Phasing-out natural gas subsidies based on dynamic recursive CGE approach: the case study of basic metal manufacturing in Iran

Energy subsidies have significant economic implications. on the one hand, they have protected consumers, but on the other hand, they have increased the budget deficit and public spending recently. moreover, they have reduced private investment, especially in the energy sector, another dangerous consequence of energy subsidies. it is one of the key and controversial debates in the energy sector of the iranian economy. the present paper is aimed at promoting thinking and research on how to eliminate energy subsidies. one idea is that energy subsidies should be reduced all at once, while others suggest a gradual elimination of energy subsidies. this paper simulates the elimination of energy subsidies in the base metals industry as one of the most energy-intensive industries in iran. a dynamic recursive computable general equilibrium model is estimated to evaluate the economic impacts of removing gas subsidies in basic metal manufacture in iran. according to the results, gas consumption will decrease, and electricity and petroleum products will increase in both scenarios (gradual increase in gas prices after 5 years as scenario 1 and an increase in gas prices at once as scenario 2). however, during the period, scenario 2 reduces the supply of basic metals more than scenario 1.