Evaluation of research and development subsidies and fossil energy tax for sustainable development using computable general equilibrium model

Abstract

Policy-making in improving the quality of the environment and social welfare and increasing the rate of economic growth to achieve sustainable development has been considered by policymakers in recent years. Punitive policies such as taxes on fossil energy consumption and incentive policies such as subsidies for investment in research and development are among the policies used to achieve sustainable development goals. In this study, using a computable general equilibrium model, two scenarios of subsidy to investment in research and development and subsidy with the taxation of fossil fuels, to double the ratio of investment in research and development GDP have been considered. First, the subsidy rate required to invest in research and development to achieve this goal is determined, and then, the economic, welfare, and environmental effects of the policies implemented are examined. This study shows that in the first scenario, the subsidy rate required to invest in research and development to achieve this goal is 10.74% and in the second scenario is 10.21%. Meanwhile, the required tax rate in the second scenario is estimated at 2.5% of fossil energy consumption. The results show that both the fossil energy tax policy and the research and development subsidy policy are able to reduce energy consumption, air pollution, and social welfare. The reduction in welfare in both scenarios is regardless of the social benefits of reducing greenhouse gas emissions.