A CBA Model for Economic Effects of Eliminating Energy Subsidies in I.R.Iran

This paper estimates the total subsidy in year 2003 at 16.68 % of GDP and running a model, predicts that energy subsidies will reach to 20% of GDP by year 2019. Also environmental damage costs of energy consumption have been entered the Cost-Benefit Analysis (CBA) in addition to the vast amount of subsidies. Using a CBA Model which considers changes in level of social welfare and environmental quality as probable benefits, the B/C ratio for running price reform policy under two scenarios has been analyzed and calculated. The analysis shows that reducing energy subsidies for each energy form is considerably beneficial. Apart from the environmental benefits, the increase in prices can be a base for a redistribution of income within the poor deciles of economy and this policy would increase the government revenue and economic growth in long-term.

Keywords:

Energy , Subsidies , Iran , Price Reform , Environmental Quality