THE EFFECTS OF CUTTING ENERGY CONSUMPTION SUBSIDIES ON INDUSTRIAL AIR POLLUTION IN IRAN

Air pollution is an example of a negative externality; it imposes harmful effects and costs on people other than polluterS. In controlling air pollution, efficiency argument implies that, there is a rolefor the government to play. Studies show that taxation of fuels can be a powerful indirect instrumentfor controlling air polluticn because of the association between fuels use and emissions. In Iran, fuels consumption is highly subsidized and energy prices have for several yean been below opportunity costs as measured by border prices. The present study examined the impact of fuel price increases-removing energy subsidies-on the emissions of air pollutants in the industry sector. We analyze interfuel substitution in this sector-within a translog cost model-and combine the results with emission factors to assess the potential for emission reductions via demand changes. The empirical results indicale that: (1) substitution possibilities werefound for most combinations of fuel types in induStry sector; (2)for SOx, NOx, SPM and HC, emission elasticities with respect to the price of heavy petroleum products are -0.289, -0.220. -0.255 and -0.072, respectively. Also, a 10 percent price increasefor light petroleum products would reduce t0tal emissions of CO and HC by 3.36% and 0.47% respectively.