Economic Evaluation of Environmental Impacts of Changes in Electricity Production Pattern in Iran Using a CGE Model

The issue of protecting the environment and preventing environmental pollution is one of the priorities of Iran’s economic and social development plans. The purpose of this paper is to analyze changes in the environmental effects of electricity generation, as electricity production patterns change, on production and welfare of households in Iran by using the social accounting matrix of 2011 and a computable general equilibrium model based on that framework. We evaluate four different policy scenarios based on the monetary value of the negative environmental effects of electricity generation.  The results indicate that application of electricity generation’s negative externalities has a positive effect on economic growth and a negative effect on household welfare. Secondly, with the current structure of electricity generation, the application of external costs of electricity production will increase economic growth by 0.0576 to 0.0736 percent and will reduce household’s welfare by -1.955 to -7.171 percent. Thirdly, by changing the pattern of electricity generation in Iran and moving towards clean electricity production and reducing electricity production from fossil fuels, the effect of electricity generation externalities on economic growth and welfare will be reduced. According to the research results, if the share of electricity production from fossil fuels is reduced to 85%, the economic growth and welfare of the household will respectively vary from 0.0553 to 0.0727 percent and from -1.733 to -6.363 percent.