Agricultural Economics and Development

Agricultural Economics and Development

Investigating the multiple effects of adjusting the price of energy carriers on Major economic-environmental Indicators in the agricultural sector of Iran

Document Type : Original Article

Authors
F. Taei Samiromi 1
S. Khalilian 2
M. H. Vakilpoor 3
H. Najafi Alamdarlo 4
1 PhD Student in Agricultural Economics, Tarbiat Modares University, Tehran, Iran
2 Associate Professor,Department of Agricultural Economics, Tarbiat Modares University, Tehran, Iran
3 Member of Agricultural Economics Department , Tarbiat Modares University, Tehran, Iran
4 Associate Professor, Department of Agricultural Economics, Tarbiat Modares University, Tehran, Iran
10.30490/aead.2021.337521.1176
Abstract
Considering the fact that the price of energy carriers has a significant impact on the final cost of agricultural products, removing the subsidies of energy carriers will have multiple effects on the agricultural sector. The purpose of this study was to investigate effects of reforming the subsidies of energy carriers on agricultural products, consumer price index, demand inputs, and carbon dioxide emissions using the Autoregressive-Distributed Lag model for the annual data from 1988 to 2015. These data were collected from the Central Bank, the Statistics Center of Iran, the Ministry of Energy, and the Food and Agricultural Organization. The results showed that eliminating electricity subsidies has more negative economic and social effects than eliminating gas oil subsidies. the elimination of electricity subsidies reduces production and capital by an average of 1% and 41/13%, respectively, while the elimination of gas oil subsidies reduces production and investment by an average of 0/7% and 20/4%, respectively. Moreover, the consumer price index and the demand labor in the elimination of electricity subsidies were in average 12/3% and 1/38%, respectively, while in the elimination of gas oil subsidies, they were in average 3/14% and 0/55%, respectively. In the study of short-term models, it was revealed that the effects were similar to those of long-term models but with less impact. It is suggested that the elimination of gas oil and electricity subsidies in the agricultural sector be done gradually and that the elimination of gas oil subsidies be given priority over the elimination of electricity subsidies.
Keywords
energy price adjustment
economic- environmental Indicators
Autoregressive-Distributed Lag (ARDL) model

  1. 1.Ahmadvand, M.R., Eslami, S., Ashrafi, Y. and Abbasi, E. (2008). Estimating the effect of increasing the prices of energy carriers on inflation rate and household costs using the input-output model. Economic Journal (Monthly Review of Economic Issues and Policies), 7(75-76): 1-74. (Persion) 2. Akalpler, E. and 2.Hove, S. (2019). Carbon emissions, energy use, real GDP per capita and trade matrix in the Indian economy: an ARDL approach. Energy, 168: 1081-1093.

    1. Ali, W., Abdullah, A. and Azam, M. (2017). Re-visiting the environmental Kuznets curve hypothesis for Malaysia: fresh evidence from ARDL boundstesting approach. Renewable and Sustainable Energy Reviews, 77: 990-1000.
    2. Alshehry, A.S. and Belloumi, M. (2015). Energy consumption, carbon dioxide emissions and economic growth: the case of Saudi Arabia. Renewable and Sustainable Energy Reviews, 41: 237-247.
    3. Asiaei, M., Khiabani, N. and Mousavi, B. (2012). The environmental effects of the omission of energy carriers subsidies in Iranian manufacturing sector. Iranian Energy Economics Research, 1(4): 1-24. (Persion) 6. Berkum, S.Van and Bogdanov, N. (2012). Serbia on the road to EU accession: consequences for agricultural policy and the agri-food chain. LEI-Wageningen UR, Wageningen, Netherlands DOI: 10.1079/9781780641454.0000. 7. Bhattacharyya, R. and Ganguly, A. (2017). Cross subsidy removal in electricity pricing in India. Energy Policy, 100: 181-190.
    4. Brown RL, Durbin J, Evans JM. (1975). Techniques for testing the constancy of regression relationships over time. Journal of the Royal Statistical Society. Series B (Methodological), 37(2 ): 149-192. 9. Bundschuh, J. and Chen, G. (Eds.). (2014). Sustainable energy solutions in agriculture. CRC Press.
    5. Charfeddine, L., Al-Malk, A.Y. and Al-Korbi, K. (2018). Is it possible to improve environmental quality without reducing economic growth: evidence from the Qatar economy. Renewable and Sustainable Energy Reviews, 82: 25-39.
    6. Dickey, D. and Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society, 49(4): 1057-1072.
    7. Engle, R.F. and Granger, C.W.J. (1987). Cointegration and error correction representation, estimation and testing. Econometrica, 55: 251-276.
    8. Eskandari, M., Nasiri Aghdam, A., Mohammadi, H. and Mirzaei, H. (2017). The effects of adjustment of energy carrier prices on Iran’s economy. Quarterly Journal of Economic Growth and Development Research, 7(25): 47-60. (Persion) 14. Feng, K., Hubacek, K., Liu, Y., Marchán, E. and Vogt-Schilb, A. (2018). Managing the distributional effects of energy taxes and subsidy removal in Latin America and the Caribbean. Applied Energy, 225: 424-436.
    9. Fuinhas, J.A. and Marques, A.C. (2012). Energy consumption and economic growth nexus in Portugal, Italy, Greece, Spain and Turkey: an ARDL bounds test approach (1965-2009). Energy Economics, 34(2): 511-517.
    10. Gelan, A. (2018). Economic and environmental impacts of electricity subsidy reform in Kuwait: a general equilibrium analysis. Energy Policy, 112: 381-398.
    11. Granger, C.W.J. and Newbold, P. (1974). Spurious regressions in econometrics. Econometrics, 2(1974): 111-120.
    12. IISD (2012). A citizen’s guide to energy subsidies in Indonesia. Manitoba: The International Institute for Sustainable Development (IISD). 19. Jiang, Z., Ouyang, X. and Huang, G. (2015). The distributional impacts of removing energy subsidies in China. China Economic Review, 33: 111-122.
    13. Jiang, Z. and Tan, J. (2013). How the removal of energy subsidy affects general price in China: a study based on input-output model. Energy Policy, 63: 599-606.
    14. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2-3): 231-254. 22. Johansen, S. and Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52: 169-210. 23. Khodabakhshi, A. and Karami, F. (2016). Comparison of the effect of subsidies targeted policy of oil and gas manufactured on growth of the industry, agriculture and services sectors. Quqrterly Journal of Applied Economics Studies, Iran (AESI), 5(18): 221-242. (Persion) 24. Lansink, A.O., van Ierland, E.C. and Best, G. (2002). Sustainable energy in agriculture: issues and scope. In: Economics of Sustainable Energy in Agriculture (pp. 1-7). Springer, Dordrecht.
    15. Lin, B., and Jiang, Z. (2011). Estimates of energy subsidies in china and impact of energy subsidy reform. Energy Economics, 33: 273-283. 26. Lin, B. and Wang, F. (2009). Impact of energy price increase on general price level in China: a study based on input-output model and recursive SVAR model. Economic Research Journal, 12: 66-79.
    16. Liu, W. and Li, H. (2011). Improving energy consumption structure: a comprehensive assessment of fossil energy subsidies reform in China. Energy Policy, 39(7): 4134-4143.
    17. Malik, M.Y., Latif, K., Khan, Z., Butt, H.D., Hussain, M. and Nadeem, M.A. (2020). Symmetric and asymmetric impact of oil price, FDI and economic growth on carbon emission in Pakistan: evidence from ARDL and non-linear ARDL approach. Science of the Total Environment, 726. DOI: 10.1016/j.scitotenv.2020.138421. 29. MOE (2016). Energy balances, macro planning of electricity and energy. Tehran: Ministry of Energy (MOE). (Persion) 30. Moghimi Feyzabadi, M. and Shahnoushi, N. (2012). Eliminating the subsidy on fossil fuels and the effects on production, cost and price indices in Khorasan-Razavi province. Quarterly Journal of Economic Researches, 12(3): 1-23. (Persian) 31. MOP (2015). Hydrocarbon Balance, International energy studies Institute, Ministry of Petroleum (MOP). (Persion) 32. MOP (2014). Hydrocarbon Balance, International energy studies Institute, Ministry of Petroleum (MOP). (Persion)
    18. Moshiri, S. and Santillan, M. A.M. (2018). The welfare effects of energy price changes due to energy market reform in Mexico. Energy Policy, 113: 663-672. 34. Mousavi, S. and Bagheri, M. (2020). The effects of energy subsidies targeted on the welfare of producers and rice consumers in Iran: application of price endogenous mathematical programming model. Agricultural Economics and Development, 28(109): 25-43. (Persion) 35. Nkoro, E. and Uko, A.K. (2016). Auto Regressive Distributed Lag (ARDL) cointegration technique: application and interpretation. Journal of Statistical and Econometric Methods, 5(4): 63-91.
    19. Pesaran M, Pesaran B. (1997). Working with microfit 4.0: interactive economic analysis. Oxford University Press.
    20. Pesaran, M.H. and Shin, Y. (1999). An autoregressive distributed lag-modeling approach to cointegration analysis. Econometrics and Economics Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Strom S.-Cambridge University Press, Cambridge.
    21. Pesaran, M.H., Shin, Y. and Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16: 289-326.
    22. Phillips, P.C.B. and Perron, P. (1988). Testing for a unit root in time series regressions. Biometrika, 75: 335-346. 40. Rahman, M.M. and Kashem, M.A. (2017). Carbon emissions, energy consumption and industrial growth in Bangladesh: empirical evidence from

    ARDL cointegration and Granger causality analysis. Energy Policy, 110: 600-608. 41. Rentschler, J., Kornejew, M. and Bazilian, M. (2018). Subsidy reforms and the impacts on firms: transmission channels and response measures. In: Fossil Fuel Subsidy Reforms (pp. 62-74). Routledge.

    1. Romer, D. (2011). Advanced macroeconomics. McGraw-Hill/Irwin. 43. Saboori, B., Sulaiman, J. and Mohd, S. (2012). Economic growth and CO2 emissions in Malaysia: a cointegration analysis of the environmental Kuznets curve. Energy Policy, 51: 184-191.
    2. Sadeghi, H., Shahab Lavasani, K. and Baghjari, M. (2010). The effects of energy price adjustment on macroeconomic variables using a model of Structural Vector Auto Regressive (SVAR) approach. The Journal of Economic Modeling Research (JEMR), 1(1): 49-76. (Persion)
    3. Sanei, B. and Saadat, R. (2013). The impact of electricity subsidy reduction on the macroeconomic indices affecting the production and welfare of households in Iran, Ravand (Economic Research Trends), 20(63-64): 59-86. (Persion)
    4. Shahmoradi, A., Haqiqi, I. and Zahedi, R. (2011). Impact analysis of energy price reform and cash subsidy payment in Iran: CGE approach. Quarterly Journal of Economic Research and Policies, 19(57): 5-30. (Persian) 47. Shahzad, M., Jan, A.U., Ali, S. and Ullah, R. (2018). Supply response analysis of tobacco growers in Khyber Pakhtunkhwa: an ARDL approach. Field Crops Research, 218: 195-200. 48. Sharma, S., Tripathi, S. and Moerenhout, T. (2015). Rationalizing energy subsidies in agriculture: a scoping study of agricultural subsidies in Haryana, India. Manitoba, Canada: International Institute for Sustainable Development (IISD). 49. Sharzehei, G.A., Iraqi Khalili, S.M. and Barkhordari, S. (2014). Reform of energy subsidies, technological change and the energy consumption phase in the Iranian economy. Economics Research, 49(4): 799-833. (Persion) 50. Solaymani, S. and Kari, F. (2014). Impacts of energy subsidy reform on the Malaysian economy and transportation sector. Energy Policy, 70: 115-125. 51. Stock, J.H. and Watson, M.W. (2015). Introduction to econometrics. Pearson Education, Inc. Publishing as Addison Wesley.
    5. Taheri, E. (2019). Economic and environmental effects of increasing the price of energy carriers on agriculture sector of Iran (CGE approach). Journal of Agricultural Economics Research, 11(42): 143-166. (Persion)
    6. Taheri, F., Mousavi, S.N. and Rezaei, M.R. (2010). Impact of energy subsidy elimination on canola production costs in Marvdasht County, Journal of Agricultural Economics Research 2(7): 77-90. (Persion) 54. Uhr, D.D.A.P., Chagas, A.L.S. and Uhr, J.G.Z. (2019). Estimation of elasticities for electricity demand in Brazilian households and policy implications. Energy Policy, 129: 69-79.