Relationship between Energy Consumption, Income and Carbon Dioxides Emission in Iran



Unlike other studies in which the autours have focused on testing the existence of an environmental Kuznets Curve, in this study, causality relationship between the energy consumption (oil equivalent), carbon emissions, gross domestic production, total labor force and fixed capital formation is investigated during 1960 to 2007 in Iran. Following an examination of stationary tests for all the variables, Vector Autoregressive (VAR) is employed to analyze the relationships existing among all the variables. Results revealed that Gross Domestic Production accompanied by energy consumption led to carbon emission. In addition, carbon emissions in Iran, as compared with other countries respond to shocks in energy consumption relatively quickly. Results of Variance Decomposition Analysis indicate that energy consumption has a greater share, in variance residual prediction of carbon emission, as compared with that of GDP. So, it is concluded that carbon emission could be controlled with decrease in energy consumption, through either price policy or fuel quota in Iran.