Economic Effects of Environmental Pollution Tax on the Wheat Market

Control of environmental impacts which remain from agricultural activities is always a concern for communities. In Iran, wheat transportation takes place on roads that are dependent on fossil fuels and results in the release of a large amount of carbon dioxide. Accordingly, applying control policies for internalization of the external effects of releasing these pollutants seems necessary. One way to control this type of pollution is the use of tax instruments. Therefore, the aim of this study was to evaluate the economic effects of pollution tax on wheat market actors. This tax is proportional to the shadow value of pollution that happens due to energy consumption in the distribution sector. For this purpose, a Dynamic Spatial Equilibrium Model has been used to model the wheat market and Input Distance Function has been used to estimate carbon dioxide emission tax. The results showed that application of the tax payment policy would reduce wheat trade in the country by about 24 percent, while only 16.2 percent of the wheat price was considered as tax. Therefore, carbon dioxide emission will be significantly reduced. On the other hand, due to increased transportation costs, economic surplus for customer declined and economic surplus for producers and government revenues increased. Hence, internalization of the external effects of carbon dioxide emission will increase the welfare of the society.