Relationship between energy consumption, CO2 emissions and income in Iran

Concerned with the problem of increasing environmental degradation, it is important to examine the nature of the relationship between the level of economic activity or income and environmental quality indicators. Unlike studies that have examined the presence of the Environmental Kuznets Curve (EKC), the aim of the paper is to explore the causal relationship between pollutant emissions (CO2), energy consumption, GDP, fixed capital formation and active labor force for Iran' economy using unit root test, vector autoregression (VAR),Granger causality techniques and variance decomposition The causality results support the argument that energy consumption and GDP exert a causal influence on CO2 emissions over the period 1976- 2012. On the other hand, the response period of pollution to energy consumption in Iran is shorter than in other countries. The variance decomposition also shows that a significant part of the forecast error variance of CO2 was explained by the share of energy consumption. Thus, it is possible to control the pollution in the short run by decreasing the energy consumption based on pricing or fuel rationing policies in Iran.