The role of capital utilization rate in evaluating the performance of environmental policies in Iran

Document Type : Research Article

Authors

Department of Economics, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran

10.22084/aes.2024.29742.3715

Abstract

In the last few decades, the number of researches carried out in the field of choosing the optimal environmental policy to combat climate change, which is one of the main consequences of environmental pollution, is increasing. Therefore, achieving the goal of reducing greenhouse gas emissions using policy measures has caused the concern of transition to a low-carbon economy. The main goal in determining the optimal environmental policy is to reduce carbon emissions with minimal fluctuation and economic instability. This study investigates the role of capital utilization rate in evaluating the performance of environmental policies, which has been widely ignored in the literature. In other words, the focus of this research is on how the capital utilization rate affects the mechanism of economic impulses (Total Factors Productivity and energy price) and then, the choice of optimal environmental policy. To evaluate this effect, three important characteristics are considered in the Environmental Dynamic Stochastic General Equilibrium (E-DSGE) model: 1. capital utilization rate as endogenous variable, 2. capital depreciation that vary over the time and 3. Economic impulses . The result of shows that the capital utilization rate strengthens the impact mechanism of impulses on the economy. Also, the capital utilization rate strengthens the speed of return to equilibrium under different environmental policies. But when the firm uses the entire capital stock, the economy is relatively less responsive to business cycles. assuming variable capital utilization rate, with the positive impulse of TFP and energy price, the effectiveness of environmental policy in reducing energy consumption increases.

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Journal of Applied Economics Studies in Iran

Articles in Press, Accepted Manuscript
Available Online from 04 November 2024

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