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Energy Policy 35 (2007) 51715180 www.elsevier.com/locate/enpol

Sustainability of energy production and use in Iran

A.R. Karbassi, M.A. Abduli, E. Mahin Abdollahzadeh
Graduate Faculty of Environment, University of Tehran, P.O. Box 14155-6135, Teheran, Iran Received 10 April 2007; accepted 23 April 2007 Available online 27 June 2007

Abstract The issue of oil and gas policies in Iran is rather complex. In the present investigation, it is aimed to formulate plans for increasing the capacity of the countrys energy production. Analysis of energy consumption pattern over last decades is indicative of inefcient usage. The low energy prices in Iran do not reect economic costs. Further distortions exist in the tariff structures of most energy sources and in their relative prices. It is recognized that price reform is a key policy element for promotion of energy conservation and fuel substitution with renewable energies. Mitigation policies in the energy sector are crucial to Irans overall policies. Emission of greenhouse gases can be reduced from 752,156 to 560,791 Gg CO2 equivalents in 2010 by implementing the policies proposed for the energy sub-sectors. Enhancing energy efciency, including combined cycle power generation, has proved to be the most economic option for greenhouse gases reduction in energy sector. Irans energy consumption pattern is unsustainable and consumption oriented. r 2007 Elsevier Ltd. All rights reserved.
Keywords: Energy; Electricity; Subsidy

1. Introduction Sustainable development has been dened in many ways, including development that meets the needs of the present without compromising the ability of future generations to meet their own needs (World Commission on Environment and Development, 1987). The challenge for energy policy is that of reducing the environmental costs of energy production and use, while extending access to basic energy services (such as refrigeration, heating and lighting) in developing countries, and preserving energy security. A coherent strategy to meet these goals will include measures to reduce energy demand (through economic and other instruments), to develop renewable energy (RE), to increase the efciency of existing energy sources, and to transfer cleaner technologies to developing countries (OECD, 2001). In the present study, we analyze sustainability of energy production and use in Iran. Iran is located in the Middle East and is bordered by Iraq and Turkey to the west, Armenia, Azerbaijan, Russian Federation and Turkmenistan to the north, Afghanistan and Pakistan to
Corresponding author. Tel.: +98 21 61113188; fax: +98 21 44005963.

the east. To the south, Iran borders Persian Gulf and the Oman Sea with a long coastline of 2440 km. With an area of 1,648,000 km2 Iran ranks 16th in size among the countries of the world. The population of Iran is 70 million in 2006 (Iran Statistical Yearbook, 2006). The urban population accounts for 66.3% of total population. Irans economy is a mixed economy in which the state owns oil and other large enterprises, and agriculture, small-scale private trading and service ventures are mostly run by the private sector. In spite of diversication, the Iranian economy is still heavily dependent on oil export earnings. Currently, oil exports account for 80% of total export earnings, nearly 50% of the Government budget revenue and it accounts for 23% Gross Domestic Production (CBI, 2006). Continued favorable conditions in the world oil market have improved the external nancial conditions quite considerably. Table 1, shows some basic key macroeconomic indicators in Iran. 2. Overview In modernizing economies, electricity consumption grows faster than the growth rate of GDP, and it is considered as an index of social and economic development

E-mail addresses: akarbasi@ut.ac.ir, karbassi@iranenergy.org.ir (A.R. Karbassi). 0301-4215/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2007.04.031

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5172 A.R. Karbassi et al. / Energy Policy 35 (2007) 51715180 Table 2 Electricity loss in transmission and distribution lines (TAVANIR, 2006) Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Transmission loss % 3.5 3.5 3.5 3.1 3.8 5.1 5.1 3.7 5.0 5.3 4.3 4.9 Distribution loss % 11 12 12 10 11.2 10.4 11 12.9 14.42 14.97 16.1 16.4 Table 1 Irans key macroeconomic indicators (CBI, 2006) GDP Real GDP growth rate GDP breakdown Ination rate (CPI) Active population Unemployment rate Industries Agricultural products Exports US$ 126.7 billion (2005) 6.7% (2005) Oil 23%; non-oil 77% (2005) 15% (ending June 2006) 21.6 million 15.5% Petroleum, petrochemicals, textiles, cement, food processing, metal fabrication Wheat, rice, grains, sugar beat, fruits, nuts, cotton, dairy products, wool, caviar Oil & gas US$ 27 billion (2003) and US$ 44 billion (2005), non-oil exports: US$ 8 billion (2006) Export to Japan, Italy, Greece, France, Spain, South Korea US$ 32 billion Germany, Italy, Japan, UAE, UK, Belgium US$ 9 billion (2005) 8700 Iranian Rials/US$ in 2003 and 9200 Iranian Rials/US$ in 2006

Trade partners Imports Import partners External debt Exchange rate

Table 3 Trend of electricity export and import (million KWh) (TAVANIR, 2006) Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 522 0 622 144 1070 1001 1049 799 273 279 745 977 919 1837 2761 1489 2170 2074

Export 384 Import 0

(Dincer and Rosen, 2005). A comparison of the average GDP growth rate (3.8%) and growth rate of electricity sold to household sector (7.2%) during 19912005 period shows that the household electricity consumption has grown at 3.4% faster than GDP. In recent years, the authorities in the electricity industry have initiated the policy of exchanging energy with the neighboring countries such as Armenia and Azerbaijan. In 2001, the electricity trade balance was positive (304 million KWh) but in 2003, the balance turned negative (570 million KWh). Electricity utilities are mainly government owned. In 2005, about 95.55% of the total volume of electricity generated in Iran (equal to 140 billion KWh) was produced by power plants that operate under supervision of the Ministry of Energy (MOE, 2006). The private sector only accounted for nearly 4.45% of the total electricity generated in 2005. The government sector may not be able to expand electrical generation for all the sectors and regions efciently. A greater scope for the participation of private entities in electricity generation and more competition should be encouraged in this eld. The average efciency of Iranian power plants is about 37% in 2006 which is worse than previous year by 0.2%. The efciency of gas, combined and steam power plants in 2006 are 27.6%, 46% and 36.8%, respectively. The electricity loss of transmission and distribution is increasing every year (Table 2). Trend of export and import of electricity is given in Table 3.

3. Electricity policies Formulated plans for increasing the capacity of the countrys electricity generation system are based on the following policies:

(a) Orientation towards gas and combined cycle power plants taking into account their high efciency and technological development in manufacturing them. Operational capacity of the combined cycle power plants will increase to over 14,200 MW by the end of 2011. This would bring 15% annual growth in combined cycle capacity establishment. In doing so, the output of generation sector will increase and positive environmental impacts will take place as a result of reduction in fossil fuel consumption. Although gas turbine open cycle units are economical owing to the subsidized gas delivered by the MOE, the Ministrys policies and orientations which are based on safeguarding national interests entail converting open cycle gas units to combined cycle ones. Accordingly, many of large installed gas turbines will be converted to combined cycles. (b) Completion of hydro power plants which are currently in progress and increasing system reserve and stability in order to prevent outages, as well as providing the required facilities for power plants to operate in safe conditions and in accordance with generation standards. With the completion of hydro power plants, a total of 8007 MW will be added to the nationwide hydro-electric capacity and the overall capacity will reach 9900 MW. (c) Increasing the capacity of steam power plants during the coming years is not among the MOEs principal policies; however, it is essential to retain part of steam generation capacity due to the difculties and limitations of natural gas during cold seasons and replacement of liquid fuel such as diesel and the like at steam

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and combined cycle power plants. For this reason, capacity installations of this type are anticipated to reach approximately 3900 MW by the end of the current decade. (d) In order to meet the transmission demand of the newly established generation capacities, transmission substations and line establishment plans are being strenuously pursued. In addition to transfer the energy generated by the newly established power plants, installation of additional transmission substations and lines will substantially contribute to further system stability and reliability throughout the area covered by the network. (e) Production of electricity equal to 1% of total fossil fueled power plants by renewable energies.

3.1.3. Establishment of generation installations maintenance companies In order to outsource power plants maintenance operations for further transparency, introduction of competition, speeding maintenance operations, improving quality and ultimately cutting down on power plant maintenance costs, ve maintenance companies have been established so far. 3.1.4. Establishment of transmission installations maintenance companies Outsourcing policies have been pursued in this sector too. Currently, a majority of the RECs have established their own transmission maintenance companies and outsourced their transmission maintenance tasks to these companies. 3.1.5. Outsourcing distribution activities Distribution companies were among the very rst companies to get separated from the main body of the power sector and commence their activities in the form of 42 non-governmental companies. Distribution companies currently enter into contracts with the RECs for the following activities:

3.1. Restructuring and moving toward privatization Until recent developments, Iranian power industry, as in many other developing countries, was a monopoly of the government and dependent on the public budget of the country. Obviously, the nal price of the electricity was articially kept at a low level owing to the governments subsidies. Elimination of the power sectors relative dependence on the public budget laid a favorable ground for the privatization of those activities which were not inherently a monopoly. 3.1.1. Establishment of specialized holding companies In order to segregate governance issues from supervisory ones, and ultimately, to cut back on the governments supervision, a substantial number of responsibilities and authorities such as planning, coordination, monitoring performance, operation and power sector development plans, senior management of electricity supply and demand is delegated to Production & Transmission of Electricity (TAVANIR) Management Company, the Electricity Deputy of the MOE. Thus, 16 Regional Electricity Companies (RECs), 28 generation management companies, 42 distribution companies, Irans Electricity Development Company, Irans New Energies Organization (SANA), Irans Energy Efciency Organization (SABA), Irans Power Plant Projects Management (MAPNA), and Irans Power Plant Industries Development has undergone the supervision of TAVANIR and their governmental shares has been transferred to TAVANIR too. 3.1.2. Converting generation management companies into economic corporate Generation management companies have been separated from the main body of the power sector recently and organized in the form of the non-governmental companies comprised of one or several power plants within an area. In the new structure, TAVANIR Management Organization shall purchase electricity from the power plants and sell it to the RECs.

    

customers services, planning, design and monitoring, operation, correction and optimization, establishment and development.

In pursuit of outsourcing objectives and in accordance with the Third and fourth Economic, Social and Cultural Development Plans of the I. R. Iran, delegation and outsourcing of the following distribution activities to the private sector have been realized:

        

customer services, diagnosis operations, designing systems, development and establishment, operation, consumption management, supervision, logistic services, and distribution engineering.

3.1.6. Selling out 10% of the existing power plant capacity to the private sector According to the Amendment 12 of the Article T in the 2002 Budget Act, which mandates cutting back on the governments supervision and increasing participation of the private sector in the power sector investment plants, nine power plants (out of 50) shall be sold to the private sector at the market price, and on certain terms including 40% down payment and 60% on a 5-year installment plan.

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4. Oil and gas In the beginning of the year 2006, the overall oil reservoir is estimated around 132 billion barrel of oil. The overall life span of Iranian oil reservoir is about 30 years at 2005 consumption rate. Table 4 shows the liquid hydrocarbon reservoir of Iran (MOE, 2006). Table 5 shows the consumption of various oil products (IES, 2006). It is evident that Kerosene and residual oil had a negative rate of growth while gasoline possesses the highest positive growth rate. The share of various oil products in meeting with consumption demand in 2005 is 5.58%, 29.47%, 10.31%, 36.37% and 18.27%, respectively by liquid gas, gasoline, kerosene, gas-oil and residual oil. About 99% of total benzene consumption is consumed by transport sector. Increasing the number of manufactured cars, high average age of the cars, their low efciencies and old technologies are among the main reasons for higher benzene consumption in transport sector. Development of gas pipeline as well as electricity network is among the main reasons for negative growth rate of kerosene consumption in the country. Conversion of power plants fuel from liquid to gas (80%) is the main reason for negative growth rate of residual oil consumption. The nominal prices of various oil products are presented in Table 6 (MOP, 2006).

The total gas reserves of the country is about 29.74 trillion m3 of which 14.71 and 15.03 trillion m3 belong to land and sea, respectively. The life span of Iranian gas reserves is about 330 years (MOP, 2006). The share of natural gas as primary energy in different sectors of the country is presented in Table 7. As shown in the table the highest consumption goes to the residential/commercial sector. The nominal price of natural gas is very variable amongst various users (Table 8). The highest price is for commercial sector and the lowest one for power plants (MOE, 2006). 4.1. Oil and gas policies The basic idea in the both 2nd and 3rd Five Year Social, Economical and Cultural Development Plan was to
Table 6 Nominal prices of oil products (Rials/l) (MOP, 2006) Year Gasoline Kerosene Gas-oil Residual oil 1.2 1.2 5 55 88 94.5 Liquid gas 25 150 232 257.8

1974 1984 1994 2000 2003 2005

6 30 50 385 650 800

2.5 2.8 15 110 160 165

2.4 3 10 110 160 165

Table 4 Liquid hydrocarbon reservoir in 2006 (billion barrel) (MOE, 2006) Item Primary reserves 115.52 15.69 131.21 12.45 15.74 28.19 127.97 31.43 159.40 Secondary reserves 26.72 2.13 28.85 6.26 0.22 6.48 32.98 2.35 35.33 Total

9200 Rials 1 US$. Table 7 Natural gas consumption (%) (MOP, 2006) Consumption type Residential/commercial Petrochemical fuel Industry Transport Petrochemical feed Acidic gases Total 1999 2000 2001 2002 60.7 8.1 17.5 13 0.7 100 58.6 7.9 22.2 10.5 0.8 100 57 6.5 28.5 7.3 0.7 100 63.6 6.9 19.3 0.01 9.4 0.8 100 2003 66.5 5.9 18.6 0.01 8.0 1.1 100 2004 64.7 7.0 19.4 0.02 7.7 1.2 100 2005 64 6.7 21.28 0.02 6.8 1.2 100

Oil (land) Liquid gas (land) Totalland Oil (sea) Liquid gas (sea) Totalsea Oilland & sea Liquid gas (land & sea) Total land & sea

142.24 17.82 160.06 18.71 15.96 34.67 160.95 33.78 194.73

Table 5 Consumption of oil products (million l) (IES, 2006) Year/oil product 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average annual growth (%) Liquid gas 3186 3428 3500 3732 4038 4165 4355 4299 4199 3.51 Gasoline 11,847 12,323 13,693 14,221 15,517 16,737 18,440 20,538 22,159 8.14 Kerosene 10,620 10,173 9874 9272 9185 8973 6683 7889 7753 3.86 Gas-oil 22,614 23,897 23,015 23,016 24,288 25,084 25,880 26,235 27,348 2.4 Residual oil 15,543 15,393 13,879 14,221 14,737 15,254 14,785 13,601 13,740 1.53 Total 63,809 65,214 63,962 64,461 67,765 70,214 72,143 72,561 75,200 2.07

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A.R. Karbassi et al. / Energy Policy 35 (2007) 51715180 Table 8 Nominal natural gas prices (Rials/m3) (MOE, 2006) Consumption type Educational Renery Petrochemical Commercial Transport Residential Industry Power plants 9200 Rials 1 US$. 2000 67 18 18 110 50 50 95 18 2001 73.7 20 60.6 121 55 55 104.5 20 2002 81 22 66.66 133 60.5 60.5 115 22 2003 86.6 24.9 45.5 153.3 86.3 67.8 121.7 22.4 2004 88.4 28.8 50 174.5 60 75 131 27 2005 70.1 35.6 90.5 199.4 60 80 139.8 29.4 5175

(c) Entering into international gas market via extending pipeline to neighboring countries and exporting LNG to the rest of the world, particularly the Far East. (d) Maintaining/increasing Irans share in the international oil market through boosting investment in oil and gas development projects in accordance with production targets. (e) Attracting technology and foreign investments. Finally, based on the 4th Five Year Social, Economical and Cultural Development Plan and the 2015 outlook, investment should increase to create 5.5 million barrels per day capacity by 2009 and seven million barrels per day capacity by 2015. Investment should be made to create 900 million m3/day natural gas production capacity by 2015. Capacity creation for 20 billion dollar per year petrochemical production by 2015 is also assessed. The ministry of oil hopes to attract more than US$ 100 billion of investment for the industry as a whole from foreign and domestic sources until 2015. Table 9 projects the investment requirement (IES, 2006). 5. Renewable energies At present RE sources represent a low share and high cost in electricity production in Iran and other oilproducing countries (Midilli et al., 2006; Dincer, 1999, 2000; Dincer and Rosen, 1999; Hessari, 2005). Till 1993, there was not any activity in the eld of RE and energy conservation (EC) in the country. Gradually, these two topics were paid some attention. Later in 1994, two ofces were established namely ofce of Energy Efciency and ofce of Renewable Energy. Soon, it was recognized that for implementation of policies, establishment of two executive organizations is necessary. For this reason, Iran Energy Efciency Organization (SABA) and Iran Renewable Energy Organization (SUNA) were established in 1995. Originally, these two organizations were privatecum-government organizations but later they were converted into the governmental organizations. Soon, these two organizations were transferred into TAVANIR
Table 9 Projected investment requirements in the 4th plan (200509) in US$ billion (IES, 2006) Company Total Buyback & nance 36.17 0.30 9.22 7.78 53.46 Finance Buyback Domestic resources 7.91 3.22 3.60 1.90 16.63

increase the relative prices of energy carriers to rationalize their consumption and generate sufcient nancial resources for their future development. However, during past years, the ination rate more or less has kept pace with the annual increase in the price of the main energy carriers. Currently the demand for rened oil products, in particular, gasoline is growing rapidly, at about 6.5% per year, as a result domestic production is not sufcient for domestic use and surplus must be imported. Thus, a master plan has been prepared by the Ministry of oil to achieve higher value-added through: (a) (b) (c) (d) (e) (f) (g) optimizing capacity, optimizing the design of the rening process, reducing the output of low value added products, increasing output of high value added products, improving the quality of petroleum products, reducing the rate of fuel consumption, reducing energy consumption and wastes in reneries.

In the gas sector the main projects for the development of rening capacity are: (a) To increase the rening capacity of the Persian Gas renery with the objectives of processing 46 million m3/ day and production of 2.4 million ton of LPG and gasoline per year. (b) Construction of Ilam gas renery with the capacity of 6.8 million m3/day of gas. This project will also involve production of 340 ton of sulfur, 480 ton of LPG, 455,000 ton of ethane per year and 12,000 barrels of gasoline per day. (c) Construction of 2nd renery unit in Bid-Boland with the objectives of rening 56 million m3/day. Other main policies in oil and gas sector of the country are as follows: (a) Increasing the share of natural gas in the domestic energy basket. (b) Improving energy efciency in both consumption and production.

NIOC NIGC NPC NIORDC Total

44.08 3.52 12.82 9.68 70.09

11.1 0.30 9.22 7.78 28.42

25.04 0.00 0.00 0.00 25.04

NIOC: National Iranian Oil Company. NIGC: National Iranian Gas Company. NPC: National Petrochemical Company. NIORDC: National Iranian Oil Rening & Distribution Company.

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5176 A.R. Karbassi et al. / Energy Policy 35 (2007) 51715180 Table 11 Investment in the eld of geothermal (till 2005) (SAUNA, 2006) Name of project Past investment (million US$) Future investment (million US$) 100a 1.70b 101.70

Specialized Holding Company (in 2002). Management of a sum of US$ 9 million is given to SABA to promote energy efciency activities in various energy sectors of the country. The overall budget for RE and EC in the country is about US$ 76 million. This is a rather an eye-catching amount for a country with plentiful fossil fuel resources. In spite of the vast oil and gas reserves, Iran has been paying attention to its RE resources. Solar and wind energy may have the best long-term prospects in Iran. As most areas in Iran are dry with low cloudiness, solar irradiation is quite high. The estimated potential is 2000 kWh/m2 with an average of 2800 useful hours per year. A 250 kW solar generator has been installed in Shiraz. In spite of the high potential, but due to present high costs when compared with other energy options, it does not seem a very attractive option for the time being. Nevertheless, it can be a good possibility for island solutions, i.e. for the supply of electricity to isolated areas with a small population where connection to a grid is economically not feasible, and where there is no potential for small hydropower development. There is no explicit policy for the development of electricity production by solar energy provided neither in the 3rd Five Year Social, Economical and Cultural Development Plan nor in the 4th Plan. Nevertheless, Iran plans to produce 1% of total electricity from RE in the next 25 years. The wind energy potential in Iran is estimated to be around 12 GW. There is a wind farm with an installed capacity of 40 MW. The largest project for development of wind energy is the 100 MW plant. This plant, whose costs amount to 40 million USD plus 500 billion Rials, will start operating in 2008. Four wind power plants currently under construction (23 MW) are expected to become operational by the end of the 4th Plan. There is also a project underway for domestic manufacture of wind turbines with nominal capacities of 600 KW. Table 10 shows electricity production from wind turbine in Iran (SAUNA, 2006). With a countrywide geothermal potential in Iran which at this stage looks to be in the order of 3000 MW, within a grid of some 40,000 MW which will need to double over the next 10 years, geothermal power will not have the same relevance that it has in some other countries; in the Philippines for example 20% of power generation comes from geothermal sources (Mundo et al., 2003).
Table 10 Electricity Production by wind mills in Iran (200320042006) (MOE, 2006; TAVANIR, 2006) Year Location Installed capacity (KW) 10,800 15,950 40,000 Number of turbines 30 41 100 Electricity production (KWh) 29,409,492 27,565,654 283,400,000

Ministry of Energy Atomic Energy Organization Total

a

25 1.10 26.10

Water temperature of 245 1C and installation of 50 MW power plants is proposed. b Water temperature of 120 1C and completion of the survey.

The MOE presently has a geothermal power plant under construction in Meshkin-Shahr, which is planned to be commissioned by 2008. The rst stage presently being built will have an installed capacity of 55 MW, but it could later be expanded to 300 MW. The cost of this project is estimated at 125 million US$ plus 588.7 billion Rials. Table 11 shows the expenditures so far spent by the MOE (SAUNA, 2006). It should be pointed out that biomass and hydropower energies cannot play a major role in electricity production due to scarcity of forests and surface waters, respectively. 6. Energy efciency Energy conservation restricts the accelerated depletion of fossil fuels and signicantly reduces the production cost of energy-intensive products in particular. Strategic energy policies and regulations are critical not only to promote EC, but also to control the impact of volatile oil prices (in the international market) and environmental pollution, among others. Strong policies to promote EC and efciency should be developed in close coordination with the overall energy sector policy. The rate of capital return in implementing energy efciency and fuel switching, are 70% and 50% for cement and 134% and 182% for the iron and steel industries, respectively (Karbassi and Shazadeh, 2005). Karbassi and Shazadeh (2005) carried out a survey on potential of energy saving in a number of industries (including 45 iron manufacturers, 23 aluminum producers, 29 cement factories, 62 tile makers and 34 textile industries). The results of their studies show the following pattern of energy-saving potential (in terms of terra joules): Aluminum (6773)4Cement (4600)4Textile (2271)4Tile and brick (2038)4Iron (1285). Some studies show that potential of energy saving is about 35%, 45% and 55% in industry, transport and residential section, respectively (Karbassi and Shazadeh, 2005). 7. Energy subsidy Removing or at least reshaping subsidies could lead to substantial benets in terms of economic efciency, environmental preservation and social equity. Their

2003 2004 2006

ManjeelGuilan ManjeelGuilan ManjeelGuilan

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redesign could also free resources to allocate to other urgent needs that are prevalent in developing countries. Total energy subsidy in 2005 has been estimated at US$ 14 billion. It is an eye-catching gure that provides any Government for capital investment opportunities if subsidy is removed. The amount of subsidy per capita is estimated at US$ 216 in the year 2005. Government is also paying subsidy on basic goods and it amount to about US$ 1.4 billion. About 31% of energy subsidy is allocated to residential sector. Transport and industrial sectors consume about 33% and 18% of total energy subsidy, respectively. Thus over 82% of total energy subsidy goes to residential, transport and industrial sector. Percentile of energy subsidy for different energy carriers is given in Table 12. According to an analysis of 1999 and 2005, the distribution of the energy subsidies between household income groups (especially in the case of gasoline) showed a signicant imbalance and was not equitable. But removal of these subsidies will result in some economic and social impacts. The estimates indicate that the removal of all energy subsidies in Iran would lead to an increase in urban and rural household expenditures of 27% and 34%,

respectively (MOE, 2006). Experience suggests that even large energy price increases have not been associated with substantial increases in the rate of ination. Table 13 gives actual experience of four developing countries drawn from a World Bank Study (World Bank, 1995). The experience of these very diverse developing countries shows that the impact of very substantial energy price increases did not generally lead to an acceleration of the rate of ination. Indeed in three out of the four countries the government was able to reduce or hold constant the rate of overall ination during the period following the energy price rise. At the same time, three out of the four countries were able to experience an increase in the growth rate (Malaysia dropping from 6.3% to 3.3% per annum). Energy prices in the Islamic Republic of Iran have for several years been below opportunity costs as measured by border prices. Although the Government, in recent years, has increased energy prices, they are still very substantially below opportunity costs and are not sustainable, either in terms of the nancial well being of Iranian energy companies, or in terms of the attractiveness of Iran for foreign capital, or in terms of the monetary and scal policy of the government. Although Iran is one of the few

Table 12 Percentile of various energy carrier subsidies (2005) (MOE, 2006) Energy carrier/ sector Kerosene Gas oil Fuel oil Liquid gas Electricity Natural gas Total % Res. (million US$) 1314 253 378 1746 687 4378 30.9 Ind. (million US$) 3.84 376 811 25 987 321 2528 17.8 Agr. (million US$) 14.7 533 1.9 610 0.13 1162 8.2 4725 33.3 Tra. (million US$) Com. (million US$) 14.4 94.7 208.5 34 128 62 542 3.8 Pub. (million US$) 25.6 174 4.3 613 21 851 6 Total (million US$) 1373 3772 1107 503 4084 1091 14,185 100

2342 77.6 66.4

Res. Residential; Ind. Industrial; Agr. Agricultural; Com. Commercial; Pub. Public.

Table 13 Energy price increases and changes in aggregate ination in certain countries (World Bank, 2003) Country Fuel Fuel price change (%) 80 69.5 21.8 23 39.7 0.0 33.3 23.5 Change in aggregate inationa 3.8 0.6 3.2 16 Fiscal revenue impactb 2 18 6 20 Change in GDP growth ratec 3 1.9 2 1.3

Malaysia Indonesia Zimbabwe Turkey

a

Diesel Kerosene Diesel Kerosene Diesel Kerosene Diesel Kerosene

Change in annual % ination rate from 2 years before the price changes to 2 years after the price change. Revenue gains of governments due to energy price rises as % of total central government revenues. c Change in aggregate annual growth rate from 2 years before price change to 2 years after price change.
b

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oil-producing and -exporting countries in the world to carry out programs for improving the energy efciency of the different consuming sectors, the energy intensity has increased for a number of years. Only in the recent years (200306) the rising curve of energy intensity is smoothened to some extent. One of the ways to improve energy efciency in the country is to adjust prices of energy products to cover opportunity and production costs and to establish separate transfers to the low-level income people for poverty alleviation. It is important to note that Iran like many other developing countries do not possess long-term policies (at least a 25 years policy). Usually, the policies are drawn at 5 years duration and sometimes a mention of next 5 years may also be made. 8. Greenhouse gases emissions Since 1980, carbon emissions in Iran have risen by 240%, from 33.1 million metric tons emitted in 1980 to 80.8 million metric tons emitted in 2000 (DoE, 2003). With the growth in Irans population has come an increasing number of cars, and automobile exhaust has contributed greatly (Mohammadrezaie and Eska, 2007; Shapour and Farsiabi, 2007) to the fact that Iran now accounts for 1.3% of the worlds total carbon emissions. The summary of direct and indirect greenhouse gases (GHGs) inventory in

Iran is shown in Table 14. According to this table, GHGs emission increased from 405,451 Gg CO2 in 1994 to 752,156 Gg CO2 in 2010 (World Bank, 2003). Now that Iran has ratied the Protocol Kyoto, it will be very difcult to reduce GHGs emissions to 1990 baseline as a prerequisite of the convention. Enhancing energy efciency has proved to be the most economical option for reducing emission of GHGs by as much as 31% in 2021. By rational use of energy, accompanied with changes in the fuel mix, it would be possible to reduce the average annual growth rate of CO2 emission from 4.2% to 2.4% in the period 19992021. Energy efciency mitigation option, include increasing the share of the combined cycle power generation in power plants, dening better standards for energy consumption in domestic and commercial buildings, mandating the use of energy labels for domestic manufacturing of home appliances and improving vehicle technology. By switching from liquid fuels like gas oil or heavy oil to natural gas, the amount of CO2 emission from thermal power plants has reduced from 89.4 million ton in 2000, to 83 million ton in 2005, a decline of 7.2%. Flare gas recovery for oil well injection purposes and the development of Gas-to-Liquid (GTL) technologies can also make an important contribution to GHGs emission reduction. Emission of GHGs can be reduced from 752,156 to 560,791 Gg CO2 equivalents in 2010 by implementing the

Table 14 GHGs emission trends for all sectors (Gg CO2 equivalent) (World Bank, 2003) Sub-sector Power plants Oil & gas activities Without recovery plan for are gas With recovery plan for are gas Industry (Comb.+Process) Transportation Dom./Com. buildings Agriculture Other Sub-total Without recovery plan for are gas With recovery plan for are gas Agriculture Agricultural production Livestock production Sub-total Forestry Waste Solid Liquid Sub-total Total Without recovery plan for are gas With recovery plan for are gas 1994 51,914 70,333 70,333 72,302 58,709 66,512 12,688 5067 337,525 337,525 17,457 12,859 30,316 31,416 5586 608 6194 405,451 405,451 2000 67,480 177,57j 177,572 86,292 62,583 79,054 13,703 5067 491,751 491,751 22,498 15,625 38,123 32,052 6510 649 7159 569,085 569,085 2005 89,400 278,766 100,926 136,543 56,748 89,987 15,758 5067 672,269 494,429 27,047 19,864 46,911 32,909 15,110 549 15,658 767,747 589,907 2010 118,080 311,342 133,507 190,633 70,450 104,152 17,725 5067 817,449 639,614 33,034 24,027 57,061 33,589 21,378 514 21,892 929,991 752,156

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policies proposed for the energy sub-sectors. If the governments plans for recovery of are gas for gas injection into oil wells are not put into effect, GHGs reduction by 2010 will be about 330,627 Gg CO2 equivalents (Karbassi et al., 2007). Enhancing energy efciency, including combined cycle power generation, has proved to be the most economic option for GHGs reduction in energy sector. 9. Conclusions Irans energy consumption pattern is unsustainable and consumption oriented. The energy consumption pattern over last decades has been inefcient and contributes towards the excessive consumption of fossil fuels which produces several quantities of pollutants and greenhouse gases. The most important reasons are as follows:

  

The growth in population and urbanization which has increased almost three-fold in the last century. High subsidies of energy consumption which accelerate the depletion of fossil fuel resources, generate additional pollutants with more nancial relief to the rich. Low price of energy which represent an effective incentive for inefcient consumption and prevent protability from renewable energies.

The low energy prices in Iran do not reect economic costs. Further distortions exist in the tariff structures of most energy sources and in their relative prices. It is recognized that price reform is a key policy element for promotion of EC and fuel substitution with renewable energies. Energy pricing policies in Iran need to address the following three main issues: (1) Rapid increases in domestic consumption of petroleum products may turn the country into a weak oil exporter after the year 2020. Iran needs to promote greater efciency of energy use and develop demand side management and also introduce renewable energies into the energy basket. (2) Energy-pricing policies inuence the behavior of energy producers and consumers. There are policy trade-offs which need to be clearly addressed. Energy subsidization may be desirable for equity reasons, but may discourage investment and resource development. (3) Energy resources should be priced at their economic values. Greater reliance must be placed on economic principles such as long-run marginal cost and efciency pricing (shadow pricing), rather than relying on nancial analysis alone. Following is a list of suggestion for achieving energy sustainability in the country: (a) Standardization of energy consumption in home appliances, industrial processes and transport eets.

(b) Standardization of energy consumption in residential and commercial buildings. (c) Ministry of Construction and municipalities should provide license of sell for those buildings which have followed the standards of energy savings. (d) All the industries and institutes with consumption of over 1 MW electricity or 1 million m3 of gas should establish department of energy. The main duty of this department is to look into the possibilities of energy saving and also implement the measures. (e) If any industrial sector or any institute generates electricity, Ministry of Energy would be responsible to purchase their excess electricity production at a tariff that will be set by the Government. (f) All industrial sectors should import energy recovery equipment along with their other technological purchases. (g) Ministry of Trade should provide 25% discount on all energy efcient equipment to encourage the usage of such goods. (h) To promote production of energy efcient equipment within the country, Ministry of Trade should exempt manufactures from tax by 40%. (i) Government should encourage Banks to pay 5% of their total loans to the energy efcient measures. (j) Any industry that saves energy will be entitled to receive 50% of value of saved energy on annual basis. (k) Holding companies responsible for production, transmission and distribution of electricity should reduce losses by 20% on annual basis till the losses equals those of worlds average. (l) Higher Council of Energy must be established in order to coordinate all energy affairs in the country including EC and RE. Mitigation policies in the energy sector are crucial to Irans overall policies. Emission of GHGs can be reduced from 752,156 to 560,791 Gg CO2 equivalents in 2010 by implementing the policies proposed for the energy subsectors (Karbassi et al., 2007). If the governments plans for recovery of are gas for gas injection into oil wells are not put into effect, GHGs reduction by 2010 will be about 330,627 Gg CO2 equivalents. Enhancing energy efciency, including combined cycle power generation, has proved to be the most economic option for GHGs reduction in energy sector. At present RE sources represent a low share and high cost in electricity production in Iran. Hence the main options should focus on fuel switching, hydropower, combined cycle, cogeneration and nuclear energy. Both fuel switching and energy efciency improvement methods are recommended for cement and particularly the iron and steel industries. The rate of capital return in implementing energy efciency and fuel switching, are 70% and 50% for cement and 134% and 182% for the iron and steel industries, respectively. Signicant measures have been proposed to reduce the GHGs emissions from the

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5180 A.R. Karbassi et al. / Energy Policy 35 (2007) 51715180 Karbassi, A.R., Abbaspour, M., Sekhavatjou, S.S., 2007. Mitigation plans for reduction of GHGs in energy sector of Iran. International Journal of Environmental Studies and Technology 4 (3), 360368. Midilli, A., Dincer, I., Ay, M., 2006. Green energy strategies for sustainable development. Energy Policy 34 (18), 36233633. MOE, 2006. Energy Balance. Ministry of Energy: Energy Balance Annual Report, Tehran. Mohammadrezaie, Sh., Eska, F., 2007. Environmental performance evaluation of Iran Khodro Co. International Journal of Environmental Research 1 (1), 4957. MOP, 2006. Oil and Development. Ministry of Petroleum: Annual Reports, Tehran. Mundo, R.R., Isidro, C.M., Guzman, R.L.V., Ferraris, F.V., 2003. Power switch: scenarios and strategies for clean power development in the Philippines. University of the Philippines Solar Laboratory, Kabang Kalikasan ng Pilipinas (WWF Philippines, U.P. Electrical and Electronics Engineering Foundation). OECD, 2001. Sustainable Development: Critical Issues Policy Brief. Organization for Economic Co-operation and Development. SAUNA, 2006. Prospects of renewable energy in Iran. Iran Organization for Renewable Energy, Annual Report, Teheran. Shapour, M.M., Farsiabi, M.M., 2007. An environmental economic analysis for reducing energy subsidies. International Journal of Environmental Research 1 (2), 150162. TAVANIR, 2006. Electricity Production in Iran. Electricity Production and Transmission Company, Tehran. World Bank, 1995. Pollution and the Choice of Economic Policy Instruments in Developing Countries. World Bank (RPO 676-48), 1818 H Street NW, Washington, DC. World Bank, 2003. Energy and Environment Review in Iran. World Bank Studies (Department of Environment), Washington, DC. World Commission on Environment and Development, 1987. Our Common Future. Oxford University Press, Oxford.

transportation sector in Iran. These procedures constitute a mitigation program package that focuses on improved vehicles, increasing public transport, production of higherquality fuels and promotion of rail transportation for both passengers and cargo. References
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