After years of exclusion from the global financial system, Iran is pushing foreign firms to invest in its massive oil and gas holdings. But there’s another part of Iran’s energy economy that’s opening up: its renewables sector.
Iran has good reasons to develop its hydroelectric, solar, and wind resources—from popular concerns about air pollution to fluctuating oil prices—and since the completion of the nuclear deal in 2015, it has made some progress in doing so. The trouble is that there are also a number of serious barriers to further growth. Foreign companies, worried about the threat of sanctions, are still reluctant to do business in Iran, and problems in Iran’s electricity market are stifling new projects. Only by addressing those problems can Iran grow its green economy.
Iran doesn’t seem like an obvious candidate for green energy investment: the country has the second-largest reserves of natural gas in the world and is a major oil producer, and far more of its domestic power generation comes from fossil fuels than from renewable resources. In 2014, the most recent year for which data from the International Energy Agency are available, natural gas accounted for over 195,000 gigawatt-hours of Iran’s power generation, whereas hydroelectric, nuclear, and wind plants produced fewer than 19,000 gigawatt-hours. (Although Iran’s solar photovoltaic sector has recently attracted some foreign investment, in 2014, it was nearly nonexistent.)
Nevertheless, there are a few reasons why developing Iran’s renewables sector makes sense. By relying more on renewable energy domestically, it is possible that Iran could sell more oil and gas abroad. Growing its renewables sector could also help Iran fulfill the commitments it made under the Paris climate change agreement, which call for the country to reduce its greenhouse gas emissions relative to 2010 by 12 percent before 2030, under the most optimistic scenario. Iran’s renewable energy capacity now stands at around 200 megawatts. By next year, the country hopes to add 5,000 more.
Popular pressure to reduce pollution is 5,160 people died as a result of pollution in Tehran alone. Vehicle fumes account for most of the country's problems with air quality, but in some oil-rich provinces, the director of Iran’s Center for Weather and Climate Change said in January, gas flaring, or the burning of natural gas from oil and gas wells, is the biggest source of air pollution.
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