Environmental Research 154 (2017) 345–351

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Environmental Research
journal homepage: www.elsevier.com/locate/envres

Energy consumption and CO2 emissions in Iran, 2025 MARK

a,⁎ b
Maryam Mirzaei , Mahmoud Bekri
a
Department of Banking and Finance, Multimedia University, Malaysia
b
Economic and Statistic Institute, Karlsruhe Institute of Technology, Germany

A R T I C L E I N F O A BS T RAC T

Keywords: Climate change and global warming as the key human societies' threats are essentially associated with energy
System dynamics model consumption and CO2 emissions. A system dynamic model was developed in this study to model the energy
Energy consumption consumption and CO2 emission trends for Iran over 2000–2025. Energy policy factors are considered in
Emission reduction analyzing the impact of different energy consumption factors on environmental quality. The simulation results
Scenario analysis
show that the total energy consumption is predicted to reach 2150 by 2025, while that value in 2010 is 1910,
which increased by 4.3% yearly. Accordingly, the total CO2 emissions in 2025 will reach 985 million tonnes,
which shows about 5% increase yearly. Furthermore, we constructed policy scenarios based on energy intensity
reduction. The analysis show that CO2 emissions will decrease by 12.14% in 2025 compared to 2010 in the
scenario of 5% energy intensity reduction, and 17.8% in the 10% energy intensity reduction scenario. The
results obtained in this study provide substantial awareness regarding Irans future energy and CO2 emission
outlines.

1. Introduction sustainability and manufacturing environment become vital and com-

Energy is one of the most extensively discussed subjects in
economics and is also of prime importance in economics literature.
Energy, capital, labor and raw material are essential inputs in the
production of the majority of goods and services. Energy consumption
and efficiency affects all economic and industrial activities, while
energy productivity and improved energy consumption are primordial
themes impacting the economy of any country. Furthermore, energy is
still mainly dependent on fossil fuels, such as coal, oil, petroleum and
natural gas products, which emit carbon dioxide (CO2). Many research-
ers evident that CO2 emissions have contributed the most to climate
change between 1750 and 2005 (Luo and Wu, 2016). The latter
threatens the fundamentals of living due to lower access to water,
food, health and land, and causes environmental and sudden climate
changes. Hence, it is important to minimize CO2 emissions by reducing
fossil fuel consumption.
Even though environmental deterioration is a global matter,
countries that are the biggest greenhouse gas emitters are mostly
concerned. The achievement of goals to decrease worldwide CO2
emissions is profoundly dependent on the commitment of the principal
emitting countries. This is a complicated task, especially for countries
whose energy production is the engine of economic growth. Any
attempt to implement programs aimed at reducing CO2 emissions
encounters reluctance, as such programs would lead to lower energy
production and hence, delayed economic growth. Environmental
petitive among enterprises (DD Wu et al., 2014; D Wu et al., 2014). For
this reason, researchers, policy makers and corporate leaders have
started seeking new means of attaining both higher economic growth
and lower CO2 emissions.
Financial development appears to be a resolution that may help
with undertaking the mentioned points. There is an extensive literature
on the relationship between financial development and environmental
degradation. A number of studies have noted the existence of a long
run positive relationship between economic growth, energy use and
CO2 emissions (Hettige et al., 1992; Selden and Song, 1995; Ang, 2007;
Ozturk and Acaravci, 2010). Another strand of studies revealed bi-
directional relationship between GDP growth and CO2 emissions
(Chandran and Tang, 2013; Al-mulali, 2011). Financial development
may increases energy consumption and CO2 emissions due to increases
in the purchase of new industrial machines and equipment encouraged
by lower financing costs and increased financing networks. On the
contrary, if financial development leads to energy efficiency, then we
can expect a lower energy consumption and CO2 emissions reduction.
Examination of the literature, different proxies are included for
representing financial development. The monetary aggregate as a ratio
of nominal GDP is used in measuring financial deepening. Another
commonly used variable is the ratio of deposit liabilities to nominal
GDP, which captures the broad money stock excluding currency in
circulation. Boutabba (2014) have used the domestic credit to private
sector as a percentage of GDP. This measure represents more

⁎
Corresponding author.

http://dx.doi.org/10.1016/j.envres.2017.01.023
Received 30 July 2015; Received in revised form 6 November 2016; Accepted 19 January 2017
0013-9351/ © 2017 Elsevier Inc. All rights reserved.
M. Mirzaei, M. Bekri Environmental Research 154 (2017) 345–351

accurately the role of financial intermediaries in channelling funds to

private markets participant.
Despite the fact that economic growth and prosperity have intensely
increased over the last century, they have also caused environmental
damage in many countries. Environmental problems like air and water
pollution have grown in magnitude to become global problems. Climate
change, for example, is now one of the major threats to society; rising
temperatures, rising sea levels, altered rainfall patterns, floods,
droughts, and greater variability and unpredictability in weather
patterns all have the potential to seriously disrupt business activities
if left unmitigated (Stern, 2006).
Adequately addressing climate change will likely require carbon
pricing through either taxes on carbon-intensive products or a cap-and-
trade system. Carbon emission exchange comes from emission trading
considered by economists in the 1970s (Wu and Olson, 2015). Both a
carbon tax and a cap-and-trade system that auctions off certificates
generate revenue for the government (Wittenben, 2009). It is pointed
out by Duan et al. (2013) that taxing for fossil energy and taxing for
carbon are the common policy options of reducing carbon dioxide.
Comparing different policies, tax policy represents the most direct and
effective tool to cut down CO2 emissions (Duan et al., 2013). Carbon
pricing will elevate the price of carbon-intensive energy products for
companies, which may affect the energy price risk. Addressing carbon
concerns presents an environmental sustainability opportunity to Fig. 1. Energy intensity index.
manage energy price risk in several ways. A company can lessen its
carbon emissions by reducing its usage of carbon-intensive energy
products. A reduction in energy usage will also lead to reduce energy
costs and energy price risk.
The center of the magnitude of global energy demand remained
conclusively across emerging economies. The Middle East has surfaced
as a main energy consumer (World Energy Outlook, 2013). One reason
may be that modern energy technologies and instalments are not well-
established in such countries. Iran is one of the major oil-exporting
countries, with the world's third and second largest oil and natural gas
reserves, respectively. However, its own rapidly growing energy con-
sumption (about 6% per year over the past 30 years) has raised
concerns about the country's ability to continue to export oil over the
next decade. In 2009, total emissions from the consumption of energy
reached an all-time high of 528.6 million metric tons of carbon. It is
not surprising that crude oil and petroleum products account for the
largest fraction of the Iranian emissions, with Iran being the world'
fourth largest oil-producing country. The principal driving forces
behind the rising energy consumption trend are economic growth
(5% over the past 40 years), population growth (about 2%), and heavily
subsidized energy markets, costing the government about 12% of GDP
(Iran Energy Balance, 2010). These combined with inoperative energy
management, confined investment and a large share of economic Fig. 2. Economic value of fossil-fuel consumption subsidies by fuel, 2011.
activities controlled by the government have led to inefficient energy
use. In Iran, the energy intensity index has been rising by about 3.4% matters discussed above. This study explores the inherent relationship
per year on average over the past 40 years. Compared to European and between energy consumption, and economic and environmental quality
Middle Eastern countries, this is 50% and 100% higher, respectively with the aim to simulate energy consumption and CO2 emissions. Iran
(Fig. 1). is used as a case study to develop a system dynamics model. System
Furthermore, the increasing cost of subsidizing energy prices over dynamics observes the cause-and-effect association among components
the years has hampered the government budget, leading to macro- within the system. By implementing system dynamics, the structure of
economic imbalance and environmental degradation. Iran initiated the the information feedback system and the dynamic relation between
first step of a major shake-up of energy pricing in December 2010, function and behavior are investigated. System dynamics helps gain
however it still remains the world's largest subsidiser of fossil fuels, as better understanding of the key factors affecting energy consumption
indicated in Fig. 2 (World energy outlook, 2012). and CO2 emissions.
According to the World Bank, the fossil fuels energy consumption Rest of the study is organized as follow: Section 2 gives a brief
(% of total) in Iran was last measured at 99.52 in 2011. This high literature review. The third section talks about methodology used in the
energy tendency produced 480 million tons of CO2 -equivalent emis- study. Section 4 discusses the simulation and model validation in detail
sions in 2012, which is expected to double by 2030 if the current trend while Section 5 concludes the study.
continues (Moshiri et al., 2012). The high concentration of pollutants
and the subsequent costs and risks, especially in high population 2. Literature review
density areas, have become a major concern to the public as well as
policy makers. Therefore, Iran is an opportunity to examine the In recent years, the acute problems of climate change have been

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considered by international communities, which has led to greater

stress on decreasing CO2 emissions (Zhang et al., 2012). Thus, the
relationship between energy consumption, economic growth and CO2
emissions has been taken into account by a number of researchers
(Soytas et al., 2007; Lean and Smith, 2009; Chang et al., 2009; Apergis
and Payne, 2009 and Apergis and Payne, 2010; Bartleet and Gounder,
2010; Menyah and Rufael, 2010; Ozturk and Acaravci, 2010; Niu et al.,
2011; Sheinbaum-Pardo et al., 2012; Arouri et al., 2012). Luo and Wu
(2016) examine the time-varying correlation in European CO2 allow-
ance, crude oil and stock markets using the orthogonal GARCH model.
Big data analytic is another technique, which provides a new way to
analyze and understand individuals' energy consumption behavior, and
thus improves energy efficiency (Zhou and Yang, 2016). The field of Big
Data plays a vital role in various fields. Nowadays Big data is most
preferably used in enterprises, organizations, companies and business.
Accordingly, Wu and Birge (2016) reviewed the risk intelligence in big
data era. Decision support is another approach that have been used for
optimising energy consumption. Decision support approaches have
been used in banking such as risk management (DD Wu et al., 2014; D
Wu et al., 2014) and also energy consumption optimization (Korner
et al., 2008).
Energy system modeling is a complex problem due to the presence
of multiple decision makers, the complexity of consumer behaviors,
feedback processes among modules, technological limitations and
various kinds of delays. System dynamics model (SDM) is a suitable
approach for modeling such complexities, because it is a powerful
modeling technique for understanding and exploring the feedback
structure in complex systems. System dynamic modeling is Originally
developed in the 1950s, it assists corporate managers enhance their
understanding of industrial processes. SDM models the behavior of
complex systems over time using feedback loops and stocks. It deals
with internal feedback loops and time delays that influence the
behavior of the entire system. The strength of this model lies in its
ability to account for non-linearity in dynamics, feedback and time
delay (Wu et al., 2010). System dynamics has been widely applied in
various socio-economic studies (Radsicki and Taylor, 1997), modeling
technological risks (Wu et al., 2010), as well as in supply and demand
analysis (Ansari and Seifi, 2012; Chi et al., 2009; Dong et al., 2012) and
addressing CO2 emissions (Fong et al., 2009; Feng et al., 2013; Nuri
et al., 2014).
On an energy-related subject, Nail (1973) developed a system
dynamics model for the United States gas industry. Li et al. (2011)
used a system dynamics approach to forecast natural gas demand in
China. In the transportation sector, the system dynamics model
presented by Han and Hayashi (2008) was used for policy assessment
and analyzing CO2 mitigation potential for intercity passenger trans-
portation in China. Kiani and Pourfakhraei (2010) considered feedback
among supply, demand and oil revenue in Iran and projected future oil
and gas consumption and production under various scenarios using
system dynamics. In the industrial sector, Anand et al. (2005) used
system dynamics to estimate CO2 emissions in the Indian cement
industry. They presented some policy options for stabilizing the
population growth, energy conservation and manufacturing processes
to mitigate CO2. However, Anand et al.'s (2005) model did not take into
account energy prices and the dynamics of production capacity
expansion. Furthermore, the amount of cement production was
assumed to grow at a fixed rate.
2.1. Theoretical framework
System dynamics is designed for identifying and explaining the
dynamics of the nonlinear behavior of key factors and the ways in
which they interact with each other. System dynamics focuses on
feedback loops and causal relationships, which facilitate identifying
and defining the relationships between various systems. Forrester
(1971) asserted that all decisions (including learning) take place in
Fig. 3. Additive relationship between energy consumption and economic growth.
the context of feedback loops. In this method, it is assumed that system
behavior is determined based on an integrated net of feedback
sequences. According to Sterman (2000), the system structure leads
to the systems behavior. Thus, it is plausible to control and manage any
system upon knowing its behavior. To explain and explore the relation-
ships between system components, causal graphs and a feedback
system are employed. Accordingly, causal relationships affect the
system differently (positively or negatively). For instance, economic
growth increases energy consumption, and on the other hand, energy
consumption affects economic growth positively. Therefore, this rela-
tionship is additive (Fig. 2).
The feedback procedure is essential to building stability in any
system. This practice compares the current situation with the desired
objective to reform the system continuously. A balance between energy
consumption, economic growth and environmental quality should be
reached. Any balance factor like the environmental pollution standard
may change the current situation (Fig. 3).
3. Methodology
In this study, a dynamic model is constructed using Vensim PLE,
which is a simulation software for improving the performance of real
systems. Vensim provides causal tracing of structure and behavior. It
has Monte Carlo sensitivity, optimization and sub-scripting capabilities
(Zhan et al., 2012). The dynamic systems method is actually intended
to describe a problem dynamically. The model proposed by Sterman
(2000) is employed, which follows the procedure below.
3.1. Problem statement
The first and most important step in modeling is to identify the
purpose, main variables and time period for modeling. This study is
aimed at analyzing the effects of energy consumption on the economy
and the environment. The main variables used include energy produc-
tion, energy consumption, CO2 emissions, energy intensity, value
added and so on. The time period is 25 years starting in 2000 and
ending in 2025.
3.2. Key variables and causal relationship
To better understand CO2 emissions changes over time, it is
necessary to know the factors that separately affect or control CO2
emissions. In particular, it is very useful to represent the driving forces
of CO2 emissions in a hierarchical way, indicating the causality
relationship between the different variables. To analyze the relations
among the main system variables, a causal loop diagram of energy
consumption and CO2 emissions is built. This diagram designates the
mutual effects and interactional relationships among the system
variables, as shown in Fig. 2. Positive links are denoted by + and
negative links are denoted by -. A positive link means that two variables
change in the same direction, while a negative link means that two
variables change in opposite directions. Fig. 3 depicts the causal
relationship between variables, including the rate and state variables.
In this work, the variables that will determine the amount of CO2
emissions are energy supply, energy consumption, energy intensity,

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Table 1 1600 million barrels in 2010 and 2600 million barrels in 2025. The
The values of input parameters used for model validation. results also indicate that energy production drops from the year 2019.
This decline may occur due to production limitations, which cause a
Year GDP growth rate Oil price (Rial/ Energy consumption (Mbarrel)
(%) L) reduction in energy production mass.

2000 5 100 970 4.2. Energy consumption

2001 3.30 110 987
2002 2 115 1038
2003 2 122 1081 The average energy consumption per ton of production represents
2004 2 131 1243 the current energy consumption. In the present model, energy con-
2005 7 130 1458 sumption is a function of the consumption in previous years. However,
2006 7 130 1549 the expected energy consumption level becomes less than current
2007 5 130 1655
values when the energy price rises. The simulation results for energy
2008 1 140 1812
2009 3 150 1902 consumption show 620 million barrels for the year 2000, which
2010 6.6 – 1910 augments to 2150 million barrels in 2025. The energy consumption
2011 3.7 200 2160 values for the 2000–2025 period are represented in Fig. 5. Overall, the
2012 −6.6 250 2120
comparison between energy production and energy consumption
2013 −1.9 250 2106
2014 4.3 – – reveals that during the first year of the simulation period, the ratio of
energy consumption to energy supply is 67%. However, the proportion
Source: Iran Statistics and IEA of energy consumption increases and reaches 83%, and the energy
usage generally shows an upward trend with a 4.3% annual growth
GDP and environmental costs, which are all represented schematically rate. This subsequently has an important role in the mitigation of
in Fig. 3. It can be observed that the CO2 emitted into the atmosphere carbon emissions Fig. 6.
has several connections with the model variables. Economic growth
and its different productive activities demand more energy, and this 4.3. CO2 emissions
increase in energy consumption induces higher CO2 emissions.
Global warming and climate change are currently the main
4. Simulation and model validation problems concerning humankind. The urgency to fight both has
received attention from leaders, scientists and individuals around the
The proposed system dynamics model explained in the previous world. The CO2 emissions from 2000 to 2025 are estimated and
section was simulated using Vensim PLE software. Vensim is a presented in Fig. 7. Generally, the total CO2 emissions indicate an
modeling tool commonly used to build, simulate and analyze system increasing trend. The total emissions increase from 560 Mt CO2 in
dynamics models. It offers a flexible way of building simulation models 2009 to 985 Mt in 2025, with an annual growth rate of 5%. The growth
based on causal loops or stock and flow diagrams. The input para- rate of carbon emissions is greater than that of energy consumption. It
meters for historical validation are shown in Table 1. We analyzed data is stated by IEA (2008) that trends in CO2 emissions are driven by the
from 2000 to 2025, within two steps. Firstly, we calibrated the amount and type of energy used and the indirect emissions associated
parameters and verified that the simulation was consistent with the with the production of electricity. Iran has shown a remarkable growth
actual situation from 2000 to 2009. secondly, we examined the energy in total fossil fuel CO2 emissions since 1954, averaging 6.3% per year.
consumption and CO2 emissions from 2010 to 2025, based on the The electricity consumption in Iran in 2012 increased by 5.6%
simulation. compared to the previous year (Tavanier, 2013). To meet the growing
demand for electricity, the total capacity and electricity generation
increased by 6.7% and 7.5% per year, respectively. As a result of the
4.1. Energy production
growth in electricity demand and in the consumption of fossil fuels in
the power sector, CO2 emissions from the power sector have increased
The range of energy supply balanced 923 million barrels for 2000,
sixfold (Behboudi and Bargi, 2012). Besides, economic growth neces-
which increases the value added by about 101,705 billion Iranian Rials.
sitate higher amount of energy consumption and hence more CO2
Thus, the average annual growth equals 5.3% and the energy supply
emissions. It is evident by Behboudi and Bargi (2012) that elastisity of
increases to 1551 million barrels in 2009, with 784,292 billion Iranian
carbon dioxide to GDP and energy consumption is positive and about
Rials of value added. Accordingly, the energy supply in the base year is
1.39 and 0.98, respectively. Therefore, economic growth increases CO2
9281 billion Iranian Rials, which increases to 55,010 billion Rials in
emissions by 1.39% addition to CO2 emissions generated by energy
2009. Based on the system dynamics framework (Fig. 3), it is assumed
consumption. Table 2 represents the simulation results for period
in this study that energy production is affected by energy demand and
2000–2025.
the production limit rates. Hence, the energy consumption value for the
last year with one-year delay is intended for the production of the
5. Policy scenarios
following year. The simulation results reported in Fig. 4 show that
energy production equals 914 million barrels in 2000, reaching
Therefore, two scenarios are proposed for energy intensity, energy
consumption and environmental costs for the 2000–2025 period. The
proposed scenarios are aimed at reducing the energy intensity, which
would lead to less energy consumption and hence, lower environmental
costs.

5.1. Energy intensity reduction and energy consumption

The development goal of these scenarios is for energy consumption

to decline as a result of reducing the energy intensity. Energy intensity
equals 2.69 for 2010, where two optimization policies are planned: 1)
Fig. 4. A balance between energy consumption and environmental quality. 5% energy intensity reduction, and 2) 10% energy intensity reduction.

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Fig. 5. Energy consumption, economic and CO2 emissions system flow diagram.

Fig. 6. Simulated energy production during 2000–2025. Fig. 8. Simulated CO2 emissions during 2000–2025.

that the policies are both effective in reducing the energy consumption
in the short term.

5.2. Energy intensity reduction and CO2 emissions

The changes in emissions under the different scenarios are shown

in Fig. 9. To explore the role of each policy in energy intensity
reduction, the effect of this policy is investigated under varying
conditions. It is evident that both policy scenarios have substantial
impact on environmental pollution reduction Fig. 10.

Fig. 7. Simulated energy consumption during 2000–2025.

6. Conclusion

In order to project energy consumption and CO2 emissions in Iran

Table 2
Key variables during the simulation period (2000, 2025). over the 2000–2025 period, an integrated system dynamics model was
developed based on a Vensim software framework. Different scenario
Unit 2000 2025 Rate policies were simulated to investigate the effect of energy intensity
Energy production Million barrel/ 980 2600 Increasing yearly
year 3.7%
Energy consumption Million barrel/ 750 2150 Increasing yearly
year 4.3%
Environmental Million ton/ 260 985 Increasing yearly 5%
pollution year
Energy intensity Million Rial 2.685 2.705 Increasing yearly
(barrel) 0.004%

The changes in energy consumption under the two different scenarios

are shown in Fig. 8. In terms of the current situation, energy
consumption equals 1166 million barrels, but it rises to 2157 in the
year 2025. In the scenario that proposes 5% energy intensity reduction,
it is observed that energy consumption declines to 1975 million barrels
in 2025. However, it decreases to 1867 million barrels upon imple-
menting the 10% energy intensity reduction scenario.
According to the different scenarios analyzed above, it is obvious Fig. 9. Energy intensity reduction and energy consumption.

349
M. Mirzaei, M. Bekri
Fig. 10. Energy intensity reduction and CO2 emissions.
reduction on the combination of energy consumption and CO2 emis-
sions in the future.
The modeling results affirm that Iran will be heavily charged with
elevated energy production and CO2 emissions. With increasing energy
supply, the energy production in 2025 will increase 3.7% yearly.
Moreover, the energy consumption and CO2 emissions in 2025 will
increase by respectively 4.3% and 5% yearly according to the simula-
tion in the base scenario. The current energy consumption trend in Iran
signifies that the environmental and social costs caused by CO2
emissions on the 2025 horizon are following an ascending trend.
Since energy consumption increases faster than energy production, it
will contribute more to CO2 emissions. Particularly, energy consump-
tion shows a general upward trend, which will increase by 4.3% yearly,
in despite of slight drop between 2011 and 2015. It is also observed
that CO2 emissions will decrease by 12.14% in 2025 compared to 2010
under the scenario of 5% energy intensity reduction and 17.8% under
the 10% scenario.
The analyses have important implications in energy policies. The
simulation results show that Iran is to be confronted with a wide energy
consumption and carbon mitigation, which emphasizes an urgent need
for energy saving and emission reduction. The IEA preliminary data
suggest that electricity generated by renewables play a critical role in
CO2 emissions reduction (World Energy Outlook, 2015). The develop-
ment of renewable energy is also relevant for Iran as an OPEC member
and assumes the necessity for more extensive production and con-
sumption of energy from renewable sources. So a number of policies
should be implemented for renewable energy development in Iran.
Finally, since fossil fuel is a main source of the total energy consump-
tion, it is essential for Iran to increase energy productivity by increasing
energy efficiency and implementing energy saving projects.
One of the key limitations of the system dynamics model could be
that the simulation results show the trends not the precise estimates.
However, as the main focus of this study was on identifying the most
critical time based policy parameters, these limitation is not major
impediments. The model developed in this case study does not consider
the sector-wise analysis across different industries. Hence, to extend
the model to be able to simulate the energy consumption and CO2
emissions for different sectors would be another meaningful attempt.
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