Economic and Environmental Impacts of Pollution Tax

Emission tax is of environment protecting policies in economy context. This study also was conducted while aiming at investigating economic and environmental impacts of emission taxation levied on pollutants emitted from fuel and production process in Iran. To get the objective a computable general equilibrium framework based on the Iranian social accounting matrix of 1999 as well as emission data for 2009 was used. The considered pollutants are CO2, CH4, N2O, CO, NOx and SO2. The pollutants also were taxed based on World Bank (2004) damage cost. The results showed that levying a tax on fuel and production emitted pollutants leads to output expansion in services and some of agricultural sectors while it makes industrial and energy sectors output to fall. It was also found that in the highest taxation level, levying fuel and production based pollution results in reduction of GDP and households consumption by less than 1.5% and 2.5% respectively while it entails pollutants emission reduction by 2.5-3.5%.