In the path toward achieving sustainable development, addressing the environmental consequences of productive, industrial, and construction activities is not a luxury but a vital necessity. Given that Iran’s power sector relies heavily on fossil fuels for electricity generation, this study aims to examine the factors influencing carbon emission intensity in Iran’s electricity industry within the framework of the Environmental Kuznets Curve (EKC). To this end, the ARDL method is applied over the period 2000–2023.The findings reveal that Iran is currently at the initial stage of the Kuznets curve, and government effectiveness, as a key variable, plays a significant role in carbon emissions from this sector. Furthermore, considering the importance of the issue, the study employs dynamic system modeling over the period 2000–2071 by developing causal loop diagrams and an extended empirical model. The results of this section indicate that the most effective scenario among those tested is the simultaneous increase in economic growth and improvement of government efficiency. This combination not only reduces emissions but also paves the way for sustainable development. In terms of policy recommendations, the study suggests that policymakers should focus on enhancing government efficiency and reforming the institutional structure of the electricity sector. This includes implementing effective regulatory policies, ensuring accurate electricity pricing and price adjustments, while at the same time supporting vulnerable groups. Such measures would promote consumption pattern reform, ultimately reducing the emission intensity of the sector.
EXTENDED ABSTRACT

Introduction

The energy supply sector (including electricity, heating, and other forms of energy) is the largest source of greenhouse gas emissions worldwide, accounting for approximately 35% of total global emissions. Achieving carbon neutrality largely depends on the electrification of a growing number of sectors, provided that the electricity is generated primarily from renewable and carbon-free sources. Despite global progress toward the development of clean energy and the establishment of carbon markets, Iran continues to face numerous challenges in this regard. The lack of infrastructure for emission monitoring and pricing, the heavy reliance on subsidized fossil fuels, weak regulatory frameworks, and limited participation in international carbon reduction mechanisms are among the main obstacles to the expansion of a carbon market in the country. Furthermore, the low share of renewable energy in the national electricity generation mix and the insufficient economic incentives for producers to adopt low-carbon technologies have caused Iran’s electricity sector to lag behind the global energy transition. Accordingly, this study seeks to examine the factors influencing carbon emission intensity in Iran’s power industry, considering the aforementioned issues
Materials and methods
This study is conducted based on available data and employs econometric techniques for analysis. In the first stage, the ARDL (Autoregressive Distributed Lag) approach was selected as the appropriate estimation method, since it can be applied when variables exhibit different levels of stationarity (up to order one) and allows for the estimation of both short-run and long-run relationships among variables. In the second stage, the system dynamics technique was utilized for a more comprehensive analysis of the issue. Accordingly, the innovation of this research lies in providing a dynamic analysis of the impact of government effectiveness on the carbon emission intensity of the power industry.
Results and discussion
The estimation results for the period 2000–2023 indicate that both real GDP (LGDP) and its squared term (LGDP²) have significant effects on carbon emission intensity in the electricity sector. The positive coefficient of LGDP and the negative coefficient of LGDP2 in the long run confirm the existence of an Environmental Kuznets Curve (EKC) relationship. This implies that in the early stages of economic growth, an increase in GDP leads to higher pollution levels; however, after surpassing a certain income threshold, this effect reverses, and economic growth becomes associated with lower carbon emissions. This finding is consistent with the theoretical foundations of the EKC hypothesis and highlights the importance of technological advancement and efficiency improvement at higher stages of development. Moreover, the government effectiveness variable, as a key factor in both the short-run and long-run models, exhibits negative and statistically significant coefficients, suggesting that enhanced governance quality and effective policy-making can contribute to reducing carbon emissions in the electricity sector.
Conclusion
The results of the model indicate that real GDP and its squared term have significant effects on carbon emission intensity, confirming the presence of an inverted U-shaped relationship between economic growth and pollution. In addition, government effectiveness shows a negative and significant impact on carbon intensity in both the short and long run, highlighting the crucial role of effective policymaking in reducing emissions. Moreover, imports were found to have a reducing effect on carbon emissions, while exports exerted an increasing effect. Income inequality (measured by the Gini coefficient) also demonstrated a positive and significant influence on emissions. In the second stage, using system dynamics modeling over the period 2000–2066, the results of scenario simulations revealed that a 1.5% increase in government efficiency leads to a sustained reduction in carbon emissions in the electricity sector. Furthermore, a 2% economic growth initially raises emissions in the short run (due to the scale effect), but in the long run, through structural transformation and technological advancement, it can contribute to emission reduction. Therefore, the combination of economic growth and improved government efficiency forms the optimal scenario, ensuring the simultaneous achievement of economic development and environmental sustainability.
The estimation results for the period 2000–2023 indicate that both real GDP (LGDP) and its squared term (LGDP²) have significant effects on carbon emission intensity in the electricity sector. The positive coefficient of LGDP and the negative coefficient of LGDP2 in the long run confirm the existence of an Environmental Kuznets Curve (EKC) relationship. This implies that in the early stages of economic growth, an increase in GDP leads to higher pollution levels; however, after surpassing a certain income threshold, this effect reverses, and economic growth becomes associated with lower carbon emissions. This finding is consistent with the theoretical foundations of the EKC hypothesis and highlights the importance of technological advancement and efficiency improvement at higher stages of development. Moreover, the government effectiveness variable, as a key factor in both the short-run and long-run models, exhibits negative and statistically significant coefficients, suggesting that enhanced governance quality and effective policy-making can contribute to reducing carbon emissions in the electricity sector.
Conclusion
The results of the model indicate that real GDP and its squared term have significant effects on carbon emission intensity, confirming the presence of an inverted U-shaped relationship between economic growth and pollution. In addition, government effectiveness shows a negative and significant impact on carbon intensity in both the short and long run, highlighting the crucial role of effective policymaking in reducing emissions. Moreover, imports were found to have a reducing effect on carbon emissions, while exports exerted an increasing effect. Income inequality (measured by the Gini coefficient) also demonstrated a positive and significant influence on emissions. In the second stage, using system dynamics modeling over the period 2000–2066, the results of scenario simulations revealed that a 1.5% increase in government efficiency leads to a sustained reduction in carbon emissions in the electricity sector. Furthermore, a 2% economic growth initially raises emissions in the short run (due to the scale effect), but in the long run, through structural transformation and technological advancement, it can contribute to emission reduction. Therefore, the combination of economic growth and improved government efficiency forms the optimal scenario, ensuring the simultaneous achievement of economic development and environmental sustainability.