Like all rapidly developing countries, the government of Iran (GOI) has to integrate environment priorities into its energy sector. In order to integrate environmental concerns into energy sector, an Energy-Environment Review (EER) may be considered as the mainstreaming tool capable of examining the interface between energy and the environment. The results of the EER should be interpreted, in the light of the objective of the 4th Five Year Development Plan in Iran, to achieve fast and sustainable growth and accelerate the transition to a market economy. In particular, the suggested actions will promote economic efficiency use of energy resources through a proper allocation of scarce resources, including environmental resources, so as to achieve economic efficiency and environmental and social protection. This paper comprises: (A) an analysis of the current situation with regards to energy production and consumption; (B) an evaluation of the growth prospects with regard to energy production and consumption; (C) the identification of environmental issues induced by the generation and use of energy and estimation of the associated costs of damages; (D) the evaluation of the extent of contribution to the climate-change phenomenon through emission of greenhouse gases; (E) the evaluation of the proposed mitigation measures for the previously identified environmental problems; and (F) conclusions and recommendations. The EER-Iran assessed the total health damage from air pollution in 2001 at about 56 × 1012 Rials (US $ seven billion); equivalent to 8.4% of nominal GDP. In the absence of the price reform and control policies, the EER-Iran estimated that the damage in Iran in the money of 2001, will grow to 155 × 1012 Rials (US $ nine billion) by 2019. This is equivalent to 10.9% of nominal GDP, i.e., a large percentage of a larger GDP. Of this total, 107 × 1012 Rials (US $ 8.4 billion) come from transport sector. The damage cost to the global environment from the flaring of natural gas, assessed on the basis of a carbon price of US $ 10/ton CO2, is found to be approximately US $ 600 million per year.

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