A system dynamics analysis of energy consumption and corrective policies in Iranian iron and steel industry

Iron and steel industry is the most energy intensive industrial sector in Iran. Long time subsidized energy has led to low energy efficiency in this industry. The sudden subsidy reform of energy prices in Iran is expected to have a great impact on steel production and energy consumption. A system dynamics model is presented in this paper to analyze steel demand, production and energy consumption in an integrated framework. A co-flow structure is used to show how subsidy reform affects energy consumption in the long run. The main focus of this paper is on direct and indirect natural gas consumption in the steel industry. Scrap based Electric Arc Furnace technology has been evaluated as an energy efficient way for steel making. The energy consumption in steel industry is estimated under various steel production and export scenarios while taking into account new energy prices to see the outlook of possible energy demand in steel industry over next 20 years. For example it is shown that under reference production scenario, potential reduction in gas consumption forced by complete removal of energy subsidy and utilizing scrap could lead to 85 billion cubic meters of gas saving over the next 20 years.

► We develop a system dynamics model to analyze steel demand, production and energy consumption in Iran.
► Various scenarios have been simulated to see the energy demand of Iranian steel industry over the next 20 years.
► A co-flow structure is used to show how subsidy reform would affect energy consumption in the long run.
► A co-flow structure has been built into the SD model to formulate consumers' behavior in response to energy prices.
► Scrap based Electric Arc Furnace technology has been evaluated as an energy efficient alternative for steel making.