Economic sanctions, energy efficiency, and environmental impacts: Evidence from Iranian industrial sub-sectors

Improving energy efficiency is vital for curtailing energy consumption and can have substantial impacts on alleviating carbon emissions. This study investigates the impact of sanctions on Iran's energy efficiency across different industrial sub-sectors from 2015 to 2019. We compute a sanctions index for each industrial sub-sector by using Principal Component Analysis (PCA). This index measures how much each sub-sector has been affected by sanctions. Additionally, energy efficiency is measured using the Directional Distance Function (DDF) method, considering the environmental impacts as undesirable outputs. We examine the effect of the degree of the sanctions indicator on energy efficiency using feasible generalized least squares (FGLS) estimation, controlling for other drivers of efficiency. Our results show a one standard deviation increase in sanctions index results in a decline of about 3% in sub-industrial energy efficiency.