Assessing the effects of transition to low-carbon electricity generation: A dynamic computable general equilibrium model for the Iranian economy

Abstract

The electricity sector holds significant potential for global carbon reduction, making it a pivotal player in transitioning towards low-carbon economies. The surging demand for electricity, coupled with mounting concerns about climate change, underscores the imperative to replace outdated and inefficient electricity generation methods with modern alternatives that enhance environmental quality and energy security. In Iran, where the electricity sector accounts for over 30% of the nation’s CO₂ emissions, this study employs a Dynamic Computable General Equilibrium (DCGE) model to analyze the impacts of applying two low-carbon strategies: enhancing efficiency and expanding renewable energy use in electricity generation. Our findings indicate positive economic growth under both scenarios, accompanied by reduced demand for fossil fuels and increased gas and oil exports. Furthermore, CO₂ emissions decrease owing to fossil fuel savings in both cases. Notably, a 10% increase in renewable energy demonstrates superior economic effects, boosting GDP by 3.41% in the tenth year, compared to 2.36% under the enhanced efficiency scenario. Conversely, improving energy efficiency appears more environmentally favorable, significantly reducing fossil fuel demand and carbon emissions by up to 0.2% over the next decade, despite population growth.

Graphical abstract

Highlights

A DCGE model has been applied to simulate the macroeconomic effects of low-carbon strategies, including increases in renewable energy and energy efficiency.

By using low-carbon strategies in the electricity sector, the economic growth rate will be positive.

The renewable energy strategy has better economic effects, while in terms of the environment, energy efficiency seems to be more appropriate.

Discussion

Despite the positive economic growth observed with both low-carbon strategies, the prioritization of renewable energy over energy efficiency in terms of economic effects was found in transitioning towards low-carbon economies.

The significant reduction in fossil fuel demand and carbon emissions achieved through improving energy efficiency highlights the necessity for policy interventions to mitigate environmental impacts.