Industrial plants in Iran, similar to many other developing countries, use diesel or natural gas generators mainly as backup power during a grid outage. Depending on the electricity network configuration, these emergency generators might be able to deliver electricity to the grid and thereby contribute to demand response (DR) programs. Hence, Iran's Ministry of Energy (MOE) has policies and incentives to promote the use of emergency generators during peak hours. This paper investigates the economic and carbon dioxide emission implications of such DR policies by the MOE. Results show that the current policy promotes diesel generators that are economically beneficial to the companies but are more carbon intensive than the natural gas generators. To mitigate the climate change with a minimum impact on the economic interest of the companies, the future DR policies can be amended. The revised incentive structure proposed by this study is simple but effective and ensures that the lower carbon emitting natural gas generators would become more economically attractive than diesel generators. Following the proposed approach to set the incentives, the natural gas generators would be more beneficial according to the MOE policy in 2019 if the difference between the diesel incentive and natural gas incentive was less than 711 Rial.