Rhein on Energy and Climate

Iran with a population of only 60 million ranks tenth in the world among C02 emitter countries. Its per capita C02 emissions amount to almost 8 tons, equal to Italy, and extremely high for a country with a relatively low level of economic development.

Two major reasons account for this situation. First Iran is the fourth biggest oil and gas producer in the world. Second, Iran sells oil and gas almost for nothing. Until December 19th 2010 Iranian citizens could buy a litre of gasoline for 10 US cents, lower than anywhere on earth.

For the last 30 years the government has squandered up to one third of budget expenditures for subsidising fossil fuels and wheat. In 2008 the country has spent USD 100 billion for subsidising fossil fuels, more than any other country, about one fifth of the global subsidies on fossil fuels.

After long hesitations the government has finally decided to put an end to its unsustainable regime of subsidies. During the next five years it wants to raise prices to the world market level. As of December 19th 2010, gasoline prices have been raised seven times (!), to 70 US cents, except for 50 litres monthly at a preferential rate of 40 cents.

Prices for diesel, heating fuel and gas will go up similarly. To prevent massive protests in the street the government will offer social assistance to families particularly hurt by the higher fuel prices.

International sanctions have finally forced the government to put a brutal end to what had become an intolerable burden for the economy and the financial health of the country. Iran found it increasingly difficult to buy refined oil products; and international oil firms had stopped investing in refineries and other crucial energy equipment in Iran. The economic development had seriously slowed down, with unemployment and inflation soaring.

The reform will have a positive impact on Iran’s economy, even if the adjustments will be painful and take few years to become fully effective. Its energy consumption and CO2 emissions might fall by up to 8 percent. Iran being a major C02 emitter country this will also have a measurable impact on global CO2 emissions.

In conclusion, Iran’s decision is to be applauded. It is to be hoped that other countries with high fossil energy subsidies follow its example. International sanctions have proved effective. Without them Iran might have continued to maintain what has been an extremely stupid economic policy stance.

Brussels 22.12.10 Eberhard Rhein

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