A Dynamic CGE Model for Evaluation of Energy Policies: Evidence from Iran

This paper develops a dynamic general equilibrium model (DGEMI) for evaluating energy policies in Iran’s economy. DGEMI provides a detailed multisector framework for analyzing economic transition, removal of energy subsidy, and technological change policies. The results show that eliminating energy subsidies (once- for -all or gradually) in the absence of technological progress is in itself insufficient to stimulate the investment and economic growth. Although the energy intensity along with this policy declines over time, its decline can not be attributed to the energy efficiency, since the economy falls into the lower level of new steady state after removing the energy subsidies. On the other hand, the combination of eliminating energy subsidies and technological progress policies provide a strong growth stimulus accompanied by a pronounced increase in productive efficiency and a decline in intensive energy.