Trade reform in Iran for accession to the World Trade Organization: Analysis of welfare and environmental impacts

•We use a CGE model to study welfare and environmental impact of Iran's trade reform.•Removing trade barriers results in higher welfare and GDP as well as lower prices.•The welfare impact of freer trade is in favor of urban and high income groups.•Freer trade reduces emissions of greenhouse gases in terms of CO2 equivalent.•Emission reductions stem from changes in output composition and lower energy use.

We developed a computable general equilibrium (CGE) model to study the potential welfare and environmental impacts of Iran's trade reform for accession to the World Trade Organization (WTO). Our results show that removing trade barriers not only results in higher welfare and GDP as well as lower prices due to efficiency gains, but also reduces emissions of greenhouse gases in terms of CO2 equivalent. Emissions reductions stem from changes in output composition and lower energy use, despite an offsetting increase in emissions induced by the final consumption of non-energy products due to higher income. Particularly, removing import barriers completely (i.e. full liberalization) would increase Iran's GDP by 8.9%, and reduce greenhouse gas emissions in CO2 equivalents by 3%. It would generate a welfare gain of 13.2% and 9.3% for urban and rural households, respectively, suggesting that removing the trade barriers would increase the inequality between households in favour of urban and high income groups.