Pakistan faces $390 billion investment challenge for green energy transition by 2050

ISLAMABAD: A report by the Asian Development Bank (ADB), released on Sunday, indicates that Pakistan will need over $390 billion in additional investments by 2050 to facilitate a transition from coal to gas in various industries, the electrification of transportation, and the replacement of gas with electricity for cooking. This investment is essential to meet international carbon emission reduction commitments.

Titled “Pakistan Low-Carbon Energy Outlook and Technology Road Map,” the report outlines an extensive energy expansion plan that necessitates significant financial commitments. According to the low-carbon scenario, investments required include $153 billion for hydropower generation, $103 billion for nuclear power, $62 billion for wind energy, and $51 billion for solar energy. Additionally, a $22 billion investment will be necessary for upgrades to transmission and distribution systems to accommodate rising power demand and ensure grid stability.

These substantial investments in the energy sector are separate from the funding needed in transportation and residential sectors to enhance energy efficiency. The ADB acknowledges the challenge of achieving such an extensive investment program, particularly given the predicted limitations on direct government funding. It suggests that most of the required financing must derive from both domestic and foreign private sectors—through direct investments, equity financing, bank loans, and bond issues—as well as international financial assistance, necessitating significant reforms. To attract this large-scale investment, the ADB emphasizes the need for a favourable investment climate.

The report also highlights that, under the low-carbon scenario, greenhouse gas emissions from the energy sector could be reduced by almost 23% by 2030 and 36% by 2050 compared to the business-as-usual scenario. Achieving this reduction is compatible with maintaining a similar economic growth rate, albeit with approximately one-third fewer emissions. However, this would require major policy initiatives to enhance financial intermediation, align private sector incentives with environmental policy objectives, ensure effective regulatory support, and develop project preparation and implementation systems that meet the standards of multilateral and bilateral donors.

Realistically, full funding and execution of the low-carbon scenario depend on substantial advancements in these areas. Furthermore, effective energy delivery will require careful system planning, sufficient mechanisms and incentives for managing supply and demand flexibility, short-term system balancing, and stability protocols to support the transition to a low-carbon pathway.

The report aligns with the government’s ambition to achieve upper middle-income country status by 2047. It identifies a critical policy challenge for Pakistan as the need to sustain a reasonable economic growth rate, meet escalating energy demands affordably, minimize emission-related damage, and fulfill governmental and international commitments under the Paris Agreement on Climate Change.

Pakistan is particularly susceptible to the negative impacts of climate change and ranks among the top 10 countries most affected by it. In 2016, during climate change negotiations concerning nationally determined contributions (NDCs), Pakistan aimed to reduce its national greenhouse gas emissions by up to 20% by 2030, using 2015 as the baseline. In 2021, the government revised its NDCs, extending the target to achieve an overall 50% reduction by 2030, with 15% being unconditional and the remaining 35% contingent upon securing adequate international financial support.

The low-carbon scenario indicates that electrification and fuel-switching will have a significant impact, highlighting key mitigation opportunities in the transition from coal to gas in industries, the electrification of transport, and using electricity instead of gas for cooking. A major component of this scenario involves a shift towards cleaner fuels, projecting that by 2050, 26% of the total primary energy supply will come from natural gas and 22% from cleaner fuels.