The Cost of Losses Resulted from Air Pollution in Iran and the Necessity of the Introduction of Green Taxes

Environmental taxes, as one of important tax categories, are based on Pigou's theoretical assumption that "any polluter must pay for the cost of his polluting activity". The introduction of this tax category, as a fiscal policy-making instrument, can have allocation implications. The roles and shares attributed to this tax category have differently beeninterpreted within various economic development stages so as to say that in the pre-industrial era, it was not considered to be so important while during industrial development stages it attained significance gradually. In this paper, the environmental impacts of polluters and their marginal costs have been studied. The Cost Control Method has been used wherein the marginal cost of a polluting unit has been measured econometrically on the basis of estimating the cost function thereof. The results obtained have been presented in the forms of three scenarios for air pollution decrease and one scenario for water pollution decrease. The first scenario includes the marginal cost of airpollution decrease assuming the realization of the objectives stipulated in the Third Development Plan; the second scenario assumes the realization of the pollution decrease down to allowed levels (Euro 2000 Standard); and the third scenario assumes the pollution decrease down to zero degree. According to estimated pollution cost controlfunctions, the pollution cost has been estimated as 0.2% of GDP in the first scenario, 3.8% of GDP (5.8% of GDP excluding oil and agriculture sectors) in the second scenario, and 14% of GDP in the third scenario. The pollution control costs (at prices of the year1381/2000) have been estimated respectively as equal to Rls 1066.45 for one liter of gas, Rls 1620.42 for one liter of gas oil, and Rls 1692.75 for one liter of mazut. Costs of 1 tone of decrease in the levels of polluting materials SO2, NO2, and CO have been estimated as being equal to Rls 16.2 million, Rls 2.69 million, and Rls 0.2 millionrespectively. It has been concluded that in investigating the impacts of price increases resulted from pollution cost transfer on the consumption levels, it is not possible to use the price instrument as the main tool of controlling pollution, and that at current price levels, the elasticity of the gas price is lower than one.