<p>Agricultural input subsidies are often employed to raise farm incomes, but they can come with substantial fiscal costs and environmental spillovers—problems that have been particularly pronounced in Iran’s water-scarce, input-intensive agricultural system. To assess the trade‑offs from subsidy reform, we construct an integrated computable general equilibrium (CGE) model calibrated using an account matrix with 26 sectors and detailed household survey data. Results are presented for five alternative progressive reductions of 10% for over 80% in fertilizer, pesticide, and energy subsidies across the scenarios. The model results suggest that a modest 10% reduction increases the prices of staple crops by 10%–13%, while lowering rural welfare by roughly twice as much as urban welfare. Larger cuts exhibit strong non-linearities: an 80% cut increases cereal prices by 140%, reduces real investment by 31%, and decreases rural decile‑1 welfare by 68%. In contrast, agricultural CO₂-equivalent emissions decreased by up to 52%, and energy sector emissions decreased by 34%, showing significant environmental benefits. We find that phasing out subsidies leads to clear climate benefits but also to significant food security and equity trade‑offs beyond a 20% reduction. The policy implications are as follows: (i) undertake a gradualist (20% cap) and phased reform package; (ii) reinvest part of the fiscal savings in targeted cash transfers to low‑income rural households; and (iii) invest in precision‑fertiliser and water‑saving technologies to decouple productivity from input intensity.</p>