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Iran's Nuclear Energy Program. Part IV: Economic Analysis of the Program

12/7/04 By Muhammad Sahimi


Over the past two years, Iran's program for constructing the complete cycle for producing enriched uranium - the fuel for nuclear reactors and nuclear power plants (NPPs) - has been the subject of intense discussions. Over this period, the experts and inspectors of the International Atomic Energy Agency (IAEA) have been visiting Iran on a regular basis to inspect its nuclear facilities. The information and data that have been collected by the IAEA on Iran's nuclear energy program have revealed sustained and determined efforts by Iran since 1985 for developing an advanced program for producing enriched uranium. The Bush administrtation has been arguing that the primary purpose of Iran's nuclear program is developing nuclear weapons. The European Union (EU), which has very extensive commercial relations with Iran; Russia, which is completing the construction of a NPP in Bushehr (on the shores of the Persian Gulf), and Japan, which has signed a lucrative oil agreement with Iran for developing Iran's giant Azaadegaan oil field, have all pressed Iran hard, demanding that it reveal all the details of it nuclear program.

The Board of Governors (BOG) of the IAEA has had periodic special meetings to review the progress in assessing Iran's nuclear program. In its latest special meeting on Iran, which was held on Monday November 29, 2004, the IAEA reported to the BOG its latest findings on Iran's program, and due to the agreement that Iran recently signed with the EU troika - Britain, France, and Germany - for suspending its uranium enrichment program, no further special meeting of the BOG of the IAEA has been scheduled; that is, Iran's case before the BOG has gone back to being a normal, un-urgent case for now.

In a series of articles that were posted on Payvand in early October 2003, the author prsented a brief history of Iran's nuclear program (Part I); described the general outlines of the arguments that may justify Iran's nuclear energy program as economically viable (Part II), and explained the crisis that was emerging at that time in the relationship between Iran and the IAEA (Part III). This article and Part V continue the discussions that were begun in the first three parts of the series and expand on them.

When Part II of this series was first posted in October 2003, many colleagues and readers of the article urged the author to quantify the arguments presented in that article that were supportive of Iran's nuclear energy program as an economically viable program. The goal of the present article is just that: analyzing Iran's program for generating nuclear energy in the context of its energy needs over the next two decades, and carrying out an economical analysis to quantify and support the arguments that were first presented in Part II, using the latest and most accurate statistics on Iran's energy consumption and production currently available.

Another goal of the present article is to debunk - hopefully for the last time - the "argument" that the US neo-conservatives have been making, namely, that given Iran's vast oil and gas reserves, it does not need nuclear energy. The neo-conservatives and their allies, ranging from Israel to Iran's anti-democratic forces (from the group that makes new "discoveries" on Iran's program on a weekly basis to the monarchists), are the last group that are still hanging onto this argument! The analysis and arguments presented in Part II (and its short version published in the International Herald Tribune on October 14, 2003), as well as those presented by numerous others, have already made their impact: Iran's nuclear energy program has been transformed from one not needed by, or suitable for, Iran to a one for which the EU is willing to GUARANTEE the supply of nuclear fuels, provided that Iran "suspends" indefinitely its uranium enrichment program!

At the same time, it should be pointed out that when, under the US encouragement (some say pressure), Iran's nuclear energy program was started by the Shah in 1974,

(a) Iran's population was less than half of the present 70 million;

(b) its oil production was about 5.8 million barrels (MB) per day, compared with the present average daily production of 3.9 MB/day;

(c) it exported about 5 MB/day of oil, compared with the present average daily export of 2.6 MB/day;

(d) its energy consumption was less than one-fourth of the present;

(e) the Shah's government was burning Iran's natural gas for elimination, simply because it had no use for it, and,

(f) unlike now, Iran's oil reservoirs were not in decline, needing re-pressurization (see below) by natural gas injection.

In short, Iran did not need AT THAT TIME to generate electricity using NPPs. This then begs the question: Why is it that, given its present conditions which can justify use of NPPs for producing electricity (see below), the neo-conservatives and their allies believe that Iran does not need nuclear energy, whereas the US strongly pushed the Shah in the 1970s to build NPPs when Iran had no need for them (see Part V)?

In Part V of the series, the important role that the US and its European allies played in starting Iran's nuclear program will be discussed in considerable details. In particular, we will review the history of the US involvement with Iran's nuclear program to show, based on the newly accessed documents, that not only the US strongly encouraged the Shah to buy NPPs from the US, but was also willing to offer Iran, as a sweetener for the deal, the complete facilities for uranium enrichment if Iran agrees to buy eight US-manufactured NPPs! This should be compared with the present state of affairs whereby the US and the EU are trying to stop Iran from utilizing its uranium enrichment facilities and offer, instead, to supply Iran the enriched uranium for its NPPs! In addition, we briefly review the positions of some of the leading neo-conservatives in the US regarding Iran's nuclear energy program which reveal the extent to which they are willing to go, in terms of inflicting on Iran civilian casualties and economic destruction, to stop it from starting to operate the Bushehr reactor. In the opinion of the author, giving wide exposure to this position of the neo-conservatives is particularly important, since Iran's anti-democratic forces are the neo-conservatives allies.

To begin the discussion, we must first decouple Iran's need for nuclear energy from its perceived or real intentions for producing nuclear weapons, since constructing NPPs does not necessarily indicate any intention for making nuclear weapons. Recall that when Iraq's program for making nuclear weapons was discovered by the IAEA after the Persian Gulf war of 1990-1991, it did not have a single nuclear reactor; its only reactor, under construction at Osirak, had been demolished by Israel's bombing in 1981. The apartheid regime of South Africa produced 16 nuclear bombs in the 1980s, without having a single nuclear reactor!

More specifically, the goal of the present article is twofold.

(a) We describe Iran's energy needs over the next two decades when its population may reach 100 million, and the resources that it will and must have in order to secure adequate energy supplies. It is universally recognized that energy security, which includes securing adequate and DIVERSIFIED energy resources, is a highly important part of any nation's national interests which, by their very definition, transcend the political system that governs a nation. Iran, as a sovereign nation, has a fundamental right to diversify and develop its energy resources - the engine for its economic and social development.

(b) Why Iran must stop relying on oil and natural gas as its main sources of energy, and begin developing alternative sources, is discussed next. We show that, in addition to being in its long-term national interests, there are compelling economical, environmental and technological reasons for Iran to seek out alternative sources of energy, instead of relying so heavily on the fossil fuels. Moreover, we argue that a nuclear energy program has many other benefits for Iran in terms of the necessary technology that must be imported into the country, and the educated class of people that will run Iran's nuclear industry.

Whether Iran is trying to make nuclear weapons is beyond the scope of this article and, therefore, will not be discussed.

Iran's Energy Consumption and Resources

Iran's population is currently estimated to be close to 70 million, about 70% of which is below the age of 30. This should be compared with Iran's population of 30 million when the Shah started Iran's program for building NPPs in 1974. Most estimates indicate that Iran's population may reach 100 million by 2025.

According to reliable statistics (provided by not only Iran's Ministry of Power, but also by International Energy Agency, the British Petroleum Annual Statistics, etc.), between 1977 and 2003, Iran's rate of energy consumption has on average increased 5.5% per year, from an equivalent amount of 181 MB to about 740 MB of crude oil. Moreover, since the end of Iran-Iraq war in 1988, Iran's oil consumption has had an annual growth rate of about 8%, while the supply of energy from all of its sources has had an annual growth rate of 6%, hence barely keeping up with energy consumption. Between 1977 and 2001, the electricity production has been experiencing an average annual growth rate of 8.5%. Iran currently produces 31,000 megawatt (MW) of electricity. Most importantly, in 1977 Iran consumed 29.6 MB of crude oil to generate electricity, whereas 265 MB of oil were used in 2003 for the same purpose, representing an average annual growth rate of 8.8%.

If the above trend continues and crude oil is not replaced by another energy source, and if Iran does not increase its oil production significantly, it may become a net IMPORTER of oil over the next decade, a huge catastrophe for a country that obtains 80% of its total export earnings, 45% of its total annual budget, and about 15% of its GDP from exporting oil. It is estimated that during 2004 the average price of Iran's crude oil will be about $30/barrel. It is noteworthy that Iran earns about $900 million/year for every $1/barrel increase in the price of its oil. We now describe in more details Iran's various energy sources.

Oil Reserves

Over the past decade, major discoveries by the National Iranian Oil Company (NIOC) have increased Iran's proven and recoverable oil reserves to about 131 billion barrels, up from 93 billion barrels in 1993. This represents about 11.4% of the world's proven oil reserves, making Iran second only to Saudi Arabia. During the first six months of 2004, Iran produced about 4.1 MB/day, up from an average of 3.9 MB/day in 2003. Iran's SUSTAINABLE oil production is about 4 MB/day. About 70% of Iran's oil (2.8 MB/day) is produced by 9 giant onshore fields, with the offshore fields (in the Persian Gulf) producing another 0.675 MB/day (17% of the total production). Note that Iran was producing about 5.8 MB/day of oil during the last two years of the Shah in 1977-78, but has never exceeded, on an average basis, 3.9 MB/day since the Islamic Revolution, while its population has increased by 130%. Iran's OPEC quota is 3.817 MB/day. Its oil exports average about 2.6 MB/day, mainly to China, Europe, Japan, and South Korea.

Iran spends $3 billion/year to subsidize the price of oil products for its domestic consumption. Another $2-3 billion/year is spent on IMPORTING some oil products (mainly gasoline). To counter the rising rate of consumption of gasoline (10.5% per year), Iran has doubled its price over the past 2 years.

Iran plans to increase its oil production to 7 MB/day by 2025. This would need about $60 billion in foreign investment. Since President Khatami was elected in 1997, Iran has succeeded in attracting about $20 billion in foreign investment for its oil and gas sectors, with its lion share going to the natural gas sector (see below). Since Iran's Constitution prohibits granting of oil rights on a concessionary or direct equity basis, Iran's main mechanism for granting contracts is the Buy-Back scheme, whereby the contractor pays for all the investments, receives compensation from NIOC in the form of an allocated production share, and transfers the operation of the field to NIOC after a fixed period. This arrangement has been criticized domestically (mainly for its guaranteed high rates of return, which is typically 15-18%, and was over 20% for the first 2-3 contracts), and has not made many foreign oil companies very happy either, as they may not be allowed to develop their discovery, let alone operating them. In addition, the short terms of such contracts (typically 5-7 years) are disliked by oil companies. As a result, in January 2004, Iran announced major modifications to the Buy-Back scheme by extending the length of such contracts to as many as 25 years, while allowing for continued involvement of the oil companies after a field's operation is transferred to NIOC.

Natural Gas

Iran possesses about 942 trillion cubic feet (TCF) in proven natural gas reserves - 15.2% of the world's proven reserves - second only to Russia. Of these, about 62% are in mostly undeveloped non-associated fields (associated gas is what one finds in oil reservoirs). Iran's major gas fields include the giant South Pars (with reserves of 280-500 TCF) in the Persian Gulf which is the largest gas field in the world. This field also contains over 17 billion barrels of gas condensates (liquids). In addition, many of Iran's oil fields produce large amounts of (associated) gas. Iran's natural gas production in 2002 was about 2.7 TCF.

Natural gas has increasingly become the main source of energy in Iran. Whereas in 1977 it represented only 8.4% of Iran's energy consumption, it now accounts for more than 53% and is rapidly increasing. This statistics alone should debunk the argument of opponents of Iran's nuclear energy program that it has not tried to use its natural gas a source of energy.

Iran has given the highest priority to development of South Pars field, since it shares it with Qatar. The field is supposed to be developed in 28 phases; 16 phases are currently active. Developing South Pars has attracted over $15 billion in foreign investments, and has generated at least 30,000 new engineering and supporting technical jobs in Iran. In addition to natural gas, gas condensate production from the field should reach about 220,000 barrels/day by 2005, and 630,000 barrels/day by 2015. When South Pars is fully developed, Iran will earn over $11 billion/year for at least 30 years from this field ALONE.

Between 35% to 40% of all the produced natural gas is injected into many of Iran's giant but aging oil fields for pressure maintenance and secondary oil production (see below). The rest is either exported by pipelines or as liquefied natural gas, or is consumed domestically. Iran exports natural gas to Turkey, and has signed agreements, or is negotiating, to sell gas to Armenia, Azerbaijan, China, Georgia, India, Pakistan, South Korea, Taiwan, and the United Arab Emirate. It is also actively seeking to export gas to Europe through Turkey and Greece (an agreement with Greece has been signed), hoping to export 300 billion CF/year of gas by 2007.

Iran also uses its natural gas as feedstock to develop its petrochemical industry, which currently produces nearly $2.7 billion in petrochemical products for domestic consumption and exporting. This generates much added values for Iran's natural gas, hence justifying its use for a set of projects for downstream and commodities production, rather than just burning it as a source of energy. We will come back to this point shortly.

Electric Power

Currently, Iran has a capacity of about 31,000 MW of electricity, of which more than 75% is generated by natural gas plants, 7% by hydroelectric, and 18% by oil-fired plants. The corresponding percentages worldwide are, respectively, 17%, 17% and 8% [1]. Iran currently consumes about 28,000 MW of electricity (the rest of the electrical capacity is exported). The demand for electric power is growing at an annual rate of 8%. Thus, Iran projects needing 70,000 MW of electricity by 2021, of which it plans to produce 7,000 MW by NPPs, representing 10% of its electric power. Currently, 19% of the world's electricity is generated by NPPs, and the IAEA estimates that this will reach 27% by 2030 (see below for further discussions).

Iran does have large potential for hydroelectric power generation, estimated to be about 20,000 MW/year. It is currently building 7 hydroelectric power plants, representing over 63% of its current power generation projects, that will generate by 2007 over 8020 MW of electricity. By 2021 some 14,000 MW of electricity will be generated by hydroelectric power, projected to represent 20% of Iran's electrical capacity. In addition, Iran has some potential for generating electricity from geothermal sources, with its first geothermal power plant going online recently near Ardabil, in northwestern Iran. Several small photovoltaic units that generate electricity are operating in rural areas of Iran.

Nuclear Energy Program

As mentioned above, by 2021 Iran wishes to generate at least 10% of its electricity by NPPs. However, constructing the NPPs is only part of the plan. Iran also wishes to possess the full nuclear fuel cycle for producing enriched uranium, as its has very significant natural uranium reserves in the form of uranium ore. The main reserves are in Saaghand, 300 miles south of Tehran in the Yazd Province (representing one of the largest deposits of uranium ore in the Middle East), and near Bandar Abbas. During 1993-1994, the Beijing Research Institute of Uranium Geology of China aided Iran with uranium mine exploration and operation, but Iran appears now to be self-sufficient in the required expertise.

It is estimated that Iran's known uranium ore reserves can produce as much electricity as 43 billion barrels of oil. This is a huge amount by any criterion, but particularly so if we only recall that if we extract ALL of Iran's known recoverable oil reserves (a remote possibility!) and use fully one-third of them only for generating electricity, we will generate as much electricity as what Iran's presently-known uranium deposits can produce!

The uranium ore is first converted to a powder, usually called the yellowcake. Iran is building plants in Ardakan and Bandar Abbas for this purpose. The yellowcake is then further processed to produce gaseous uranium tetra- and then hexafluoride. The facility for doing so is in Isfahan, which can also produce uranium oxide and uranium metal, the main components of nuclear fuel.

The Natanz facility is to be equipped with the standard uranium-enrichment instrument, namely, a large number of cascaded centrifuges that spin uranium hexafluoride gas at very high speeds and separate the lighter uranium-235 hexafluoride from the heavier uranium-238 hexafluoride. Of every 1000 uranium atoms only 7 are uranium-235. It is uranium-235 which is used in nuclear reactors and also nuclear bombs. Hence, one must have a large number of cascaded centrifuges to produce enough uranium-235. The Natanz facility has a pilot gas centrifuge plant that currently houses nearly 1300 centrifuges, and a large-scale production plant which will house up to 50,000 centrifuges, the installation of which (to begin in 2005) will take up to 10 years. Such a facility would then have the capability for producing enough uranium for annual consumption of a nuclear reactor of the Bushehr-type (producing 1000 MW of electricity). We note that about 20 countries around the globe are active in uranium enrichment.

Three companies, Kaalaa-ye Electric, Pars Taraash, and Faraayand Technique, can produce parts for the centrifuges that are to be used for enriching uranium. Iran also has nuclear waste disposal sites near Qom (Ghom), Karaj, and Anarak. There are three other nuclear facilities in Iran which represent research institutions, and are not directly related to uranium enrichment. It must be emphasized that the IAEA has been monitoring all of Iran's known nuclear facilities.

The Case for Nuclear Energy

The main argument of the critics of Iran's nuclear energy program is that, it has vast oil and gas reserves, hence needing no nuclear energy. The argument is mostly hot rhetoric. Canada and Russia, both major oil exporters, rely on NPPs for a significant portion of their electricity needs. Russia has vast oil and gas reserves (its gas reserves represent about a quarter of the world's known reserves), and Canada exports 1.5 MB of oil to the US every day, yet they both continue building NPPs. Between 1974, when Iran signed its first agreement for building NPPs, and 2000, use of NPPs for generating electricity in the world has increased by a factor of 12! In particular, France is now producing most of its electricity using NPPs.

At the same time, construction of NPPs in Iran is completely consistent with the general trends in Asia. According to the IAEA [2], 23 of the last 31 NPPs connected to the world's power grid have been built in Asia. Of the NPPs currently under construction, 18 of 27 are located in Asia, generating 78% more electricity by 2015 than 1995. In addition, according to the IAEA analysis [2], subject to certain reasonable assumptions, by 2030 27% of the world's electricity will be generated by NPPs, compared with the current rate of 19%. Even in the US, the Bush Administration has been talking about a nuclear power renaissance, and the US nuclear industry has been calling for construction of 50 NPPs by 2020 [3].

However, aside from the above general arguments, one can completely justify Iran's nuclear energy program based on economic, environmental, NUCLEAR EXTERNALITIES, and Iran's long-term national interests. In what follows we discuss each of these aspects.

The Economics of Iran's Nuclear Energy Program

If oil is to be used for generating electricity, then, for every 1000 MW of electricity, Iran must use between 20 to 25 MB of crude oil per year, depending on the oil quality. This implies that, for an average price of $25/barrel (currently the oil prce is much higher, and will presumably remain so for many years to come), Iran will lose $500-625 million/year in oil exports, which should be compared with the operating cost of about $140 million/year for a NPP generating the same amount of electricity. In 2003 alone, Iran used 265 MB of crude oil to generate 18% of its electricity. With a 2003 average price of $26/barrel, this represents $6.89 billion worth of oil exports for A SINGLE YEAR, a staggering figure that can pay for complete construction of at least two Bushehr-type (1000 MW) reactors and their operations for several years at the current prices! When we consider this over the useful life of a NPP (say, 50 years), not only Iran can replace the oil-generated electricity with that generated by NPPs, it will save tens of billions of dollars. Note that constructing NPPs in Iran should, under normal circumstances, be considerably cheaper than in the US or the EU, as the labor force is much cheaper in Iran, and many expensive legal and regulatory aspects of constructing a NPP in the US [4] do not simply exist in Iran.

Burning oil to generate electricity also creates severe environmental problems, as it has been doing in Iran, with very significant economic consequences which will be described in the next section.

Now consider natural gas power plants. As we already pointed out, Iran has already made great strides in using natural gas for its energy needs, with 75\% of its electricity, and 53% of all of its energy consumption being supplied by natural gas, hence debunking, once again, the main argument of the neo-conservatives and other opponents of Iran's nuclear energy program that Iran has not made the necessary effort to use its natural gas for its energy needs. At the same time, there are other areas of needs for natural gas that have priorities that may even be higher than using it for generating electricity, some of which are as follows.

(a) The author has been involved in computer modelling of oil and gas reservoirs for over 25 years [5]. A study in 1998 concluded that, out of Iran's 60 oil fields (at that time), 57 of them needed major technical studies, repairs, upgrading, and repressurizing by natural gas (the author was a member of the group that studied this issue and reached the above conclusion). A typical Iranian oil reservoir is fractured, and is of carbonate-type with a very tight rock matrix. It is well-known that injection of huge amounts of natural gas into almost all of Iran's oil reservoirs is practically the only way of maintaining their pressure to produce oil (a process called secondary recovery). Water injection, another common method of pressure maintenance in oil reservoirs, is not suitable for most of Iran's oil reservoirs [5]. Since, over time, the pressure will decline, the amount of injected gas must also increase to keep pace (at some point gas injection alone will not be effective anymore, and one must start what is usually called the tertiary recovery process). Currently, 35%-40% of all of Iran's natural gas production must be injected into its giant but aging oil reservoirs, without which the production of most, if not all, of them will rapidly decline.

At the same time, consider the following: If the natural gas that one burns annually to produce 1000 MW of electricity (the amount that the Bushehr reactor will produce) is injected into a typical Iranian oil reservoir, it will increase the reservoir's production by at least a few thousand barrels/day, depending on the reservoir's geology and history of production. The earning from exporting the extra oil can pay for and cover part of the operating cost of a 1000 MW reactor ($140 million/year) and reduce its operating cost to a level that makes it economically competitive with the cost of a gas power plant, estimated to be $60-70 million/year, while not polluting the environment by burning oil or natural gas.

We must also remember that, (1) the natural gas that is injected into Iran's oil reservoirs is largely recovered, hence making it even more economical to use NPPs to produce electricity and use the gas for pressurizing the oil reservoirs, and (2) NPPs have ZERO emission of carbons and other pollutants into the air, whereas fossil fuels, including natural gas, emit large amounts of carbon.

(b) As pointed out above, most of Iran's gas fields contain also huge amounts of liquefied natural gas (LNG). Natural gas can also be easily converted to LNG, which is sold at a price much higher than that of natural gas itself. However, the OPEC treats LNG similar to crude oil when determining quota for its members, and as a member of OPEC Iran cannot exceed its quota. Therefore, natural gas production cannot be increased arbitrarily to compensate for the gas that used domestically [6].

(c) As mentioned earlier, Iran is already exporting natural gas to several of its neighbors, and is actively seeking exporting very large amounts of gas to Europe. This is all part of a new emerging global market - natural gas - which is going to have [7] great impact on the world economy with geopolitical implications. By saving as much natural gas as possible for export, Iran will be in a very strong position in this emerging market to play a role similar to that of Saudi Arabia in the oil market, given its gas reserves.

(d) Iran is developing its petrochemical industry, for which the main feedstock is natural gas. The added value generated by producing petrochemical products (which can be up to 100%, depending on the products) - not to mention the jobs and industrial base that it creates, and the foreign currency income that it generates - is much greater than what Iran may gain by simply burning huge amounts of gas to generate electricity. In fact, the world's $500 billion petrochemical industry has been developed precisely for this reason: The added value that one gains from converting natural gas to downstream petrochemical products which, in Iran's case which has vast gas reserves and cheap labor force and energy resources, cannot be ignored.

(e) Unlike the popular belief, burning natural gas does contribute to degradation of the environment - by producing and releasing carbon into the atmosphere and contributing to the Greenhouse effect and global warming. This will be further discussed in the next section.

Environmental Problems Caused by Fossil Energy Usage

"The more we look to the future, the more we can expect countries to be considering the potential benefits that expanding nuclear power has to offer for the global environment and for economic growth...."

The above are what Dr. Mohamed ElBaradei, IAEA Director General, said [2] in advance of a gathering of 500 nuclear power experts in Moscow from 27 June - 2 July, 2004, marking the 50th anniversary of the start of the first NPP. Dr. ElBaradei points out an important fact: NPPs DO NOT POLLUTE THE ENVIRONMENT ON A REGULAR BASIS, but that is exactly what oil and other fossil fuels have been doing to Iran for years. If one is to obtain a true estimate of the cost of using oil, and even natural gas, as sources of energy, one must take into account the huge cost of the medical care for people who suffer from the diseases caused by pollution of the environment by oil and natural gas, as well as their damage to Nature. As early as 1990, in a seminar at Gustave E. von Grunebaum Center for Near Eastern Studies of the University of California in Los Angeles the author stated that [8],

"Typical estimates for the cost of producing electricity and other forms of energy using oil and gas are only based on their market prices. These prices reflect only the cost of producing oil (and gas) and of transporting them to the consumer. However, some of the costs of consuming fossil energy are not directly included in our energy bill, nor are they paid for by the producers. These are the HIDDEN, but real, costs that the society pays indirectly for the health problems caused by air, water and soil pollution r esulting from using fossil energy, environmental degradation caused by carbon emission and global warming, and acid rains. For example, according to the American Lung Association, total health costs, including lost potential income, of air pollution alone are estimated to be about $50 billion/year. The main culprit for air pollution is the fossil fuels, mainly oil, our primary source of energy. Evaluating the economics of the damage inflicted on Earth by global warming, caused by carbon emission that is the direct result of burning oil and natural gas, is currently impossible."

Supplying energy to the world releases six billion metric tons of carbon into the atmosphere every year, with Iran contributing her share. Iran is beset by huge environmental problems, caused by oil and gas consumption, that are reaching catastrophic scales. Although Article 50 of Iran's current Constitution states that, "In the Islamic Republic of Iran protection of the environment, in which present and future generations should enjoy a transcendent social life, is regarded as a public duty," various reasons kept in the back-burner the goal of cleaning the environment and maintaining it that way.

Since 1980, carbon emission in Iran has risen by 240%, from 33.1 million metric tons emitted in 1980 to more than 85 million metric tons at present. Note that, whether oil or natural gas is used, carbon emission cannot be avoided. This emission is one of the main culprits behind air pollution in Tehran and all other major cities of Iran that has reached catastrophic levels, so much so that the elementary schools must be closed on many days. According to Iran's Ministry of Health, and the Organization for Protection of the Environment, long-term effects of the polluted air are responsible, directly or indirectly, for causing 17,000 deaths/year in Tehran alone, as well as causing severe problems for people with asthma, heart, and skin conditions. The cost of medical care for such illnesses is reaching, by Iran's standards, astronomical levels. Generating electricity by NPPs does not directly address such problems, but it does reduce the pollution and environmental degradation caused by burning oil and (in the long-run) natural gas.

Polluted air also severely damages soil and groundwater resources by contaminating the rain water. At the same time, Iran's industrial base, using fossil fuels for energy, generates wastes that contaminate a large number of rivers and coastal waters and threaten drinking water supplies. Iran is actually reaching the stage which is characterized by chronic shortage of clean water - believed by many to be the cause of many future wars in the Middle East.

A recent study by John Deutch and Ernest Moniz of the Massachusetts Institute of Technology [9] argued that even in the US, if certain technological advances are made (expecting to achieve these advances is entirely reasonable), and subject to a modest tax on the carbon emitted into the atmosphere, the cost of generating electricity by NPPs will become competitive with that of gas power plants.

Finally, strict environmental regulations and public opposition have prevented development of significant oil reserves in the US (for example, in Alaska). At the same time, Western European countries have been discouraging use of oil and gas, with some moving towards NPPs. Since 1980, France has increased its production of electricity from NPP by 80% and reduced its oil consumption by 10%. But, the same countries that are reluctant to use oil and gas because they fear damage to their environment, demand Iran to burn oil and gas to generate electricity!

Nuclear Externalities

Externalities are said to arise when decisions of some economic agents affect the interests of other economic agents [10]. A good example is provided by the US space program in the 1960s. Although the program was intended for (and succeeded in) landing men on the Moon, it also resulted in tens of thousands of inventions and technological advances that we now use in our every day lives. What are the externalities of nuclear technology for Iran? One can list at least four major catagories [11]. Iran's nuclear program will result in,

(a) development and nurturing of new and unprecedented capabilities for building technological infrastructures;

(b) cross-fertilization and diversion of nuclear-related know-how, research and development, and supply chain to Iran's other industries, and other branches of science, such as medicine and agriculture;

(c) added-value and versatility of nuclear technology-related training, and

(d) creation of new cadre of managers of technology, technocrats, and organizational system culture.

In the author's opinion, nuclear externalities alone justify a nuclear energy program for Iran. Our contention is perhaps best described by Perkovich who declared that [12],

"Nuclear establishments can be seen as avatars of modernity, national prowess, and power, and the leaders of these establishments are well-positioned to pursuade (political) leaders and public to give them rein and bring greatness to their nations."

Iran's Long-Term National Interests

Iran must confront the challenge of its demographic explosion without having access to many of the necessary tools, which are strong state structures, large amounts of investment capitals, and industrial infrastructres that are reasonably advanced. At the same time, oil and natural gas are Iran's non-renewable national wealth. Once they are burned, they can never be recovered. One cannot expect Iran to recklessly deplete its non-renewable national wealth without receiving any lasting benefits in return, but this will happen if Iran's energy sources are not diversified, and it continues to rely almost exclusively on oil and natural gas as almost the only sources of energy.

Since the 1979 Revolution, Iran's population has more than doubled, from 30 to nearly 70 million, while its present oil production is only 70% of the pre-Revolution level. As pointed out in the Introduction, the question is: Why is it that the US and its allies believed in the 1970s that Iran needed NPPs, when its population was less than half of the present; its oil production was much more than now; its natural gas was being burned uselessly; its energy consumption was about a quarter of the present, and when, unlike today, its oil reservoirs were not in desperate need of natural gas injection, but that, now, Iran does not need alternative sources, including nuclear energy? How should Iran feed, house and educate its rapidly growing population, create jobs for its army of educated people, and develop its infrastructure and industrial base, mostly based on its income from exporting oil and gas, but also use the SAME resources to satisfy its ever increasing energy needs?

The Challenges of Nuclear Energy

To be fair, we must also recognize that NPPs do have their own problems:

(a) Nuclear power plants require high initial capital cost and investment. However, given nuclear externalities and other benefits of nuclear energy described above, the high cost is completely justified in Iran's case.

(b) The second problem of NPPs is their safety which must be at a very high level so that the chances of accidents, similar to those that happened in Three-Mile Island in the US (in 1979) and in Chernobyl in Ukraine (in 1986), will be minimal. The aforementioned MIT report [9] called for maintaining the current standards of "less than one serious release of radioactivity accident for 50 years from all fuel cycle activity," which "should be possible with the new light-water reactor plants" (that is, the reactors that use the heat from nuclear reactions in a nuclear reactor to generate steam for use in a power plant). The fact is that the safety of NPPs is a recurring problem. Even J apan, an advanced industrialized nation, has had many nuclear accidents. Therefore, the nuclear industry can no longer ignore this problem, or claim that it has addressed it in a satisfactory manner.

(c) One must also address the problem of safely storing the nuclear wastes produced by NPPs which will be radioactive for at least tens of thousands of years.

Renewable Energy Sources for Iran?

Iran does have potential for generating significant amounts of electricity using renewable sources (although, in some way, nuclear energy may also be considered as a renewable source). One is hydroelectric which, as pointed out above, should provide 20% of Iran's electricity by 2021. Iran's central desert has the potential to produce some energy using solar technology, but the technology is not advanced enough to act as a major supplier, at least not yet or in the near future. There is also some potential for geothermal energy, but its extent is limited. Altogether, such alternative methods cannot provide more than 25% percent of Iran's energy needs, at least over the next two decades.


Iran's goal of generating, by 2021, 10% of its electricity by NPPS, 20% by hydroelectric, 65% by natural gas, and 5% by other sources is rational and economically justified. The benefits of diversifying Iran's energy sources, and in particular resorting to nuclear power plants for a fraction of Iran's needed electricity, far outweight any possible drawback that it might have, although the author cannot conceive one.


[1] The Role of Renewables in Future Energy Directions, International Energy Agency report (October 2002).

[2] See the IAEA Press Release

[3] See, Physics Today (April 2002), p. 54.

[4] G. Rothwell, Triggering Nuclear Development: What Construction Cost Might Prompt Orders for New Nuclear Power Plants in Texas, Public Utilities Fortnightly (May 2004), p. 47.

[5] M. Sahimi, Flow and Transport in Porous Media and Fractured Rock, 1st ed. (VCH, Weinheim, Germany, 1995); 2nd ed. (to be published in 2005).

[6] See also W.O. Beeman and T.R. Stauffer, Is Iran Building Nukes? An Economic Analysis, Pacific News Services.

[7] D. Yergin and M. Stoppard, The Next Prize, Foreign Affairs, vol. 82 (No. 6), 103 (2003).

[8] For expanded content of that seminar see, M. Sahimi, How Much do We Pay for a Barrel of Oil? in, Proceedings of the Third International Conference on Non-Renewable Energy Sources, Tehran, Iran (December 1993), p. 127, and, M. Sahimi, Factors Affecting the Development of Fossil Energy Resources of Developing Countries, in, United States-Third World Relations in the New World Order, edited by A.P. Grammy and C.K. Bragg (Nova Science Publishers, New York, 1996), p. 361.

[9] J.M. Deutch and E. Moniz, The Future of Nuclear Power; see also, Physics Today (December 2003), p. 34.

[10] J. Hirshleifer, Price Theory and Applications, 2nd ed. (Prentice Hall, Englewood Cliffe, 1980).

[11] N. Meshkati, The Nuclear Question, paper presented at symposium on, Politics and Governance in a Changing Iran, Hoover Institution, Stanford University, Stanford, California (November 31, 2003).

[12] G. Perkovich, Nuclear Power and Nuclear Weapons in India, Pakistan, and Iran, in, Nuclear Power and the Spread of Nuclear Weapons: Can We Have One without the Other, edited by P.L. Leventhal, S. Tanzer, and S. Dolley (Brassey's, Washington, 2002), p. 196.

About the author:
Muhammad Sahimi is Professor & Chairman of Chemical and Petroleum Engineering at the University of Southern California in Los Angeles. In addition to several scientific organizations, since 1986 he has been a member of the Union of Concerned Scientists and a contributor to its Partners for Earth Program. He has been a visiting professor in Australia, Europe and the Middle East, and a consultant to many energy firms around the world. A shortened version of the present article and Part V will soon appear in Harvard International Review.

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