A green economy, characterized by reduced carbon emissions, efficient resource use and social equity, sparks a crucial discussion about its suitability for low and middle-income nations like Pakistan. This debate centres on simultaneously to get sustain economic growth while safeguarding the planet for future generations. Transitioning to a green economy is essential, given Pakistan’s vulnerability to climate change. According to the 2023 UN report, Pakistan is the 5th most vulnerable country to climate change. Climate disasters have caused approximately PKR 3.3 trillion in damage, affecting 33 million people and displacing nearly 8 million from their homes.
However, regardless of the climate perspective, the most persuasive arguments in favour of a green economy revolve around its economic benefits and Pakistan’s capacity to go green. The green transition requires progressive support from the government through targeted public spending, policy reforms and adjustments in taxation and regulation. The second stakeholder is the private sector, a vital player in enhancing resource efficiency during production. They achieve this by using renewable energy sources and minimizing the use of natural resources in their production processes.
The third stakeholder is the community, whose willingness to invest in environmentally friendly products and services is crucial. These options may be costlier, but they support an eco-friendly lifestyle with minimal natural resource consumption. This relates to sustainable consumption and production, which aims to enhance production methods and consumption habits to decrease resource usage, waste and emissions throughout the entire life cycle of processes and products.
Firstly, we assess Pakistan’s state capacity and institutional framework for green economy potential. The Ministry of Climate Change and Environmental Coordination has introduced over 11 climate policies, including the national electric vehicle policy, which reduces customs duties and taxes on electric vehicle imports, along with toll rebates, targeting the transport industry’s significant contribution to airborne emissions (43%). On the other side, a significant portion of our imports consists of oil and related products and this trend is on the rise.
While we have a robust climate change policy framework in place, economic viability issues hinder implementation. For example, electric vehicles are more expensive than traditional ones and our infrastructure is ill-equipped for green transports and logistics. On the spending side, Pakistan faces deficits, including fiscal, current account and trade balance deficits, along with circular debt and debt servicing burdens. These vulnerabilities hinder Pakistan’s capacity to invest in green initiatives.
Pakistan currently allocates over 90% of subsidies to the oil sector due to currency devaluation and rising international oil prices, making electricity and fuel prices more affordable. Furthermore, contractual commitments with independent power producers have limited Pakistan’s ability to shift towards affordable renewable energy sources. On the other hand, the country’s total installed power generation capacity stands at 39,772 MW, with 63% generated from thermal sources, 25% from hydro, 5.4% from renewables (wind, solar and biomass) and 6.5% from nuclear.
However, Pakistan boasts significant potential for solar and wind power generation, being one of the world’s solar-rich countries with ample sunlight and favorable weather conditions. Its 180 km coastal belt offers an exploitable potential of 50,000 MW of electricity generation through wind turbines. Currently, 26 private wind projects are operational, producing approximately 1,335 MW and 10 more with a total capacity of 510 MW are under construction.
Over the past five years, six solar power projects totaling 430 MW have started commercial operations, supplying electricity to the grid and aiming to serve at least one million customers. Additionally, they are set to add around 3,000 MW of solar power through net metering.The green transition in the energy sector can lead to reduced electricity costs and alleviate strain on Pakistan’s trade balance. However, financial limitations at the government level impede these transitions.
In the business landscape, transitioning from conventional practices to green ones requires substantial green financing, which is expensive and businesses are already grappling with rising costs and the influx of cheaper imports. Although financial institutions have established green banking policies and appointed green finance officers, their institutional capacity to handle green finance and provide affordable, accessible green loans to the business community remains limited.
On the other hand, Small and Medium-sized Enterprises operate largely in the informal economy, accounting for over 40% of Pakistan’s GDP. Unfortunately, due to their informality, they struggle to access these financial institutions. Additionally, the high inflation rate has driven loan costs up to 25 percent. On the stock market front, PSX has not created a conducive environment for green IPOs and bonds due to the absence of a clear policy framework. Instead of attracting new firms and securities, PSX is experiencing capital depletion. Businesses find themselves in a challenging situation with limited options for affordable green loans, securities and stocks option that come at a cost even higher than their profit margins. Furthermore, the lack of liquidity in the stock market exacerbates the stagnation, leaving businesses fighting for their survival instead of adopting green initiatives.
Lastly, let’s consider the community’s attitude toward eco-friendly products and services in Pakistan. The public in Pakistan is currently grappling with severe financial challenges, mainly driven by high inflation and rising electricity costs. Inflation has significantly reduced people’s buying power, resulting in an anticipated 37.2% poverty rate and a 38% drop in purchasing ability due to exorbitant food prices in 2023. Affordability issues are already causing a decline in their ability to purchase costly items, while low purchasing power is also affecting their consumption habits and green options.
In nutshell, transition toward green economy is an imperative, not an option, crucial for the well-being and survival of future generations. Taking decisive action today on climate front is vital for Pakistan’s sustainable future, as affirmed by its commitment to the Paris Agreement. However, financial limitations pose challenges to our green transition. Provision of green aid by international community, substantial governance reforms and public awareness are crucial to protect the habitat of over 242 million people and foster a shared future.
—The writer is an Assistant Professor (PhD Financial Economics) at the National University of Modern Languages, Islamabad.
Email: abwahid.fms@gmail.com
