Manufacturers Seek Subsidies to Reduce Energy Consumption

Manufacturers Seek Subsidies  to Reduce Energy ConsumptionManufacturers Seek Subsidies  to Reduce Energy Consumption

In November 2014, the ministry of industry, mine and trade provided the cabinet with a proposal whereby manufacturing units violating energy efficiency standards will have to pay 10 to 100 percent of the unit's customary rate, a pronouncement which was ratified by the cabinet shortly afterwards, as part of an administrative bylaw to the "Energy Consumption Pattern Modification Act."

According to the bylaw, the units which do not comply with the energy efficiency standards stipulated in the act will be fined in proportion to their consumption ratio.

The Energy Consumption Pattern Modification Act is part of the "Subsidy Reform Law," according to which industrial and production units were mandated to optimize and reduce energy consumption, by means of financial resources apportioned by the government in the form of financial facilities, obtained as revenues generated through implementation of the subsidy reform plan.

The act was aimed at increasing energy carrier prices while providing financial aid to the industrial and production units so as to help them avoid incurring the increased tariff.

Domestic energy prices are traditionally set by the government in Iran, as in the majority of oil exporting countries. They were set at a level high enough to cover production costs and have been changed only occasionally. Cheap domestic energy prices led to a rapid increase in domestic energy consumption. As a result, Iran became one of the most energy-intensive economies in the world.

Under a five-year plan started in December 2011, and promoted as an “economic revolution” by former president Mahmoud Ahmadinejad, Iran began slashing three-decades-old subsidies on energy and food, to address the increasing economic and social problems associated with high energy subsidies. The main objectives of the reform plan were to bring the government budget in control and cut energy consumption.

An IMF publication estimated that the price increases removed close to $50–$60 billion in annual product subsidies.

Four years after enactment of the subsidy reform plan, the government could not fulfill the legal obligation to apportion subsidy revenues, and yet industries and producers are required to optimize their energy consumption or pay penalties, without having had received due governmental aid, according to Persian daily Forsat-e-Emrouz.

The Energy Consumption Pattern Modification Act will not bring about fruitful results at a time when industries are not operating with their full capacity mostly due to lack of finances, which is crucial if they are to modify their energy consumption patterns.

Operating below capacity, most industrial units' energy consumption rate is currently not exceeding the stipulated standard. Otherwise they would incur penalties for not complying with energy standards, which ultimately adds to production costs.

The government itself should firstly implement the subsidy reform law by allocating the stipulated funds to industrial units and providing them the means to revise their energy consumption.