As reported by the World Bank, Pakistan’s energy intensity—measured as the energy needed to produce $1 of GDP—is recorded at 4.2 megajoules (MJ) per U.S. dollar. In contrast, Bangladesh has a notably lower energy intensity of 1.9 MJ/US$, while Sri Lanka’s figure is even less, at 1.7 MJ/US$.
The World Bank’s most recent publication, titled ‘Pakistan Energy Efficiency, Industrial Energy Efficiency and Decarbonization (Ee&D),’ highlights that Pakistan’s energy intensity is relatively high within the region, suggesting that there is considerable potential for improvements in demand-side efficiency.
In recent times, Pakistan has faced soaring energy costs, with electricity prices having doubled and gas prices multiplying five-fold. This steep increase in energy expenditures has heavily impacted industrial activities and profitability, prompting the need for infrastructure upgrades and underscoring the dire necessity for advancements in industrial energy efficiency (IEE). The report notes that IEE is central to Pakistan’s Nationally Determined Contributions (NDCs), which aim to mitigate the country’s low competitiveness in terms of carbon intensity on the global stage and energy intensity within the region.
Investing in IEE is a practical solution that promises energy savings, cost reductions, and stimulates economic growth. The industrial sector, which accounts for over 37 percent of the country’s energy consumption—approximately more than 14 million tonnes of oil equivalent (MTOE) in the fiscal year 2023—stands to benefit significantly from improved energy efficiency and decarbonization of key industries, which can lower GDP energy intensity, enhance industrial competitiveness, and provide numerous economic and environmental benefits. The sector’s heavy reliance on coal also positions it as a leading contributor to air pollution and greenhouse gas (GHG) emissions.
Currently, Pakistan’s carbon intensity in terms of industrial energy consumption is 55.13 grams of carbon dioxide (gCO2)/MJ, which exceeds the North American figure by nearly 38 percent and surpasses that of the European Union (EU) by 50 percent. The NDCs aim for an ambitious reduction in industrial emissions by 5.33 metric tonnes of CO2 equivalent (MtCO2e) by 2030, with specific initiatives aimed at modernizing industrial processes and technologies, enhancing energy efficiency, and conducting sector-specific energy audits.
The report identifies various obstacles to enhancing industrial energy efficiency in Pakistan. It observes that many businesses are wary that investments in energy efficiency might inflate production expenses and erode competitiveness, a concern that is particularly pronounced when the term ‘decarbonization’ is introduced as opposed to just ‘energy efficiency.’ Although some energy efficiency upgrades, like implementing advanced machinery or new process controls, may incur higher initial costs or necessitate operational changes, the long-term benefits outweigh these short-term expenditures. Concerns regarding competitive disadvantages are often misplaced since energy efficiency and decarbonization investments can ultimately lower overall production costs.
There is an urgent need for policies that encourage energy efficiency while creating a supportive framework for industrial EE&D efforts. While IEE is inherently connected to reduced GHG emissions, it is critical to clarify the policy focus. With Pakistan’s susceptibility to climate change impacts and its NDC commitments, aligning decarbonization targets with IEE policies is strategically important.
Moreover, the high costs associated with commercial financing remain a significant hurdle for all industrial EE&D investments, particularly for small and medium-sized enterprises (SMEs), which face difficulties in obtaining funding. Banks also often lack familiarity with energy-efficiency products and the technical know-how to evaluate the savings generated by such initiatives. Even though the Energy Conservation Fund (ECF) exists, its current size is insufficient to meet the considerable financing demands of the industrial sector.
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