Revisiting the Environmental Kuznets Curve: An ARDL–NARDL Analysis of Energy-Driven Growth and Carbon Emissions in Pakistan

Abstract

This study re-assesses whether Pakistan exhibits an Environmental Kuznets Curve (EKC) for CO₂ emissions and it explored how economic growth, energy use, urbanization, and population growth shape environmental outcomes. Pakistan’s sustained economic growth has been accompanied by rising energy demand and fossil-fuel dependence. Using annual data for 1980–2024, an Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) framework is employed with CO₂ emissions as the dependent variable and Gross Domestic Product (GDP), GDP², energy consumption, urbanization, and population growth as regressors. Cointegration is tested via bounds tests, long-run elasticities are computed, and short-run dynamics are analyzed. A Nonlinear ARDL (NARDL) model further tests asymmetries by decomposing positive and negative shocks in income and energy use. Results reveal a stable long-run relationship: energy consumption and income significantly increase CO₂ emissions, while urbanization and population growth have weak effects. The negative but insignificant income-squared term indicates that any EKC turning point lies beyond Pakistan’s current income range. Asymmetry tests show a ratchet effect: increases in income and energy raise emissions more than equivalent decreases reduce them. Policy priorities include accelerating energy efficiency (Minimum Energy Performance Standards (MEPS), building codes, industrial retrofits), power-sector decarbonization (renewables, storage, loss reduction), cleaner transport and compact urban form, and aligning prices and finance through green credit and gradual carbon pricing.