The Effects of Imposing Green Taxes on the Industrial Subsector of “Other non-metallic Mineral Products”

Environmental challenges caused by industrial activities has lead to increased concerns on adopting necessary approaches to internalize their damages. In this regard, the government can take advantage of various tools, such as taxation, as one of the best ways to overcome market failures caused by external effects of polluter units. Given the low energy efficiency of the industrial sector, which is derived from the incorrect signaling of the energy carriers prices, and the significant contribution of the sector to the total energy consumption of the country, the industrial sector can be one of the main priorities of policymakers for applying environmental taxes. In the present study, after determining the most energy intensive industrial subsector, the possibility of applying green tax on its energy consumption has been surveyed. Based on emission levels and environmental-friendly characteristics, energy carriers, in this regard, are considered in three categories of electricity, natural gas and oil products. By estimating the direct and cross-price elasticities of energy demand equations, the capacity of applying green tax on these energy carriers has been assessed. To determine these coefficients, the time series data during the period of 1995-2013 were used, and a CVAR model was applied, as such the long-run relationships between the variables were extracted. The results show that the application of green tax on oil products for the sub-sector of “production of other non-metallic mineral products”, which is determined as the most energy intensive industrial sub-sector, can fulfill the environmental objectives of this type of tax. The application of this tax on natural gas, however, may lead to reversible results. Similarly, if policymakers aims to replace these two categories of energy with a clean energy as electricity, the application of green taxes on them can not achieve this environmental goal.