and development are among the tools that can reduce air pollution by creating economic incentives and relative price adjustments. In this regard, the present study uses a Computable General Equilibrium (CGE) model to examine environmental impacts, the effectiveness and economic implications of using these two tools. The results show that both instruments reduce the air emissions and social costs of air pollution, while the tax effect was more efficient. Taxation of energy consumption leads to a reduction in consumption indicators, investment types, and welfare. By paying subsidies to the R&D, and resulting increase in investment in R&D, a decline rate in consumer expenditure and physical investment were observed. The welfare increases at a low rate of subsidy and decreases at higher rates.