Energy consumption, economic growth, and renewable energy effects on CO2 emissions in Iran: an ARDL–PCA analysis

Abstract

Abstract Iran is currently grappling with critical environmental and economic challenges, including rising CO 2 emissions, frequent blackouts, and ongoing economic stagnation. Despite a growing body of literature on the energy-emissions nexus, much of it has overlooked the integration of macroeconomic drivers with underlying structural constraints in the Iranian context. This study aims to examine the determinants of CO 2 emissions in Iran over the period 1990–2022 by combining econometric and system-based approaches. The study employs an Autoregressive Distributed Lag (ARDL) model to estimate short- and long-run relationships, while Principal Component Analysis (PCA) is used to construct a composite energy structure index from oil, natural gas, electricity, and coal consumption. A Causal Loop Diagram (CLD) is further applied to support the interpretation of structural interactions within Iran’s energy system. The empirical results indicate that the PCA-derived energy-structure index is positively associated with CO 2 emissions in the long run, reflecting the importance of fossil-fuel-related energy structure. Economic growth is also associated with increased emissions, reflecting the carbon-intensive nature of Iran’s development path. In contrast, renewable energy consumption is negatively associated with emissions in the long run, although it is associated with a temporary increase in emissions in the short run. The agricultural sector shows a negative short-run association, while its long-run impact remains statistically insignificant. This study contributes to the Iran-focused literature by addressing multicollinearity among major energy variables using a PCA-derived composite index, offering an alternative representation of fossil fuel dependence compared with approaches based on separate fuel variables or aggregate energy consumption. The findings offer insights into the interaction between energy structure, economic activity, and environmental outcomes, with implications that may be relevant for other energy-subsidized or structurally constrained economies.