Reform of energy prices, energy intensity and technology: A case study of Iran (ARDL approach)

The Iranian government is reforming energy prices. These reforms target (amongst other things) energy use patterns in industry. To understand aspects of potential effects, we explore the short and long run relationships between energy prices, energy intensity, and technological improvement in Iranian industry. Within an Auto Regressive Distributed Lag (ARDL), the bounds testing approach to co-integration and error correction models was applied to data for the period of 1986-2015. Our results indicate that there is a long run relationship between energy prices and energy intensity. In addition, technology change is found to have a constructive impact on energy intensity in Iran's industry. We suggest that Iranian government might consider the diffusion of low energy-intensive technology options before reforming energy prices.