The Impact of Carbon Market on the Iron and Steel Industry: A Case Study of Iran

Document Type : RESEARCH PAPER

Authors

1 Ph.D. Candidate, Department of Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran.

2 Professor of Economics, Department of Economics, Faculty of Management and Economics, Shahid Bahonar University, Kerman, Iran, Shahid Bahonar University of Kerman, Kerman, Iran

3 Associate Professor, Department of Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran.

4 Professor, Department of Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran.

Abstract

Steel is one of the major industries that emit carbon and greenhouse gases. The need for carbon-reduction policies has received global attention. Carbon emissions trading is a market-based environmental policy and an alternative incentive mechanism designed to promote emissions reductions by imposing a price on carbon. This policy operates by allocating carbon emission allowances to firms and incorporating the external costs of environmental pollution into the pricing mechanism to reduce carbon emissions.
Using the dynamic GTAP-E-POWER model, this study simulates the formation of a regional carbon market between Iran and its major trading partners—China, India, Turkey, and the United Arab Emirates—over the period 2015–2050 and evaluates its impacts on the iron and steel industry.
The results for Iran indicate that by 2050, carbon emissions decrease by 49.46%, output by 9.4%, exports by 34.01%, and imports by 2.34%, while prices increase by 19.08%. These results indicate that the implementation of a carbon market not only leads to a significant reduction in carbon emissions but also generates negative effects on output, competitiveness, and the trade balance of Iran's steel sector. Under such circumstances, it is essential for governments and firms to adopt compensatory and supportive measures through industrial policies, including financial and credit incentives, taxation, technological support, and skills development. Such a response is a necessary condition for mitigating the negative impacts of these changes. In this context, establishing a green steel renovation fund from carbon market revenues, facilitating the import of low-carbon technologies, developing the steel recycling industry, and reforming energy pricing structures are recommended for Iran

Keywords

Main Subjects

References

Ahmadishadmehri, M., Mohamadbagheri, A., Houshmand, M., & Kazemi, M. (2020). Investigation of trading greenhouse gas emissions permits, between Iran and BRICS member countries. Journal of Environmental Science Studies, 5(2), 2581-2588(In Persian).
Andrade, C., Desport, L., & Selosse, S. (2024). Net-negative emission opportunities for the iron and steel industry on a global scale. Applied Energy, 358, 122566 https://doi.org/10.1016/j.apenergy.2023.122566
Bayer, P., & Aklin, M. (2020). The European Union emissions trading system reduced CO2 emissions despite low prices. Proceedings of the National Academy of Sciences, 117(16), 8804-8812.‏ https://doi.org/10.1073/pnas.1918128117
Burniaux, J. M., & Truong, T. P. (2002). GTAP-E: an energy-environmental version of the GTAP model. GTAP technical papers, 18.‏   https://EconPapers.repec.org/RePEc:gta:techpp:923
Cao, J., Ho, M. S., Jorgenson, D. W., & Nielsen, C. P. (2019). China's emissions trading system and an ETS-carbon tax hybrid. Energy Economics, 81, 741-753.‏ https://doi.org/10.1016/j.eneco.2019.04.029
Cao, R., Xiao, Y., & Yin, F. (2023). Spatio-temporal evolution of high-quality development and the impact of carbon emissions trading schemes. Sustainability, 15(4), 2900. https://doi.org/10.3390/su15042900.
Center for Climate and Energy Solutions. (2025). 10 Years of the Paris Agreement: Progress Toward Achieving Key Goals.
Chen, Y., Liu, J., & Guo, F. (2023). Does the carbon emission trading scheme foster the development of enterprises across various industries? An empirical study based on micro data from China. Carbon Management, 14(1), 2259864.‏ https://doi.org/10.1080/17583004.2023.2259864
Cheng, X. J., Li, X. W., Wang, H., & Guo, M. (2025). Towards sustainable development: The role of the carbon emission trading scheme in improving energy enterprises' carbon performance. Journal of Environmental Management, 380, 125001.‏ 10.1016/j.jenvman.2025.125001
Climate Action Tracker. (2024). Global Update - November 2024. Climate Analytics & NewClimate Institute.
Copeland, B. R., & Taylor, M. S. (2004). Trade, growth, and the environment. Journal of Economic literature, 42(1), 7-71.‏  https://doi.org/10.1257/002205104773558047
Copeland, B., and Taylor, S. (1994). North-south trade and the environment. Q.
J. Econ. 109 (3), 755–787.  https://doi.org/10.2307/2118421
Costantini, V., & Mazzanti, M. (2012). On the green and innovative side of trade competitiveness? The impact of environmental policies and innovation on EU exports. Research policy, 41(1), 132-153. https://doi.org/10.1016/j.respol.2011.08.004
Dai, H., Xie, Y., Liu, J., & Masui, T. (2018). Aligning renewable energy targets with carbon emissions trading to achieve China's INDCs: A general equilibrium assessment. Renewable and Sustainable Energy Reviews, 82, 4121-4131.‏ https://doi.org/10.1016/j.rser.2017.10.061
Dargin, J. (2024). Trading Towards Tomorrow: The Design Metrics of a UAE Carbon Market. Centre for Climate Diplomacy.
Dechezleprêtre, A., Nachtigall, D., & Venmans, F. (2023). The joint impact of the European Union emissions trading system on carbon emissions and economic performance. Journal of Environmental Economics and Management, 118, 102758.‏ https://doi.org/10.1016/j.jeem.2022.102758
Ding, Y., Jian, S., & Yu, L. (2025). How to reduce carbon emissions in the urban transportation systems through carbon markets? Balancing the monetary and environmental benefits. Applied Energy, 377, 124454.‏ https://doi.org/10.1016/j.apenergy.2024.124454
Feng, X., Zhao, Y., & Yan, R. (2024). Does carbon emission trading policy has emission reduction effect?—An empirical study based on quasi-natural experiment method. Journal of Environmental Management, 351, 119791.‏ https://doi.org/10.1016/j.jenvman.2023.119791
Fontagné, L., Perego, E., & Santoni, G. (2022). Mage 3.1: Long-term macroeconomic projections of the world economy. International Economics, 172, 168-189.‏ https://doi.org/10.1016/j.inteco.2022.08.002
Fouré, J., Dellink, R., Lanzi, E., & Pavanello, F. (2023). Public finance resilience in the transition towards carbon neutrality: Modelling policy instruments in a global net-zero emissions scenario.OECD Environment Working Papers.‏ https://dx.doi.org/10.1787/7f3275e0-en
Gambhir, A., Napp, T. A., Emmott, C. J., & Anandarajah, G. (2014). India's CO2 emissions pathways to 2050: Energy system, economic and fossil fuel impacts with and without carbon permit trading. Energy, 77, 791-801.‏ https://doi.org/10.1016/j.energy.2014.09.055
Hanoteau, J., & Talbot, D. (2019). Impacts of the Québec carbon emissions trading scheme on plant-level performance and employment. Carbon Management, 10(3), 287-298. https://doi.org/10.1080/17583004.2019.1595154
Hasanbeigi, A. (2025). Steel Climate Impact 2025: An International Benchmarking of Energy and GHG Intensities. Global Efficiency Intelligence.
Hong, Q., Cui, L., & Hong, P. (2022). The impact of carbon emissions trading on energy efficiency: Evidence from quasi-experiment in China's carbon emissions trading pilot. Energy Economics, 110, 106025.‏ https://doi.org/10.1016/j.eneco.2022.106025
Hosseinzadeh, M. , Shakibaee, A. , Nejati, M. and Jalaee, S. A. (2025). Simulating The Effects of Emission Trading on The Structural Change in The Iran's Economy. Iranian Journal of Economic Studies, 14(1), 201-242(In Persian). 10.22099/ijes.2025.54213.2059
Huang, H., & Yi, M. (2023). Impacts and mechanisms of heterogeneous environmental regulations on carbon emissions: An empirical research based on DID method. Environmental Impact Assessment Review, 99, 107039.‏ https://doi.org/10.1016/j.eiar.2023.107039
Huang, H., Roland-Holst, D., Springer, C., Lin, J., Cai, W., & Wang, C. (2019). Emissions trading systems and social equity: A CGE assessment for China. Applied Energy, 235, 1254-1265. https://doi.org/10.1016/j.apenergy.2018.11.056
Inderberg, T. H. J., Bailey, I., & Harmer, N. (2017). Designing New Zealand’s emissions trading scheme. Global Environmental Politics, 17(3), 31-50. https://doi.org/10.1162/GLEP_a_00414
Jensen, C. (2024). What is in the Emissions Trading System (ETS) for Turkey?:-A Model of Green Behaviour with Enterprise Survey (Green Module+) Data for Turkey
Jia, Z., Wen, S., & Wu, R. (2025). Synergistic effect of emission trading scheme and carbon tax: A CGE model-based study in China. Environmental Impact Assessment Review, 110, 107699.‏ https://doi.org/10.1016/j.eiar.2024.107699
Kamal, M., Usman, M., Jahanger, A., & Balsalobre-Lorente, D. (2021). Revisiting the role of fiscal policy, financial development, and foreign direct investment in reducing environmental pollution during globalization mode: evidence from linear and nonlinear panel data approaches. Energies, 14(21), 6968.‏ https://doi.org/10.3390/en14216968
Kat, B., Paltsev, S., & Yuan, M. (2018). Turkish energy sector development and the Paris Agreement goals: A CGE model assessment. Energy Policy, 122, 84-96.‏ https://doi.org/10.1016/j.enpol.2018.07.030
Khalili, A., Bahmani, M., & Nejati, M. (2025). Evaluation of the effect of environmental indicators on the energy transition in Iran using the dynamic model. Master Thesis. Department of Economics. Shahid Bahonar University of Kerman. (In Persian).
Li, C., Chen, Z., Hu, Y., Cai, C., Zuo, X., Shang, G., & Lin, H. (2023). The energy conservation and emission reduction co-benefits of China’s emission trading system. Scientific Reports, 13(1), 13758. 10.1038/s41598-023-40811-4
Li, C., Qi, Y., Liu, S., & Wang, X. (2022). Do carbon ETS pilots improve cities' green total factor productivity? Evidence from a quasi-natural experiment in China. Energy Economics, 108, 105931.‏ https://doi.org/10.1016/j.eneco.2022.105931
Liu, D., Ren, S., & Li, W. (2022). SO2 emissions trading and firm exports in China. Energy Economics, 109, 105978.‏ https://doi.org/10.1016/j.eneco.2022.105978
Liu, J. Y., & Zhang, Y. J. (2021). Has carbon emissions trading system promoted non-fossil energy development in China?. Applied Energy, 302, 117613.‏ https://doi.org/10.1016/j.apenergy.2021.117613
Midrex Technologies, Inc. (2024). 2024 World Direct Reduction Statistics.
Modirzadeh, S. A., Abolghasemzadeh, H., & Nasseri, M. (2025). A Conceptual Review of Emission Trading Schemes: Lessons for Iran’s Energy Market. International Journal of Environmental Research, 19(2), 43.‏ https://doi.org/10.1007/s41742-024-00709-z
Narassimhan, E., Gallagher, K. S., Koester, S., & Alejo, J. R. (2018). Carbon pricing in practice: A review of existing emissions trading systems. Climate Policy, 18(8), 967-991.‏ https://doi.org/10.1080/14693062.2018.1467827
NDC Aspects. (2024). Iran country fiche: Nationally Determined Contribution and Paris Agreement alignment. NDC Aspects Project.
Nejati, M., Bahmani, M., & Esfandabadi, S. J. (2021). The effects of trade liberalization on agricultural sector of Eurasian Economic Union and Iran: multi-regional computable general equilibrium approach.‏ Quarterly Journal of Agricultural Economics and Development, 29(3), 123-154. 10.30490/aead.2021.351973.1270
Nijkamp, P., Wang, S., & Kremers, H. (2005). Modeling the impacts of international climate change policies in a CGE context: The use of the GTAP-E model. Economic modelling, 22(6), 955-974.‏ https://doi.org/10.1016/j.econmod.2005.06.001
Ollivier, H. (2016). North–south trade and heterogeneous damages from local and global pollution. Environmental and Resource Economics, 65, 337-355. https://doi.org/10.1007/s10640-015-9902-4
Pattak, D. C., Tahrim, F., Salehi, M., Voumik, L. C., Akter, S., Ridwan, M., ... & Zimon, G. (2023). The driving factors of Italy’s CO2 emissions based on the STIRPAT model: ARDL, FMOLS, DOLS, and CCR approaches. Energies, 16(15), 5845. https://doi.org/10.3390/en16155845
Pattnayak, S. S., & Chadha, A. (2022). Servicification and manufacturing exports: Evidence from India. Economic Modelling, 108, 105756.‏ https://doi.org/10.1016/j.econmod.2022.105756
Peters, J. C. (2016). GTAP-E-Power: an electricity-detailed economy-wide model. Journal of Global Economic Analysis, 1(2), 156-187.‏ https://doi.org/10.21642/JGEA.010204AF
Pollitt, M. G. (2019). A global carbon market?. Frontiers of Engineering Management, 6, 5-18.‏ 10.1007/s42524-019-0011-x
Porter, M. E., & Linde, C. V. D. (1995). Toward a new conception of the environment-competitiveness relationship. Journal of economic perspectives, 9(4), 97-118.‏ https://www.jstor.org/stable/2138392
Rubashkina, Y., Galeotti, M., & Verdolini, E. (2015). Environmental regulation and competitiveness: Empirical evidence on the Porter Hypothesis from European manufacturing sectors. Energy policy, 83, 288-300.‏ https://doi.org/10.1016/j.enpol.2015.02.014
Teixeira, R. L. P. (2025). Advancing green steel technologies for sustainable and low-carbon steel production. International Journal of Professional Business Review: Int. J. Prof. Bus. Rev., 10(10), 3.‏ https://doi.org/10.26668/businessreview/2025.v10i10.5666
Usman, M., & Jahanger, A. (2021). Heterogeneous effects of remittances and institutional quality in reducing environmental deficit in the presence of EKC hypothesis: a global study with the application of panel quantile regression. Environmental Science and Pollution Research, 28(28), 37292-37310.‏ 10.1007/s11356-021-13216-x
Wang, B., & Duan, M. (2025). Have China's emissions trading systems reduced carbon emissions? Firm-level evidence from the power sector. Applied Energy, 378, 124802.‏ https://doi.org/10.1016/j.apenergy.2024.124802
Wang, H., Feng, T., Kong, J., Cui, M., & Xu, M. (2024). Grappling with the trade-offs of carbon emission trading and green certificate: Achieving carbon neutrality in China. Journal of environmental management, 360, 121101.‏ https://doi.org/10.1016/j.jenvman.2024.121101
Wang, M., & Kuusi, T. (2024). Trade flows, carbon leakage, and the EU Emissions Trading System. Energy Economics, 134, 107556. https://doi.org/10.1016/j.eneco.2024.107556
Wang, S., Kim, J., & Qin, T. (2024). Mineral carbonation of iron and steel by-products: State-of-the-art techniques and economic, environmental, and health implications. Journal of CO2 Utilization, 81, 102707.‏ https://doi.org/10.1016/j.jcou.2024.102707
Wang, W., & Zhang, Y. J. (2022). Does China's carbon emissions trading scheme affect the market power of high-carbon enterprises?. Energy Economics, 108, 105906.‏ https://doi.org/10.1016/j.eneco.2022.105906
Wei, Y., Li, Y., & Wang, Z. (2022). Multiple price bubbles in global major emission trading schemes: Evidence from European Union, New Zealand, South Korea and China. Energy economics, 113, 106232. https://doi.org/10.1016/j.eneco.2022.106232
World Steel Association. (2025, February 25). January 2025 crude steel production. Brussels: World Steel Association.
Xuan, D., Ma, X., & Shang, Y. (2020). Can China’s policy of carbon emission trading promote carbon emission reduction?. Journal of cleaner production, 270, 122383.‏ https://doi.org/10.1016/j.jclepro.2020.122383
Yadav, S. (2020). Carbon storage by mineral carbonation and industrial applications of CO2. Materials Science for Energy Technologies, 3, 494-500.‏ https://doi.org/10.1016/j.mset.2020.03.005
Yang, C. H., Tseng, Y. H., & Chen, C. P. (2012). Environmental regulations, induced R&D, and productivity: Evidence from Taiwan's manufacturing industries. Resource and Energy Economics, 34(4), 514-532.‏ https://doi.org/10.1016/j.reseneeco.2012.05.001
Yang, S., Shen, Q., Jahanger, A., Ye, P., Zhang, H., & Balsalobre-Lorente, D. (2022). The impact of carbon emission trading scheme on export: Firm-level evidence from China. Frontiers in Environmental Science, 10, 1035650. https://doi.org/10.3389/fenvs.2022.1035650
Zhang, H., Duan, M., & Deng, Z. (2019). Have China's pilot emissions trading schemes promoted carbon emission reductions?–the evidence from industrial sub-sectors at the provincial level. Journal of Cleaner Production, 234, 912-924.‏ https://doi.org/10.1016/j.jclepro.2019.06.247
Zhang, Y. J., Peng, Y. L., Ma, C. Q., & Shen, B. (2017). Can environmental innovation facilitate carbon emissions reduction? Evidence from China. Energy policy, 100, 18-28.‏ https://doi.org/10.1016/j.enpol.2016.10.005

Files

Share

How to cite

Statistics