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Energy poverty, institutional quality, and environmental degradation in Pakistan: a time series empirical analysis

Khan Muhammad Kamran, Kazak Jan K., Balakrishnan Rajani

Economics and Environment

2025

No. 3

art. no. 1101

Pakistan, as a developing country, faces an energy crisis that encourages the use of traditional energy sources at both the household and industrial levels. Pakistan aims to achieve the SDG target (2030) as per the UN SDG target. This study aims to examine the impact of energy poverty, poverty, income inequality, energy consumption, foreign direct investment (FDI) inflows, economic growth, institutional quality, and energy prices on environmental degradation in Pakistan, and verify the validity of the Environmental Kuznets Curve (EKC) hypothesis and the pollution haven hypothesis. A dynamic ARDL simulation model is used to predict the impact of independent (Positive and negative shocks) variables on the dependent variable through graphs. The findings of the dynamic ARDL simulation model reveal that energy poverty, globalisation, poverty, economic growth, FDI inflows, and income inequality in Pakistan increase environmental degradation, while the consumption of renewable energy and institutional quality help to reduce environmental degradation. Furthermore, the EKC and pollution-haven hypotheses are valid in Pakistan. This study supports Sustainable Development Goal (SDG) 7, advocating affordable clean energy policies to combat energy poverty and promote sustainability in Pakistan, as well as SDG 13, emphasising climate action to ensure both environmental protection and continued economic investment. Considering the SDG targets (2030), policy recommendations are proposed for Pakistan to achieve sustainable development.