Iran Lags Behind in Global Green Energy Development
The global energy scene is changing at a rapid pace and Iran is falling behind, with no signs of a potential recovery. Most of the new investments in the energy sector around the world need to demonstrate compliance with the International Energy Agency’sprinciples for implementing net zero carbon emissions, which ensure that new projects have a low carbon footprint. Western governments are taking this new compliance very seriously. For example, the UK government recently created a new ministry, the Department for Energy Security and NetZero, placing an experienced politician at its helm. Financial institutions are also using low carbon footprint as a lending criterion.
Iran’s main competitors in the region have adapted to the energy transition principles, and have made changes to their investment strategy in the energy sector. The UAE, for example, now has almost three times as much renewable energy power (wind & solar) capacity than Iran, while Turkey has 35 times more than Iran (see Figure 1). As an example, in Saudi Arabia, there is a major push for hydrogen gas production and, reportedly, a multi-billion-dollar investment to produce 1.2 Million tons of green hydrogen, a fuel produced from green/renewable electricity, per year by 2026.
What is more worrying is the slow pace of change in Iran’s green energy consumption. As can be seen in Figure 2, between 2020 and 2021, Turkey increased its renewable energy consumption by more than 21% and UAE by more than 12%, whereas Iran only managed a 2% increase in green energy consumption.
Meanwhile, Iran’s pollutant energy sector grows more stagnant each year. It needs large investments, an injection of foreign capital as well as new technology, in order to catch up with its neighbours. Iran’s government officials blame international sanctions, and the United States’ failure to uphold the JCPOA nuclear agreement, for this lack of international investment in Iran. However, Iran’s problems are more structural in nature, and cannot be solely attributed to sanctions.
In a recent report by the UN (UNCTAD), Hong Kong was considered the most open economy to “international trade”, while Iran was ranked the least open economy in the world. The challenges facing Iran can also be highlighted in Figure 2, which shows two key parameters for international investors:
- Openness to Trade (a mix of imports and exports as a percentage of the country’s GDP)
- FDI (amount of Foreign Direct Investment in the country)
Comparing Iran with three of its key regional competitors, the UAE, Saudi Arabia and Turkey, the UAE scores the highest, both in terms of openness and attracting foreign investments. Saudi Arabia and Turkey score lower than the UAE, but still fare much better than Iran on both indices.
