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  • The Role of Energy Sector in

    Sustainable Development in Iran

    By

    Zanyar Golabi

    MASSACHUSETTS INSTITUTEOF TECHNOLOGY

    JUN 15 2011

    LIBRARIES

    Master of Business Administration, University of Tehran, 2010B.S. Industrial Engineering, Sharif University of Technology, 2007

    ARCHIVES

    SUBMITTED TO THE MIT SLOAN SCHOOL OF MANAGEMENT INPARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF

    MASTER OF SCIENCE IN MANAGEMENT STUDIES

    AT THE

    MASSACHUSETTS INSTITUTE OF TECHNOLOGY

    JUNE 2011

    0201 1 Zanyar Golabi. All rights reserved.

    The author hereby grants to MIT permission toreproduce and to distribute publicly paper and

    electronic copies of this thesis document in whole or inpart in any medium now known or hereafter created.

    Signature of Author:MIT a School of Management

    Certified by:

    Accepted by:

    ,sis Supervisor

    Michael A. CusumanoSMR Distinguished Professor of Management Program Director,

    M.S. in Management Studies ProgramMIT Sloan School of Management

  • The Role of Energy Sector in Sustainable

    Development in Iran

    By

    Zanyar Golabi

    Submitted to MIT Sloan School of Managementon May 6, 2011 in Partial Fulfillment of the

    requirements for the Degree of Master of Science inManagement Studies

    ABSTRACTGenerally speaking, both supply and use of energy in Iran are unsustainable. The

    unsustainable energy supply and use coupled with an unreliable and unsecure energysystem have striking and lasing impacts on economic, social and environmentaldevelopment of Iran. Natural gas and oil have dominated the total production of energysources (TPES) in Iran for the past 50 years. Natural gas has also dominated the totalfinal consumption (TFC) since 1999. Other alternative resources have been playingmarginal roles in Iran's development. The high share of fossil fuels in energy supply anduse has striking social, economic and environmental consequences. Additionally, Iran'sreliance on oil and gas resources makes the energy sector in Iran vulnerable and highlyunsecure. In order to address these issues, I provide indicators of energy sustainabilityand analyze the trends of these indicators systematically. These indicators help policymakers as well as public and private sectors get a better understanding of major drivingforces that affect energy sustainability, economic prosperity as well as social andenvironmental well-being. Based on these indicators, I explore the impacts of energysubsidies, innovation policies, technological advancement, renewable energydevelopment, US sanctions, international cooperation, geopolitical instability, and manyother factors on Iran's sustainable development.

    Based on an in depth analysis of current state of energy sector in Iran and thecharacteristics of a sustainable energy system, I propose strategies and policies that canresult in a more sustainable energy sector which in turn contributes to the economicprosperity, social and environmental well-being and higher energy security.

    Thesis Supervisor: Roberto RigobonTitle: Professor of Applied Economics

  • Acknowledgements

    I would like to thank my wonderful classmates, knowledgeable professors and helpful

    staffs at MIT for their kindness and support. I would like to acknowledge all those who

    provided academic and moral support for me over this year of study at MIT.

    There are some people that reshape your outlook on the life. I feel lucky that I had the

    opportunity to redefine my vision at MIT. My hearts goes to all MIT faculties that

    changed my mindset positively, shaped my thoughts and opened new doors to me. MIT

    faculties did help me find the solutions for complicated and frustrating issues, taught me

    how to think, how to question and how to approach an issue. Professor Roberto Rigobon

    is indeed one of those professors that helped me out a lot, supported me and more

    importantly, reshaped my outlook on the world. I would like to thank him a lot.

    I would like to dedicate this thesis to my parents, Zibandeh Ahmadi & Mohammad

    Taher Golabi whose unconditional love, devotion, patience, and never-ending supports

    have helped me study at MIT, write this thesis and enjoy a wonderful life; I cannot

    describe their help and support in words.

    I would also like to dedicate this thesis to the memory of my best friend, Sina

    Masihabadi who died in a car accident at Texas when I was writing this thesis. Sina was a

    wonderful friend. Truly friends are hard to find and impossible to forget. It's my honor to

    dedicate my work to his memory.

  • Table of Contents

    A b stract................................................................................................2

    Acknowledgements.................................................................................3

    L ist of F igures........................................................................................6

    L ist of T ables........................................................................................8

    Chapter 1: Introduction, Motivation and Objectives...........................................11

    1.1 Introduction............................................................................... 11

    1.2 M otivation ................................................................................. 13

    1.3 The Origin and meaning of "Energy Sustainability" ................................. 14

    1.4 Energy sector terminology..............................................................19

    1.5 An overview of the economic, social and environmental impacts of energy suppIy

    and use ....................................................................................... . .22

    Chapter 2: Framework and Methodology ..................................................... 33

    2.1 O verview ................................................................................ 33

    2.2 The IAEA framework.....................................................................35

    2.3 The modified ISEA.....................................................................38

    Chapter 3: Current status of energy sector in Iran..............................................46

    3.1 Iran's profile...............................................................................46

    3.2 BB-NN Analysis for current economic state of Iran...................................48

    3.3 Current Status of Energy sector in Iran...............................................53

    Chapter 4: Assessment of Energy Sustainability in Iran.......................................73

    4.1 Economic Dimension of IAEA framework..........................................73

    4.2 Iran's economy in the past millennium...............................................80

  • 4.3 Environment dimension of IAEA framework in Iran...............................102

    4.4 Energy and social issues.................................................................107

    4.5 Sustainability and Energy security.....................................................111

    Chapter 5: Strategies For Achieving Energy Sustainability..................................118

    C hapter 6: C onclusion.............................................................................133

    Appendix A. Useful information................................................................138

    Appendix B. Index of Economic Freedom.....................................................154

    R eferences..........................................................................................155

  • List of Figures

    Figure 1.1. The architecture of an energy system..........................................21

    Figure 1.2. Energy-environmental Kuznets curve...................................... 24

    Figure 2.1. Indicators for Sustainable Energy development..............................35

    Figure 3.1. The BB-NN graph at early 1980s...................................................... 50

    Figure 3.2. The BB-NN graph at late 1990s.............................................51

    Figure 3.3. The BB-NN graph at early 2000s...........................................52

    Figure 3.4 The BB-NN graph at late 2000s.................................................52

    Figure 3.5 Iran Energy Flow, 2007.......................................................55

    Figure 3.6 Shares of Energy Carriers in Primary Energy Supply of Iran...............56

    Figure 3.7 production of petroleum mix during 1971-2006..............................60

    Figure 3.8. Capacity of gas refineries and dehydration units in Iran (106 m3/day) ... 64

    Figure 3.9. Nominal capacity of the Iranian power plants by type...................65

    Figure 3.10. The nominal capacity of the power plants in Iran and world.............66

    Figure 3.11. Iran electricity flow, 2007....................................................68

    Figure 4.1 (a) Energy intensity using exchange rate (1997* 100)...................76

    Figure 4.1 (b) Energy intensity using purchasing power parities (1997+ 100)........76

    Figure 4.2. GDP Per Capita and Final Energy Consumption trends during 1997-

    2 0 0 7 ............................................................................................... 7 7

    Figure 4.3. Final energy consumption in Iran and world (1997-+ 100)...............77

    Figure 4.4 the final energy consumption intensity in Iran by each energy carrier

    (1997+ 100).................................................................................. 78

  • Figure 4.5 the final energy consumption intensity in wo