Economic Research and Perspectives

Economic Research and Perspectives

The Asymmetric Effects of Economic Policy Uncertainty and Oil Price on Carbon Dioxide Emissions in Iran

Authors
Narges Sanjari Konarsandal 1
Behnam Elyaspour 2
Roohollah Babaki 2
1 Master of Economics, University of Bojnord
2 Assistant Professor of Economics, University of Bojnord, Bojnord, Iran
Abstract
Introduction:

Excessive carbon emissions and global warming caused by human activities have become serious challenges to the human society and have raised global concerns. Currently, air pollution has become so important in many big countries of the world and especially big cities of Iran. Air pollution has forced governments to adopt short-term and long-term policies and plans for solving it.

Policy uncertainty related to economic decision-making is of great importance in the global economy. Numerous researches have shown that the uncertainty of economic policies is closely related to various economic indicators. In addition to the economic effect, the uncertainty in economic policies has an environmental effect. Increasing economic policy uncertainty weakens the government's commitment to environmental governance and, as a result, affects the effectiveness of environmental policy implementation. Therefore, a reduction in economic policy uncertainty can reduce greenhouse gas emissions.

Regarding the effect of oil on the economic conditions of oil-exporting countries such as Iran, there are two points of view: in the first point of view, the positive effects of oil on improving people's quality of life are emphasized. The second point of view points to the negative effects of the development of energy resources on the environment in resource-rich countries. According to this point of view, extraction, production and consumption of oil resources causes waste of resources and destruction of the environment of the regions.

Considering that environmental pollution is one of the most challenging topics discussed in the world, the main goal of this study is to investigate the asymmetric effects of economic policy uncertainty and oil price on carbon emissions in Iran.



Methodology:

The model to investigate the asymmetric effects of economic policy uncertainty and oil price on carbon emissions is defined as follows:



where, CO2: carbon dioxide emissions, EPU: economic policy uncertainty, OP: oil price, GDP: gross domestic product and EC: energy consumption. In the process of estimating the model, the data related to economic policy uncertainty follow the study of Ashena and Shahpari (2022) from World Uncertainty Index (WUI), data on energy consumption are extracted from Ministry of Energy website and energy balance sheet, while other data are extracted from World Bank, International Monetary Fund and OPEC website during 1981-2018. In addition, the Nonlinear Autoregressive Distributed Lag (NARDL) model is used to estimate the above model.



Results and Discussion:

First, the stationarity of the variables was checked using the Phillips–Perron test. The results of the unit root test show that all the variables are I(1). In the following, the existence of long-term relationship between the variables was investigated using the Bounds test. The results indicated the existence of a long-term relationship between the variables in the model. After ensuring the validity of the model, Wald's test was used to test short-term and long-term asymmetry. The results indicated the asymmetric effect of economic policy uncertainty and the symmetric effect of oil price in the short and long term on carbon emissions. With the identification of the long-term relationship and the confirmation of asymmetry in the economic policy uncertainty variable, the study model was estimated using the NARDL model and diagnostic tests were carried out. The model estimation results showed the asymmetric effect of economic policy uncertainty on carbon emissions; So that the effect of positive changes in economic policy uncertainty variable in the short and long term on carbon emissions was positive and significant, while there was no significant relationship between the negative shock of economic policy uncertainty and carbon emissions in the short and long term. Also, the results show that the effect of oil price on carbon emissions was symmetric; So that the effect of oil price on carbon emissions in the short and long term was positive and significant. Finally, to ensure the stability of the model, CUSUM and CUSUMSQ tests were performed. The results indicated that the estimated model is stable.



Conclusion:

In Iran's economy, the government should spend the increased oil revenues resulting from the increase in oil prices to create infrastructures that will reduce air pollution, or in other words, invest the income from the increase in oil prices in technologies that they emit less carbon dioxide.

Governments in developing countries such as Iran, which are transitioning from agriculture to industry, should force industrial producers to use technologies that cause less pollution by enacting environmental laws and standards such as pollution taxes.

Iran is a rich country in renewable resources, and due to its geographical location (wind energy in the north and west of Iran, solar energy in the south of Iran), it can move towards the replacement of non-renewable resources with a systematic planning. Therefore, it is recommended to move towards the production and consumption of renewable resources, while preserving energy resources, in order to reduce the amount of carbon emissions.

Considering the positive effect of economic policy uncertainty on the emission of carbon dioxide in Iran, it is recommended to the government to give up its irregular economic policies in order to reduce the emission of pollution and to adopt its economic policies as a rule. Economic agents should act in a stable and predictable way to prevent economic policy uncertainty.
Keywords
Carbon dioxide emission
Economic Policy Uncertainty
oil price
Iran
Nonlinear Autoregressive Distributed Lag (NARDL)

Subjects

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Economic Research and Perspectives
Volume 22, Issue 4
Winter 2023
Pages 233-260