Mitig Adapt Strateg Glob Change (2011) 16:6382 DOI 10.

1007/s11027-010-9252-z ORIGINAL ARTICLE

CO2 emission and economic growth of Iran

Amin Yousefi-Sahzabi & Kyuro Sasaki & Hossein Yousefi & Yuichi Sugai

Received: 11 August 2009 / Accepted: 27 July 2010 / Published online: 27 August 2010 # Springer Science+Business Media B.V. 2010

Abstract This research investigates the relationship between CO2 emission and economic growth of Iran over 14 years from 1994 to 2007 using a national panel data set. The statistical and emission intensity methodologies are used for analyzing the data series. The study finds evidence supporting parameters which conclude the stability of significant correlation between CO2 emission and economic development over time during the years under investigation in Iran. This relationship is investigated and discussed for the energy sectors of the country as well. The results confirm that in all sectors except of agricultural, there is a positive strong correlation between CO2 emission and economic growth throughout the study period. In most sectors, CO2 emission intensity (the emission per unit of GDP) doesnt show increasing trends while the absolute emission is rapidly increasing by the economic growth. Keywords CO2 emission . Economic growth . Emission intensity . Energy sectors . Iran 1 Introduction Along with the growing concerns about global warming caused by human activities, the interests in the relationship between CO2 emission and economic growth have grown as well. Recent debates on the relationship between economic development and environmental emissions trace its origin back to the early 1990s when Grossman and Krueger (1993) declared their concerns about the environmental effects of the North American Free Trade Agreement (NAFTA). In their investigation which was conducted in a fairly global scale, they found a relationship similar to an inverted-U shape between some environmental
A. Yousefi-Sahzabi (*) : K. Sasaki : Y. Sugai Department of Earth Resources Engineering, Kyushu University, 744 Motooka, Nishi-ku, Fukuoka 819-0395, Japan e-mail: aminyousefi@kyudai.jp H. Yousefi (*) Graduate School of the Environment and Energy, Islamic Azad University, Sciences and Research Branch, Tehran, Iran e-mail: yousefi@kyudai.jp

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pollutions and the level of per capita GDP, the so-called Environmental Kuznets Curve (EKC). Among many other works addressing this subject, we focus on those that investigate the CO2 emission; however the results are conflicting. CO2 emission was one of the main pollutants investigated by Shafik (1994) in his study on the economic development and environmental quality. He found a linear increasing relationship between per capita income and CO2 emission. In 1995 Holtz-Eakin and Selden (1995) investigated the relationship between national per capita CO2 emission and real GDP per capita for an uneven panel of data on 130 countries over the period 19511986. Their work suggests a diminishing marginal propensity to emit CO2 as economies develop. Despite this suggestion, their forecasts indicate that global emissions of CO2 will continue to grow. Sengupta (1996) studied the CO2-GDP relationship for 16 countries from developed and developing regions. His study shows that the total CO2 emission initially increases with the rise in per capita income and reaches a peak which is followed by a decline over a mid-range of incomes and then shows an increasing pattern with economic growth (similar to an N-shaped curve). Taskin and Zaim (2000) determined a cubic functional form for the relationship between environmental efficiency and GDP per capita, which has approximately a third-order polynomial shape indicating improving environmental performance at the initial phases of growth, which is followed by a phase of deterioration and then a further improvement once a critical level of per capita GDP is reached. Bertinelli and Strobl (2005) used a partially linear model for a panel of countries for 19501990. They used a fixed-effects-type estimator, and for SO2 and CO2 they found a positive relationship at low incomes which flattens out before increasing again for high incomes (Azomahou et al. 2006). Liu (2005) studies 24 OECD countries by analyzing the CO2 emissions and GDP by using of a simultaneous equation system, including energy consumption in the emissions function to account for structural differences across economies. He found a negative relation between income and CO2 emissions. Other works also investigated the issue focusing on the individual countries mostly from the developed economies (De Bruyn et al. 1998; Roca and Alcantara 2001; Friedl and Getzner 2003; Soytas et al. 2007; Apergis and Payne 2009; Iwata et al. 2010). However one of the most important issues in the policy arena is related to the role of developing countries (Galeotti et al. 2006). They receive less attention in international conventions and public opinion while having significant contribution to the problem. Among developing countries, Irans CO2 emission is considerable and placed the country in the tenth place of the world in 2007 (IEA 2009). This research is investigating the relationship between CO2 emission and economic growth of Iran, discussing the issue with more details in the energy and economic sectors of the country by employing straightforward methodologies. Like similar studies, the main motivation for this research as Narayan and Narayan (2010) mentioned is to allow policy makers to judge the response of the environment to economic growth.

2 Problem statement In the concern of the relation between global warming and economic growth there are two approaches. First; the costs of global warming imposed to the economy. And second, the effects of economic growth on the acceleration of the climate change and global warming. The first approach relates to the economical-environmental consequences of CO2 emission which causes severe damages to the national economy. The second approach is the environmental consequences of economic growth and industrialization. Despite the fact that these two points of view are interrelated, they require separate investigations. In this paper we are investigating the second approach in which the effects of economic

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growth on the environment have become a central issue. In this concern, two important questions arise: whether the annual growth of Iranian GDP is inevitably associated with the increase in CO2 emission? And how is the quality of this relationship in various sectors of the economy?

3 Material and methods 3.1 Data collection In order to study the relationship between CO2 and GDP for Iran, we utilize annual data on total CO2 emission and real GDP for 14 years from 1994 to 2007 due to the availability of reliable data on environmental emissions for this period (particularly detailed data for the CO2 emission of energy sectors were available for this period). It should be mentioned that Iranian calendar year begins on March 21; hence, dates such as 1994, refer to the period from 21 March 1994 to 20 March 1995. Data on CO2 emission are obtained mainly from the Institute for International Energy Studies (IIES) database (http://www.iies.org). IIES is affiliated to the Ministry of Petroleum of Iran. IIES compiles and publishes hydrocarbon balance sheet of Iran annually which covers data and information on the hydrocarbon energy reserves, energy production and consumption as well as the environmental and economical statistics. In this paper CO2 data are expressed in million tons. The data on GDP are drawn from Economic Time Series Database (http://tsd.cbi.ir) which is belong to the Central Bank of Iran (CBI) and includes data on real, monetary, budget, and balance of payments sectors mostly at annual intervals (CBI 2009). It is a governmental database and offers economical statistics in Excel and HTML outputs. In this research, GDP is based on constant prices of 1997 and is expressed in 1,000 milliards of Iranian Rials. In order to avoid confusion and make the interpretations easier, the obtained data are rounded, when necessary. 3.2 Methodology 3.2.1 Correlations in multiple-variable analysis The relationships among GDP and CO2 emissions are obtained from the matrix of Pearson product-moment correlation coefficients (PMCC) with a significant level of 0.01 (2-tailed). Statistical calculations and chart drawings are made by using of Microsoft Excel 2007. The Pearson coefficient is a measure of the correlation between two variables X and Y that is the measure of the tendency of these variables to decrease or increase together. Generally the correlation coefficient ranges from 1 to 1. A value of 1 indicates that a linear equation describes the relationship positively, with all data points lying on the same line and with Y increasing with X. while, a value of 1 suggests that all data points lie on a line for which Y decreases as X increases and the linear correlation between variables is negative. Correlation coefficient between independent variables with no linear relationship has a value of 0. 3.2.2 Energy and emission intensity analysis The emission intensity is defined as the emission per unit of GDP. The national CO2 emission intensity measures the quantity of CO2 emission in relation to the economic output of a country and is independent of the absolute quantity of CO2 emitted. It is often

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accompanied by energy intensity. Generally CO2 emission is depending on energy intensity and national income (Eq. 1). E C Iw GDP 1

Where, E stands for CO2 emission, C stands for the CO2 emission coefficient of energy use and Iw stands for energy intensity. The CO2 emission intensity (Ie) in a nation is formulated as: Ie C Iw And: Iw W GDP 3 2

Where, W stands for energy usage of the country. From Eqs. (1) and (3), it can be understood that CO2 emission is a coefficient of energy: ECW 4

Since CO2 emission intensity (Ie) is defined as the emission per unit of GDP (Ie = E/GDP), and according to Eq. (4), CO2 emission intensity of energy sectors could be obtained by: Pn Cs Ws Ie s 5 GDP Where, the index s refers to energy sectors, considering that there are n energy sector. 3.2.3 Sector arrangement The energy sectors are categorized in 5 main groups consisting of residential & services, industrial, transportation, agricultural and power generation. The economical data corresponding to each sector is retrieved from CBI database. The residential & services sector includes all residential buildings, trade, hotels, restaurants, storage and communications, financial intermediary activities, real estate and professional services, public services as well as social, personal and domestic services. Industrial sector includes all industrial activities from manufacturing, mining and petroleum to the construction and water production. Due to the important role of transportation in Irans CO2 emission, it is excluded from residential & services to be investigated in a separate group. The agricultural sector includes agriculture and its related activities and services: crops, livestock and poultry farming as well as fishery and forestry. And power generation sector includes electricity production from fossil and renewable energy sources.

4 A survey in energy sectors of Iran 4.1 Residential & services sector In 2007, total energy consumption of this sector increased 20.8% compared to the previous year (MOE 2008). Various fuels are in used in the residential & services sector. 98% and 32.2% of the countrys total kerosene and natural gas consumption was consumed in this sector, respectively (MOE 2008). The government energy policy is based on increase of

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gas/decrease of oil usage in this sector due to large natural gas reserves in Iran and advantages of gas versus oil (Forouzanfar et al. 2010). The value added to GDP and CO2 emitted by this sector in 2007 were around 214 thousand milliard Rials and 125 million tons, demonstrating 4.8% and 4.5% annual growths during the study period, respectively (Fig. 1). 4.2 Industrial sector The industrial sector of Iran is dominated by relatively few but large public enterprises (IMF 2000). The value added to GDP by this sector in 2007 was about 180 thousand milliard Rials (CBI 2009). It also demonstrated around 85 million tons of CO2 emission of which more than 15% of it was emitted by refinery industry (IIES 2009). Among the fuels burned in this sector, natural gas has the highest share of CO2 emission (MOE 2008). Value added by industrial sector and the amount of CO2 emitted to the atmosphere by this sector during the study period indicate 5.7% and 4.2% annual growths, respectively (Fig. 2). 4.3 Transportation sector In Iran, local air pollution in the major cities, particularly in the capital city of Tehran, is mostly because of emissions from transportation sector. In this sector, the demand for gasoline is more than the amount produced by oil refineries and the government is compelled to import huge amounts of gasoline daily (Qadrdan and Shayegan 2008). About 99% of total gasoline is consumed by the transportation sector. It is because of the increasing in the number of manufactured cars, high average age of the cars, their low efficiency and old technology (Karbassi et al. 2007). In 2007, this sector consumed the largest share of energy subsides amounted to 42% (MOE 2008). Transportation sector consists of 4 main parts: road, air, rail and sea. Among them, road transportation is the main emission source of CO2 and other pollutants. In 2007, transportation sectors value added to GDP and CO2 emission were amounted to 45 thousand milliard Rials and 95 million tons, indicating 8% and 4.9% annual growths during the study period, respectively (Fig. 3). 4.4 Agricultural sector As one of important energy sectors of the country, agriculture plays an important role in fostering the economic development and meeting the ever higher demands of the growing population (Beheshti Tabar et al. 2010). Climate diversity, existence of rich resources and
Fig. 1 CO2 emission and value added of residential & services sector during 1994 2007 (CBI 2009; IIES 2009)
Value added (1000 milliard Rials) 250 200 150 100 50 0 140 120 100 80 60 40 20 0 CO2 (Million tons)

CO2 emission

Valu added

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Value added (1000 milliard Rials)

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200 180 160 140 120 100 80 60 40 20 0 90 80 60 50 40 30 20 10 0 CO2 (Million tons)
CO2 (Million tons)

Fig. 2 CO2 emission and value added of industrial sector during 19942007 (CBI 2009; IIES 2009)

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CO2 emission

Valu added

reserves, possibility of low-cost short-producing job creation, relative advantage in production and export of products are among the capabilities of agriculture sector (MAJ 2010). It is Irans second largest employment provider, engaging more than 33% of the total population of the country (Beheshti Tabar et al. 2010). In 2007, Irans agricultural sector contributed 13% of GDP and 2.5% of the total CO2 emission. Among the fuels burned in this sector, gas oil has the highest share of CO2 emission (MOE 2008). Value added and CO2 emitted by this sector equaled to around 65 thousand milliard Rials and 11 million tons in 2007, with 4% and 1.5% annual growths during the study period, respectively (Fig. 4). 4.5 Power generation sector In 2007, Iranian power generation contributed to around 27% of the total CO2 emission of the country. At the same year, the total installed generation capacity was 49.4 GW of which steam turbine accounted for 31.6%, gas turbine 31.2%, combined cycle 21.2%, hydropower 15%, diesel engine 0.9%, and wind and solar power 0.1% (MOE 2008). Currently most of Iranian power plants are using non-renewable sources such as natural gas, fuel oil and gas oil to generate electricity (Mazandarani et al. 2010). Natural gas has the highest share of CO2 emission because consumption of this fuel in power plants has priority over the oilbased liquid fuels due to the environmental considerations, easier handling, and lowering the maintenance and repair costs. In addition, the country will have the chance to export the saved liquid fuels and earn more foreign currency (Yousefi et al. 2008). In 2007, power generation sectors contribution to GDP was around 3 thousand milliard Rials and its CO2
Fig. 3 CO2 emission and value added of transportation sector during 19942007 (CBI 2009; IIES 2009)

Value added (1000 milliard Rials)

50 45 40 35 30 25 20 15 10 5 0

120 100 80 60 40 20 0

CO2 emission

Valu added

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Value added (1000 milliard Rials)

69
16 14 12 10 8 CO2 (Million tons)

Fig. 4 CO2 emission and value added of agricultural sector during 19942007 (CBI 2009; IIES 2009)

70 60 50 40 30 20 10 0

6 4 2 0

CO2 emission

Valu added

emission was around 118 million tons, indicating 7.2% and 6.6% annual growths during the study period, respectively (Fig. 5).

5 Analysis and results During the study period, CO2 emission has been increased with a rather high rate due to the increasing in energy demands and low energy efficiency. For the same period, GDP shows a growing pattern, as well. The rate of annual increase for the total CO2 emission and GDP were equal to 4.7 and 5.2 respectively (Fig. 6). As it is clear from the Fig. 6, the increase in CO2 emission and GDP are following a similar pattern. The empirical data and calculations demonstrate certain strong correlations among the level of economic growth and CO2 emission in the study period. Pearson product-moment correlation coefficient (PMCC) is calculated for the two variables of the study as 0.99 which is an indication of perfect and positive relation between economic growth and CO2 emission. This positive correlation is showed in the scatter plot of Fig. 7 in which the pattern of dots slopes from lower left to upper right in an almost straight line. Correlations between CO2 emitted and value added by each sector are studied as well. The PMCC for residential & services, transportation and power generation are 0.99, 0.98, and 0.99, respectively. In these sectors, the correlations between the variables are strong as

Value added (1000 milliard Rials)

2.5 2 1.5 1 0.5 0

100 80 60 40 20 0

CO2 emission

Valu added

CO2 (Million tons)

Fig. 5 CO2 emission and value added of power generation sector during 19942007 (CBI 2009; IIES 2009)

3.5 3

140 120

70 Fig. 6 CO2 emission and GDP of Iran during 19942007 (CBI 2009; IIES 2009)
Value added (1000 milliard Rials) 600 500 400 300 200 100 0

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500 450 400 350 300 250 200 150 100 50 0

CO2 emission

GDP

it is shown in Figs. 8, 9 and 10. These figures are illustrating scatter plots of which the dots are almost in growing straight lines. The PMCC for industrial sector also shows positive value (0.89) but not as strong as the above sectors (Fig. 11). Generally in correlation studies, if the correlation coefficient is beyond 0.8 (in either positive or negative sides), then there is a strong correlation and if it is inside 0.5 and 0.5, it indicates a weak correlation between the variables. Correlation analysis for the agricultural sector shows deferent results. Although PMCC for the entire study period is negative and fairly week (0.46), it becomes positive and significant in the period of 20022007 (Fig. 12). However for this kind of analysis, this period is fairly short to be considered reliable for final conclusions. 5.1 CO2 emission intensity The energy sectors show different ranges of variations in emission intensity during the years under investigation; thus it is not possible to clearly show the intensity changing patterns of all sectors in a single graph. From the emission intensity point of view, energy sectors are divided into 3 groups: high-intensive, mean-intensive and low-intensive.

Fig. 7 Correlation between CO2 emission and GDP during 19942007

CO2 (Million tons)

Mitig Adapt Strateg Glob Change (2011) 16:6382 Fig. 8 Correlation between CO2 emitted and value added by residential & services sector during 19942007

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5.1.1 High-intensive sectors Power generation Power generation is the highest intensive sector and is the only one which could be placed in this category as compared to the other sectors its emission intensity is rather high with some fluctuations (Fig. 13). As the value added of power generation sector shows constant increase during the study period (Fig. 5), the variations in emission intensity is due to the changes in the emission trends. The increase and decrease in the amount of emission in this sector is originated from the status of one of, or a combination of the following factors: efficiency of power plant and equipments; total electricity generation; contribution of renewable energy sources; and the type of fossil fuels used. For example in 1995, although the contribution of fuel oil and gas oil increased (Table 1) and the rate of value added growth decreased, the emission intensity reduced around 2.6% (Fig. 13). The either one of above factors or a combination of the two, such as more natural gas in fuel share, improved thermal efficiency of the plant, and the quality of consumed fuels can be enough for such a small change in emission intensity. Another example is the years of 1996 and 1997 in which even though the contribution of natural gas is increased slightly, but the increase in the fuel oil share (Table 1) and elevation in the total electricity generation (MOE 2002) caused the emission intensity to rise up somewhat (Fig. 13). In both of the above examples, our judgment is only based on the available data; however such minor changes in the emission intensity might be ignored in
Fig. 9 Correlation between CO2 emitted and value added by transportation sector during 19942007

72 Fig. 10 Correlation between CO2 emitted and value added by power generation sector during 19942007

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macroeconomic evaluations. In 1998, the consequent effects of huge investments and important reforms which were started from previous years (MOE 1997) as well as the efficient management of fuel share, increased the efficiency of power generation. This resulted in the drop of emission intensity amounting to 7% (Fig. 13). In this year gas oil and fuel oil share decreased and at the same time the share of natural gas increased (Table 1). However from 1999 contribution of non-hydro power and non-natural gas fuels started to increase again. This situation augmented with the slower growth of the value added (compared to previous years) of power generation and pushed up the emission intensity until 2001 (Fig. 13). Thereafter the intensity reduced again until 2003 in which the growth rate of natural gas contribution, compared to other fossil fuels accelerated. However, from 2004 gas oil burning in power plants considerably increased and on the other hand, efficiency of power plants reduced. From 2004 to 2007 the CO2 emission and the value added of power generation grew up nearly with the same rate and the intensity was constant (Fig. 13).

5.1.2 Mean-intensive sectors Transportation The emission intensity of transportation sector although is not as high as power generation but it is still higher than of the other sectors.
Fig. 11 Correlation between CO2 emitted and value added by industrial sector during 19942007

Mitig Adapt Strateg Glob Change (2011) 16:6382 Fig. 12 Correlation between CO2 emitted and value added by agricultural sector during 19942007

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In transportation sector during 19941996 there is a decline in emission intensity due to the higher rate of growth in the value added (12.4%) compared to the growth rate of CO2 emission (2.6%) particularly in 1996 (Fig. 3). In this year the value added increased more than 15%. Measuring the transportation components of GDP is complicated because transportation activities do not follow simple industry boundaries (Cambridge Systematics, Inc. et al. 2008). However it is clear that higher investment in this sector brings higher value added. The period of 19941996 was concurrent with the opening years of Iranian Second Five Year Development Plan (SFYDP) of which the government policy directed toward more investment in transportation particularly road transportation (Islamic Parliament of Iran 1995) as it contributed to more than 90% of the value added in this sector. In 1998, the CO2 emission rate boosted due to the high rate of energy consumption (MOE 2002) augmented with slower increase in the value added which resulted in the higher emission intensity compared to the previous year (Fig. 14). In 1999, the recent investments in road transportation as well as the governments development policies caused the value added of this sector to increase sharply (more than 13%) which declined the emission intensity contrast to the previous year (Fig. 14). During 20002002, increasing the total energy consumption augmenting with the increasing productions of automobile industry with
Fig. 13 CO2 emission intensity of power generation sector during 19942007

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Table 1 Share of power plant type, fossil fuels consumed and efficiency of power plants during 19942007 (MOE 2002; MOE 2008) Share of power plant type in electricity generation Hydro power (%) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 9.7 9.1 8.6 7.5 7.2 4.6 3.1 4.1 6.0 7.6 6.6 9.4 10.1 9.5 Fossil fuel (%) 90.3 90.9 91.4 92.5 92.8 95.4 96.9 95.9 94.0 92.4 93.4 90.6 89.9 90.5 Total fossil fuel consumption for the MOE power plants Gas oil (Ml) 1,151 1,411 1,014 1,161 796 1,073 1,283 1,618 1,608 1,432 2,179 2,612 4,362 4,083 Fuel oil (Ml) 5,887 6,700 7,446 7,038 4,870 5,946 6,492 6,799 6,275 4,938 5,736 6,329 7,587 8,435 Natural gas (Mm3) 12,541 13,234 13,443 15,604 19,403 21,234 22,883 24,012 26,693 29,429 31,796 32,832 32,168 33,265 * * * * 33.60 35.11 36.65 35.63 35.87 37.20 37.00 36.10 35.80 36.20 Efficiency of MOE power plants (%)

*Data were not available

almost old technologies slightly increased the CO2 emission intensity (IIES 2007). From 2003, the government took more attention toward fuel type reforms in transportation sector (MOE 2004). The government also took a decision to stop production of Peykan, the Iranian national car which was driven by about 40% of Iranians, and gradually remove it from the countrys roads because of its unacceptably high fuel consumption and not meeting international emissions standards (BBC 2005).
Fig. 14 CO2 emission intensity of transportation sector during 19942007

Mitig Adapt Strateg Glob Change (2011) 16:6382 Table 2 Share of fuel type used in transportation sector during 19942007 (MOE 2002; MOE 2008) Oil products (%) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 *Negligible 100 100 100 100 99.99 99.94 99.94 99.98 99.98 99.98 99.75 99.22 98.75 97.49 Natural gas (%) 0 0 0 0 0 0 0 0.01 0.02 0.02 0.23 0.75 1.22 2.47

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Electricity (%) 0 0 0 0 0.01 0.06 0.06 0.01 * * 0.02 0.03 0.03 0.04

In 2004, the increasing rate of car production declined (IIES 2007) and on the other hand, the value added showed 10.4% increase, while this rate for CO2 emission was 5.6%. The Peykan production finally stopped in 2005 and decline in emission intensity continued until 2006. In June 2007, the government implemented a gasoline rationing system to reduce gasoline consumption (Ilias 2010). Consequently gasoline consumption reduced 12.4% (MOE 2008) and CO2 emission from transportation dropped 2.5% in this year which caused the emission intensity to fall down (Fig. 14). From this year the government also started to accelerate the increasing of natural gas consumption in transportation sector (Table 2).

Fig. 15 CO2 emission intensity of residential & services sector during 19942007

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5.1.3 Low-intensive sectors The other sectors including residential & services, agricultural and industrial remain as lowintensive sectors. Residential and services The residential & services sector is the largest sector of the economy, contributing with almost 43% of GDP and 28% of the total CO2 emission in 2007. In this sector, the emission intensity is following almost constant trend during 1994 1997 with only slight changes. In 1998 the energy consumption of residential & services sector decreased due to warmer winter (MOE 1999). This resulted in low CO2 emission and decline in emission intensity (Fig. 15). Similarly, in the year of 2001 there is another decline in emission intensity, because in this year notwithstanding good growth rate of value added, CO2 emission didnt increase. Thereafter the emission intensity show almost constant trends until 2007. Agriculture In this study, the analysis on agricultural sectors emissions (like as other sectors), are focused to CO2 emission from fossil fuel consumption, as the agriculture contributes to atmospheric emissions in some other ways including emissions from land use change, deforestation and soil and biomass management practices that disturb the natural carbon sinks (HM Treasury 2006). Fossil fuel CO2 emission in this sector is mainly from burning fuels for irrigation purposes and using agricultural machineries and equipments. Therefore with regard to the CO2 emission from this sector, increasing and decreasing trends are depend on the quantity and quality of agricultural equipments and the energy sources used for their operation. However the economic trends of this sector are highly dependent on the weather conditions and rainfall patterns. The growth in value added of this sector during 1994 to 1997 was relatively slow. A variety of reasons from weather conditions to policy related factors were effective on this slow growth. For example in 1996, some important factors contributing to the continued slow growth in agriculture were an 11% decline in wheat production and a 9% drop in barley output due to reduction in cultivated area as well as adverse weather conditions (IMF 1998). With a view to reducing the sensitivity to changes in rainfall, the government had prepared a number of irrigation and dam projects. At the same year 49 dams were under construction and another 79 projects were at the planning stage (IMF 1998). In 1997 Agricultural sector experienced a rise of 52% in rainfall which stimulated a sharp growth of 9.5% in the succeeding years agricultural output (Fig. 4). However this growth declined sharply in 1999 due to severe drought (IMF 2000). In this year cotton production fell by 9% as well as other important crops such as wheat and barley showing a decline of 27% and 39%, respectively (IMF 2000). Despite diverse attempts by the government to reduce dependence of the countrys agricultural performance on changes in rainfall through the construction of dams, irrigation, and drainage networks, it remains highly sensitive to climate situation (IMF 2000). After a severe drought in 1999, favorable weather conditions in 2000 and 2001 have led to strong agricultural output in 2002 and 2003 (Celasun and Goswami 2002; IMF 2004). The growth in the value added of agriculture continued increasingly until 2007 except another adverse weather condition in 2004. As Fig. 16 indicates the emission intensity of this sector is slightly and steadily decreased during study period which is an indication of overall faster growth of economy than CO2 emission. Particularly in recent years the increasing share of electricity in the total energy consumption of this sector, reduced all kind of emissions from this sector (IIES 2009).

Mitig Adapt Strateg Glob Change (2011) 16:6382 Fig. 16 CO2 emission intensity of agricultural sector during 19942007

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Industries: the effect of oil price Irans economy is dependent on export of oil and natural gas. Iran has an estimated 137.6 billion barrels of proven oil reserves, or roughly 10% of the worlds total reserves and the fourth largest oil exporter in the world in 2008 (EIA 2010). As in this research the oil production is categorized in the industrial sector, the effects of oil price fluctuations on the CO2 emission intensity of this sector is quite clear (Fig. 17). On the other hand, Iran imports a significant portion of its capital and machinery goods from abroad by using of oil revenues (Ilias 2010). As a result, the oil price could affect the performance and consequently the value added of non-oil industries as well (Fig. 18). That is why the correlation between CO2 emitted and value added by the industrial sector is not as strong as of the other sectors (except than agricultural sector). This research confirms a reverse relationship between the emission intensity of industrial sector
Fig. 17 CO2 emission intensity of industrial sector and oil price during 19942007

78 Fig. 18 Value added of non-oil industries and oil price during 19942007

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and the oil price trends almost throughout the study period (Fig. 17). For example, the decline in oil price from 1997 shows increases in the emission intensity of this sector. It means the growth in economy was slower than of the emission in this period. However there are some exceptions. For example in 1995, the increase in oil price was slow and nonoil industries didnt show growth as well which resulted in the lifted emission intensity. In 2007 also the emission growth rate was higher than of the economy which increased the emission intensity (Fig. 17).

6 Conclusion and policy implications This research investigates the relationship between CO2 emission and economic growth using a national panel data set. We find evidence supporting parameters which conclude the stability of significant correlation between CO2 emission and economic development over time during the years under investigation in Iran. The study also investigates and discusses the relation between CO2 emission and the value added of energy sectors. The results confirm that in all sectors except of agricultural, there is a positive strong correlation between CO2 emission and economic growth. The emission intensity of each sector is examined as well. Power generation is identified as the highest emission intensive sector following by transportation which is categorized as mean-emission intensive. All the other sectors are categorized as low-emission intensive. Among the energy sectors, agricultural and industrial sectors are highly affected by weather conditions/rainfall patterns and international oil price fluctuations, respectively. According to this study, there is a reverse relationship between the emission intensity of industrial sector and the oil price. In other sectors CO2 emission intensity is decreasing during the study period and in residential & services sector, it has almost stable trends. However the absolute emission is rapidly increasing by the economic growth in all sectors (except than of the agriculture). The mitigation policies should be implemented in a way to have less impacts on the economy. Therefore the following suggestions seem to be beneficial:

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6.1 Increasing the energy efficiency Increasing energy efficiency should be implemented in both energy generation and consumption. It is estimated that much of the reduction in emissions can only be reached through means that improve energy efficiency (Capros 1998). In the Iranian residential & services sector, there is a high potential for energy saving by improving energy efficiency of buildings, however it is not so easy to achieve since it demands a wide range of measures and major initial investments as well (Sadegh Zadeh 2007). There is also high potential for energy saving by energy efficiency in other sectors of the country. Some studies show that the potential of energy saving in industry, transport and residential sectors is about 35%, 45% and 55%, respectively (Karbassi et al. 2007). In agricultural sector also, the development of farming systems with low input of energy compared to the output of food could help to reduce agricultural CO2 emissions (Rafiee et al. 2010). In power generation sector it is possible to achieve considerable emission reductions with conversion of liquid fuel to natural gas and increasing the contribution of the combined cycle as a more efficient type of thermal power plants (Mazandarani et al. 2010). 6.2 Implementing energy price reforms Irans energy prices are among the lowest in the world due to energy subsidies. According to the International Energy Agency (IEA), Iran is the worlds largest subsidizer of energy, spending over US$ 55 billion in 2007 (Daneshdoust 2009). Low energy price on one hand, leaded on high and inefficient consumption without any attention to the amount of energy consumed, and on the other hand, this low cost intensifies the consuming habits of the people that cause more energy use (Jamshidi 2008). Also, as the energy prices are well below those of most neighboring countries, the subsidy system has encouraged smuggling of fuel products (IMF 2007). Drawing on the international experience, energy price liberalization in Iran should include all primary energy prices as well as electricity prices (IMF 2010). In recent years the government is doing measures with the aim of eliminating energy subsidies by 2015 (EIA 2010) 6.3 Enhancing renewable energy development Iran not only enjoys vast deposits of fossil fuels, but also is a rich country in terms of renewable energy resources (Fadai 2007). A significant reduction in CO2 emissions can be achieved through a large-scale integration of renewable energy supply into the energy system (Chiu and chang 2009). However, notwithstanding high potentials of the country for renewable energy development, the level of development of such energy sources are rather primary and the efforts should increase (Fadai 2007) 6.4 Reducing deforestation and expanding forests After fossil-fuel combustion, deforestation is the second largest source of carbon dioxide emissions to the atmosphere (Newell and Stavins 2000). On the other hand, newly planted production forests remove CO2 from the atmosphere and are referred to as forest sinks (Stephens et al. 2008). The total forest cover in Iran is 12 million hectares, or 8% of the total land area (Banj Shafiei et al. 2010). In the last two decades, by explosive population growth of Iran, deforestation rates have reached to the highest level of the last few decades (hessari 2005).

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6.5 Capturing and sequestering CO2 There is a rising global attention to co-optimization of Enhanced Oil Recovery (EOR) and CO2 sequestration. Enhanced oil recovery using carbon dioxide (CO2-EOR) is a method that can increase oil production beyond what are typically achievable using conventional recovery methods while facilitating the storage of carbon dioxide (CO2) in the oil reservoir (Tzimas et al. 2005). Synchronization between these two objectives is promising through CO2 Capture and Storage (CCS) projects where CO2 is captured from large emission sources like as power plants and then stored in safe geological structures (Algharaib and AlSoof 2010). Recently, there is a growing interest in Iranian oil industry to utilize CO2 for EOR projects. The increasing price of crude oil coupled with a stable demand and declining production, has made CO2-EOR and storage a favorable option (Gozalpour et al. 2005).

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