Energy Price Reform and Energy Efficiency in Iran
IAEE Energy Forum, 2013
10 Pages Posted: 5 Oct 2013
Date Written: October 3, 2013
Iran is an energy-rich country possessing 11 percent of global oil reserves and 15.3 percent of global natural gas reserves. Ranked 2nd among OPEC and with a potential for natural gas exports to Europe and Asia, Iran also plays a significant role in the world energy market and the global economy. However, Iran’s rapidly growing own energy consumption (about 6 percent per year for the past 30 years) has raised concerns about the country’s ability to continue to export oil in the next decade. The main driving forces behind the rising trend of energy consumption are economic growth (5 percent for the past 40 years) and population growth (about 2 percent), and heavily subsidized energy markets (12 percent of the GDP) (Iran Energy Balance, 2010; Central Bank of Iran Economic Indicators, 2011). The latter, along with other factors such as poor management, lack of investment, and structure of the economy with a lion’s share of economic activities controlled by government, have led to an inefficient use of energy. The energy intensity index in Iran is one of the highest in the world (twice as much as the world average) and has been increasing on average by about 3.4 percent per year over the past 40 years (Iran Energy Balance, 2010; EIA, 2011). The substantial subsidizing of energy prices over the years has also led to low productivity in the energy-intensive industries, deterioration of environment in urban areas, and a huge burden on the government budget leading to macroeconomic disturbances.
To address the increasing economic and social problems associated with high energy subsidies, Iran implemented an aggressive and wide-ranging energy price reform through which energy subsidies were to be removed in 2010. The main objectives of the reform plan were twofold: to bring the government budget in control and to cut energy consumption. In this article, I review the energy market and the energy price reform in Iran with a focus on energy efficiency.
Keywords: Energy Price Reform, Energy Efficiency, Iran
JEL Classification: D12, Q41, Q48
Suggested Citation: Suggested Citation