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Diesel demand elasticities and sustainable development pillars of economy, environment and social (health): comparing two strategies of subsidy removal and energy efficiency

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Abstract

For reducing fossil fuel demand and its environmental damages in Iran, the UN suggests removal of fossil fuel subsidies in this developing country which has the largest amount of energy subsidies in the world within 2010s. This research investigates the effectiveness of subsidy removal as a price policy in reducing the consumption of diesel which has the highest share in the total fossil fuel demand portfolio. The novelty of this research is that it compares the effects of price policy and energy efficiency on reducing diesel demand and improving sustainability to reveal which one is a more effective policy. To this aim, our study employs dynamic model, static model and error-correction model for estimating the diesel demand elasticities during 1976–2017. The results show that the diesel demand responds to changes in energy efficiency substantially, while it responds to changes in price slightly. Based on our findings, energy efficiency is about 30 times more effective than the price policy on reduction of diesel demand and improvement of the sustainable development pillars including economy, environment and social (health). A 10% improvement in energy efficiency at the first year of the studied period could reduce more than 87 billion liters of diesel consumption, 3 billion tons of CO2 emissions and 65 thousand deaths from the air pollution during the period. Therefore, the strategists should improve the technology especially the efficiency of energy-consuming utilities like cars, rather than increasing the price and removal of subsidy, to reduce diesel demand and improve sustainability.

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Data availability

The data of this research are in the following link to the Mendeley (Taghvaee et al., 2022) https://data.mendeley.com/datasets/w2y9dccpvx/4.

Code availability

The EViews Work File and the data of this research are in the following link to the Mendeley (Taghvaee et al., 2022) https://data.mendeley.com/datasets/w2y9dccpvx/4.

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This research did not receive any specific grant from funding agencies in the public, commercial or not-for-profit sectors.

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Authors and Affiliations

  1. Department of Economic Development and Planning, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran

    Vahid Mohamad Taghvaee & Abbas Assari Arani

  2. Chair of Growth Economics, Structural Change, and Trade, Faculty of Law and Economics, Greifswald University, Greifswald, Germany

    Susanne Soretz

  3. Economic Research Institute, Tarbiat Modares University, Tehran, Iran

    Lotfali Agheli

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  1. Vahid Mohamad Taghvaee
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  4. Lotfali Agheli
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Correspondence to Abbas Assari Arani.

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Appendices

Appendix

Preliminary tests (unit root test)

See (Tables

Table 7 Augmented Dickey–Fuller and Phillips–Perron unit root resulted statistics of the variables in level
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Table 8 Dickey–Fuller, Kwiatkowski–Phillips–Schmidt–Shin and Elliott–Rothenberg–Stock test resulted statistics of the variables in level
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Table 9 NP–Perron modified unit root test resulted statistics of the variables in level
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Table 10 Zivot Andrews unit root test resulted statistics of the variables in level
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Table 11 Break point augmented Dickey–Fuller (BP ADF) unit root test resulted statistics with innovation and additive outliers of the variables in level
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11).

Robustness tests

See (Figs.

Fig. 6
figure 6

CUSUM, CUSUM of squares, one-step forecast, N-step forecast and recursive residuals test results in the dynamic model

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Fig. 7
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Recursive coefficients test results in the dynamic model

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Leverage plots of the dynamic model

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Fig. 9
figure 9

CUSUM, CUSUM of squares, one-step forecast, N-step forecast and recursive residuals test results in the static model

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Fig. 10
figure 10

Recursive coefficients test results in the static model

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Fig. 11
figure 11

Leverage plots of the static model

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Fig. 12
figure 12

CUSUM, CUSUM of squares, one-step forecast, N-step forecast and recursive residuals test results in the ECM model

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Fig. 13
figure 13

Recursive coefficients test results in the ECM model

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Fig. 14
figure 14

Leverage plots of the ECM model

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14).

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Taghvaee, V.M., Arani, A.A., Soretz, S. et al. Diesel demand elasticities and sustainable development pillars of economy, environment and social (health): comparing two strategies of subsidy removal and energy efficiency. Environ Dev Sustain 25, 2285–2315 (2023). https://doi.org/10.1007/s10668-021-02092-7

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