Analysis of Environmental and Welfare Effects of Energy Subsidy Refor Application of Computable General Equilibrium Model

The second step of subsidies targeting program which is coupled with energy price reform، has multiple effects on the economy. One of the major effects is the welfare and environmental changes in the country. This study intends to analyze the environmental and welfare effects of energy price reform using a general equilibrium model. There are two scenarios of income redistribution. First، redistribution of whole income among households equally and second، redistribution of income in accordance with the subsidies targeting law. In this model، Iran''s economy consists of 26 section. Households are considered separately for urban and rural in income deciles. Production factors، includs skilled labor، unskilled labor and capital. Energy carriers include electricity، natural gas، LPG، petrol، kerosene، fuel oil، and gasoline. The first scenario، leads to about 16 percent welfare increase in urban households and 53 percent to rural household. The second scenario، provides welfare increase about 3 percent for urban households and 25 percent to rural household. Considering environmental effects it is found that energy price reform is effective in reducing emissions، in total.