فصلنامه پژوهشهای اقتصادی ایران (Dec 2023)
Decoupling Dynamism of Energy Consumption, Economic Growth, and Pollution in Iran: New Evidence from Factor Analysis at Triple Levels of Energy
Abstract
The utilization of natural resources, particularly energy, is essential for economic well-being. However, the increasing consumption of economic resources raises concerns about sustainable development. This study aimed to investigate the dynamic decoupling of economic growth, energy consumption, and pollution in Iran from 2000 to 2020, employing the method proposed by Tapio (2005) and factor analysis on three levels of energy consumption (i.e., primary, final, and useful). The findings revealed that economic growth is often associated with negative decoupling, with this negative decoupling being more pronounced in useful and final energies compared to primary energy. Decomposing energy consumption further confirmed negative decoupling in various energy components. Additionally, the study confirmed weak decoupling between energy consumption and pollution (CO2 emissions), with stronger negative decoupling observed at lower energy levels. Furthermore, the decoupling of economic growth and pollution closely mirrors the decoupling of economic growth and energy consumption. The negative decoupling can be attributed to the inefficiency in energy consumption, limited access to new technologies, and the lack of appropriate structures due to the absence of a specific strategy for sustainable development. The research recommends the prioritization of energy efficiency across different energy levels as well as the investment in infrastructure and energy technology.IntroductionEconomic growth is intricately linked to the consumption of natural resources, with these scarce and costly resources serving as the primary catalyst for the development and acceleration of economic growth process in modern societies (Song et al., 2019; Song et al., 2020; Zhang et al., 2018). Meanwhile, the production and consumption of energy resources are associated with significant social costs and diminished welfare (Feng et al., 2020a; Feng et al., 2020b; Li et al., 2018; Rjoub et al., 2021; Wang et al., 2020). The world grapples with the challenge of balancing economic development and energy consumption (Bradshaw, 2010). Despite the looming threat of global warming, many countries, particularly developing nations, have prioritized economic development over environmental conservation (Shah et al., 2016). Consequently, decoupling energy consumption from economic growth is widely recognized as a significant achievement in the global effort to combat climate change and mitigate adverse environmental effects. The experience of developed countries instill hope for overcoming resource scarcity and growth limitations, as well as fostering green and sustainable economic growth. While relative decoupling has been achieved in numerous countries, absolute decoupling remains challenging and seemingly unattainable (Hickel & Kallis, 2020). In this respect, the present study aimed to scrutinize the decoupling dynamics of economic growth, energy consumption, and pollution in Iran from 2000 to 2020, employing the method proposed by Tapio (2005) as well as factor analysis across three energy levels.Materials and MethodsThe study followed the method proposed by Tapio (2005) in order to calculate the decoupling between energy consumption and economic growth. First, the decoupling elasticity coefficient was calculated as outlined below: (1)e(E) is the elasticity coefficient of decoupling between economic growth and energy consumption. ∆E represents changes in energy consumption during the time period under study. E (t-1) indicates energy consumption in the base year. ∆G refers to changes in GDP per capita during the time period, and G (t-1) indicates the GDP per capita in the base year (Wang & Zhang, 2021). In the method proposed by Tapio (2005), eight decoupling states can be distinguished (Figure 1).Figure 1. Decoupling states The present study conducted a more comprehensive analysis of decoupling by using factor analysis at various energy levels. In this line, the consumption across three energy levels (primary, final, useful) was divided into three distinct effects: activity (production rate), structural (change of economic structure), and intensity (technology effect). The logarithmic mean division method and each of these effects were used as follows: (2) (3) (4) (5)The study also divided economic activities into several categories: agriculture, services, industry, residential, and transportation. This categorization aligns with the most feasible separation based on the available data and statistical classifications within domestic data sources. In Iran’s energy balance, although household, public, and commercial sectors are categorized under one group, these sectors were individually reported, and the residential sector was distinguished from the commercial and public sector (as the service sector).Results and DiscussionFigure 2 presents the decoupling dynamics of Iran’s economic growth, energy consumption, and carbon dioxide emissions during 2000–2020. The figure is divided into two parts focused on various energy levels for different components: the first part depicts the decoupling of economic growth and energy consumption, while the second part shows the decoupling of energy consumption from carbon dioxide emissions. As show in Figure 2, the decoupling of economic growth and carbon dioxide follows a pattern similar to and influenced by the decoupling process between economic growth and fossil energy consumption. The decoupling of economic growth and fossil energy consumption aligns with changes in decoupling at different energy levels (primary, final, and useful), reflecting the significant share of fossil energy in Iran’s overall energy consumption. Figure 2 also highlights the weak decoupling between fossil energy consumption and carbon dioxide, which can be attributed to the nature of fossil fuel pollution. Consequently, the decoupling of economic growth from carbon dioxide is influenced by fossil energy consumption.The first part of Figure 2 reveals various forms of negative decoupling (expansive negative, weak negative, and strong negative) concerning economic growth and energy consumption. Correspondingly, the second part indicates a generally weak decoupling for different energy levels and carbon dioxide emissions. Within the energy consumption components, the intensity component exhibits strong decoupling, though it fluctuates, sometimes displaying positive decoupling (weak, recessive, and strong) and occasionally negative decoupling (expansive and strong negative)—which can be caused by the drop in technology. This finding aligns with the second part of Figure 2, where the decoupling of the intensity component and carbon dioxide experiences fluctuations. Notably, the structural component in the first part of Figure 2 exhibits the strongest negative decoupling from economic growth, signifying a change in Iran’s economic structure that has exacerbated the decoupling between energy consumption and economic growth. However, the decoupling of the structural component and carbon dioxide, as depicted in the second part of Figure 2, remains within the range of weak but fluctuating decoupling.Finally, the first part of Figure 2 indicates that economic growth is often associated with negative decoupling (expansive and strong negative) from total energy consumption. Despite weak decoupling in initial periods and subsequent fluctuations, the last two years show strong decoupling between total energy consumption and carbon dioxide. Overall, Figure 2 illustrates a fluctuating trend in the decoupling of economic growth and energy consumption over time, predominantly featuring negative decoupling, which corresponds to the decoupling trend between energy consumption and carbon dioxide. Among the components of energy consumption, the intensity component exhibits strong negative decoupling, while the structural component displays weak decoupling, both characterized by fluctuating patterns. This fluctuation may stem from the absence of a specific plan and strategy to decouple economic growth, energy consumption, and carbon dioxide.Figure 2. Decoupling of economic growth, energy consumption, and carbon dioxide emission in Iran during 2000–2020 Expansive negative decoupling decoupling ExpansiveWeak decouplingStrong decouplingRecessive decoupling Recessive coupling Weak negative decoupling Strong negative decouplingConclusionUsing the method proposed by Tapio (2005) and factor analysis across three energy levels, the present study investigated the dynamics of decoupling economic growth, energy consumption, and pollution in Iran during 2000–2020. The findings underscored challenges faced by the policy aimed at reducing energy consumption, which is primarily due to the dependency of Iran’s economy on energy. Specifically, the research showed the dependency of Iran’s economy on energy on energy consumption across all three levels: primary energy, final energy, and useful energy. Moreover, the results highlighted a low degree of energy efficiency, particularly at higher energy levels (secondary and useful). Considering the relation between environmental pressure and restrictions on economic growth, there is a pressing need to address energy intensity and energy efficiency to strike a balance between economic growth and energy consumption. The observed negative decoupling in structural, intensity, and activity effects suggests a lack of a specific strategy in Iran’s economy concerning the decoupling and balance between energy consumption and economic development. In light of these findings, it is imperative to focus on enhancing energy consumption efficiency across diverse energy levels. Additionally, the study recommends prioritizing more effective decoupling in sustainable development policies concerning energy consumption, economic growth, and pollution.
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