Simulation of Dynamic Analysis of the Interaction between the Carbon and Electricity Markets in Iran

Document Type : Original Article

Authors

1 PhD Candidate in Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran

2 Associate Professor of Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran

3 Professor of Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran

4 Associate Professor of Management, Faculty of Administrative Sciences and Economics, Vali-e-Asr University of Rafsanjan, Rafsanjan, Iran

Abstract

Given the significant reliance on fossil fuels in Iran's power plants for electricity generation, managing pollution within the power sector has become crucial for the country. This paper addresses the importance of carbon emissions by dynamically examining the relationship between carbon and electricity markets. The novelty of this research lies in its dynamic analysis of the interplay between carbon and electricity markets in Iran, considering the country's unique circumstances and employing different scenarios. The findings reveal a deep interdependence between Iran's carbon and electricity markets. Factors such as gas prices, carbon taxes, emission coefficients, and electricity demand exert mutual influence on both markets. An increase in gas prices or the implementation of a carbon tax raises electricity production costs, consequently driving up electricity prices and the demand for carbon allowances. This, in turn, enhances the effectiveness of the carbon market in reducing emissions. Conversely, growth in electricity demand and the emission coefficient place greater pressure on the carbon market, underscoring the necessity for investments in clean energy and emission reduction technologies. To achieve emission reduction targets and promote sustainability, a set of synergistic policies is proposed. These include promoting renewable energy sources, reforming electricity pricing mechanisms, phasing out fossil fuel subsidies, strengthening the carbon market, and implementing demand-side management strategies.

Keywords

References

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Journal of Economics and Modelling
Volume 15, Issue 3 - Serial Number 59
December 2024
Pages 137-177

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