The Relationship between Economic Growth and Environmental Pollution in Oil Sector with Emphasis on Oil Price Volatility: Case Study of Iran

Crude oil accounts for the lion’s share of the demand for fossil fuels. Within the past few decades, increased oil consumption in a variety of economic sectors has lead to massive release of toxic pollutants and greenhouse gases, most specially Carbon Dioxide, as well as inflicting damages to the Earth like global warming and climate change. Accordingly, it is imperative to explore the relationship between the economic variables and the pollution caused and perpetuated owing to crude oil. This article tries to such a relationship through employing Environmental Kuznets Curves (EKC). Therefore, certain economic variables, namely, the value added in oil sector, Carbon Dioxide (Co2) emitted by energy consumption and oil prices volatility variable during 1960-2007 were adopted for the purpose. The researchers decided to embark on oil prices volatility modeling using Auto-Regressive Conditional Heteroskedactisity while they conducted Environmental Kuznets Curve (EKC) modeling by means of Autoregressive Distributed Lag Model (ARDL). The study resulted in a bell-shaped curve between the value added in the oil sector and Carbon Dioxide emitted because of oil consumption; hence, this confirms the Kuznets hypothesis in the energy sector. Moreover, the results of the modeling indicated that oil prices volatility has a negative and significant relationship with CO2 emission.