Energy resources are critical for economic development in different countries and fossil fuels (specially 5 oil products) are the most important resources that are used. By usage of these fuels, we have decrease in the reserves and completion of the resources in one hand and air pollution and climatic changes on the other hand. The pattern of energy usage in both production and consumption sectors of country is inadequate which rank Iran’s position low in terms of energy efficiency and lead to environmental problems too. According to the survey in theoretical and practical solutions in Environmental Economics, environmental indirect taxes are appropriate financial way to reduce oil product’s consumption in Iran regarding economic efficiency. In this research we analyzed the time series data of consumption of Gasoline, Gas oil, Fuel oil, Kerosene and Liquid Petroleum Gas (LPG) by using Vector Auto Regressive (VAR) model. The effect of environmental taxes on market (as an upward price shock) of the consumption of these oil products and the reaction of consumption to the shock were also reviewed. According to Granger Causality test, the causal relation from price and national income variables to consumption variable has been confirmed. According to the results of research, taxation on Gasoline, oil gas, fuel oil and LPG reduces increasing trend of their consumption, but taxation on kerosene increases this product Consumption.

Keywords: Oil product consumption, Enviromental taxes, Vector Auto Regressive (VAR) model