Comparing energy efficiency and price policy from a sustainable development perspective: Using fossil fuel demand elasticities in Iran

The price elasticity of fossil fuel demand is lower than one and inelastic. The price policy is ineffective in reducing fossil fuel consumption. The technology elasticity of fossil fuel demand is higher than one and elastic. Energy efficiency improvement is much more effective than price policy for reducing fossil fuel consumption. This study aims to compare the effects of price policy with energy efficiency improvement on energy consumption and sustainable development. To this end, our research estimates the demand elasticities of diesel, gasoline, fuel oil, LPG, and kerosene using Dynamic Log-Linear and AutoRegression Distributed Lag in Iran during 1976–2017. In 2018, Iran had the first rank in the world for the amount of subsidy on various kinds of fossil fuels. Based on the results, technology is up to 100 times more effective than price policy. Technology, by only 10% improvement in energy efficiency, saves about 400 billion liters of fossil fuels (or 15% of total), 3.6 billion US Dollars of the expenditure thereon (or 17% of total), 217 billion tons of CO_2 emissions (or 15% of total), and more than 338 million DALYs (or 4.5 million lives). It leads to upgrading social, environmental, health, and economic pillars of sustainable development, especially with gasoline consumption drop. Thus, policy-makers are suggested to promote energy-consuming technologies rather than increasing the fuel price. Graphical abstract Video abstract