Agricultural energy subsidy reform and provincial carbon leakage: A regional input-output analysis of Iran’s energy-pollution nexus

Heavy energy subsidies in Iran, amounting to nearly 36% of GDP, have long driven excessive fossil-fuel consumption and worsening air pollution. This study applies a province-level input-output model to assess energy subsidy reforms in Razavi Khorasan Province, Iran, using official government data. It derives sectoral CO₂ intensities and simulates both uniform and sector-specific energy price shocks to reflect the uneven distribution of existing subsidies. The results show that uniform energy price reforms across all sectors lead to nearly proportional CO₂ reductions while causing only modest declines in regional GDP. In contrast, steeper price increases in the agricultural sector result in limited additional abatement, due to low farm-gate tariffs, inelastic irrigation demand, and the reallocation of electricity during shortages. The electricity supply and related services sector emerge as the most influential leverage point, with its high emissions multiplier offering substantial decarbonisation potential across provinces. Notably, transport, storage, and postal services sector ranks as the third-largest emitter and exhibits considerable price responsiveness. These findings challenge the efficacy of irrigation-focused pricing for decarbonisation. We propose that combining price reforms with complementary measures such as modernising the electricity generation sector, improving irrigation efficiency, deploying solar pumps, and strengthening groundwater governance would yield more effective outcomes.