The Effects of Electricity Generation Externalities on Sectoral Output Growth and Welfare in Iran

Environmental problems are one of the most critical issues throughout the world and are considered as negative externalities in economic studies. In the present study, the effects of negative externalities of electricity generation on the output growth of different sectors and household’s welfare in Iran’s economy have been examined empirically through the use of the Computable General Equilibrium model. In this regard, Iran’s 2011 Social Accounting Matrix and GAMS software were used and five scenarios related to the environmental effects of electricity generation were introduced to conduct the analysis. Based on the findings, internalization of electricity generation externalities reduced the output of the agricultural and industrial sectors but increased the services sector output in all scenarios. Additionally, internalization of externalities of electricity generation increased total output and decreased household’s welfare.