Macroeconomic Policy and CO₂ Mitigation: Evidence from Iran

Document Type : Research Paper

Authors

Faculty of Economics and Management, Urmia University, Urmia, Iran.

10.22099/ijes.2026.55438.2101

Abstract

Environmental pressures and escalating carbon emissions have intensified the scholarly debate surrounding the ecological implications of macroeconomic policies, particularly within resource-dependent economies. This study examines the impact of monetary and fiscal policy instruments on CO₂ emissions in Iran from 1975 to 2023 using an Autoregressive Distributed Lag (ARDL) approach. It analyzes both short- and long-run relationships between emissions and key macroeconomic variables, including money supply, total government spending, GDP per capita, energy consumption, and trade openness. Empirical results indicate that money supply and government expenditure exert a statistically significant positive effect on CO₂ emissions in both the short and long run. These findings demonstrate the prevalence of a scale effect, wherein monetary expansion and fiscal stimuli catalyze aggregate demand and industrial activity, thereby amplifying environmental degradation. However, these results must interpreted with caution, as the aggregate nature of government expenditure data may obscure specific sectoral nuances. Furthermore, GDP per capita and energy consumption are the primary drivers of emissions, underscoring Iran’s structural reliance on fossil-fuel-based growth. Conversely, trade openness yields no appreciable effect in the long run, suggesting that external integration has not fundamentally altered the country’s carbon trajectory. This paper emphasizes the necessity of aligning macroeconomic frameworks with environmental objectives. Prioritizing green investment, energy efficiency, and the integration of environmental benchmark into fiscal and monetary structures is essential. This research contributes to the literature by providing long-term empirical evidence from a resource-dependent economy, offering insights applicable to emerging markets facing similar structural constraints.

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References

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  • Receive Date: 02 February 2026
  • Revise Date: 28 February 2026
  • Accept Date: 04 March 2026

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