Investigating the Effectiveness of Price Policies for Reforming the Energy Consumption Pattern among Provinces of Iran: Dynamic Panel Data Approach

Valid estimates of price elasticity of energy demand lead to a better understanding of the economic, environmental and distributive impacts of energy price changes, and enable policymakers to make efficient energy management decisions. This study aims to investigate the effectiveness of pricing policies for the modification of energy consumption patterns among Iran’s provinces. In this regard, price elasticities of energy demand ‎are estimated for selected energy carriers and total energy price index during 2000-2015. For this purpose, a dynamic panel model is used and the price elasticities of energy demand are estimated by Arellano-Bover (1995) and Blundell-Bond (1998) approaches. When total energy price index is applied in the model, the results show that the short-run and long-term price elasticities of energy demand are -0.038 and -0.567 on average, respectively. However, regarding energy carriers, the highest price elasticities of the aggregate energy demand belong to electricity and gasoline, respectively. The effect of climate change (as a proxy for heating and cooling needs) on energy demand is significant, and the average climate elasticity of energy demand is 0.15 in the short run and 2.30 in the long run. Since price elasticity of energy demand is less than one, and its climate elasticity is greater than one in the long run, non-tariff policies are proposed for energy conservation in the country.