I.
temperature in Pakistan has increased by 0.5° in the past few decades and is expected to further rise by 3- 5°C. Floods and droughts have become quite frequent. 2 Additionally, by the end of this century, sea-level in the country is expected to further rise by 60 cm’s. 3
INTRODUCTION
Energy is the life blood of an economy. It has become one of the most important needs of people in the modern era. However, the benefits of energy consumption in terms of economic development and improved quality of human life could be potentially threatened and reversed if its environmental implications are overlooked.
Despite the stated threats and national environmental concerns, 64 % of primary energy consumption in Pakistan comes from fossil fuel. 4 The fossil-fuels based Approaches on energy have ceased to take it as an a n infinite power generation in the country is projected to further resource with no impacts on ecosystem. Significant grow. Coal fired power plants of cumulative capacity of quantities of air pollution are attributed to energy sector. It 4,290 MW from indigenous coal and 5,201 MW from is a major culprit of Greenhouse Gas Emissions (GHG), imported coal are under different stages of construction. 5 globally. Increased concentration of GHG emissions in atmosphere is the primary driver of global warming and All these developments will increase the atmospheric climate change. Against the backdrop, environment concentrations of GHG emissions and toxic pollutants and security has acquired world-wide attention. Having its worsen the existing climate change vulnerabilities. In the roots in the emergence of global environmental problems light of these challenges, this brief will examine the such as global warming and depletion of stratospheric relationship between energy and environmental ozone, the concept gained significant momentum after degradation. It will highlight the implications of the publication of “Our Common Future” by the “World undergoing changes in Pakistan’s power mix and will Commission Commission on Environment and Development” Development” in 1980. emphasize the need for internalizing external cost of Since then, energy, environment and climate change energy procurement for better allocation of economic agendas have become increasingly intertwined. resources and for setting the future energy matrix choices unto a sustainable pathway. Pakistan particularly face potential air quality and climate change challenges. Concentration of toxic air pollutants in II. EXTERNAL COST OF POWER GENERATION urban cities are way above safety thresholds. More than AND ENERGY- ENVIRONMENT LINK 22,600 deaths and 5 million childhood illnesses annually External cost refers to the unaccounted cost in terms of are attributed directly or indirectly to air pollution in the country.1 Additionally, the country is ranked among top damages done to health or environment. This cost arises 10 most vulnerable countries to climatic changes. Also, when socio-economic activities of one group adversely the issue of climate change is particularly sensitive for impact another, without compensating the latter. Major Pakistan, owing to its already warm weather. Annual mean external costs of energy-related activities include air 1
Martin P, Nishida J, Afzal J, Akbar S, Damania R, Hanrahan D (2006) Pakistan strategic country environmental assessment, vol1. South Asia Environment and Social Development Unit, World Bank, Washington. 2 Climate Change Profile of Pakistan, Asian Development Bank, 2017 3 ibid 4 Ministry of Energy (Power Division). 2017-18. 5 Pakistan Economic Survey, 2016-17
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pollution, water pollution, negative health impacts and climatic changes.
Global Warming
The external effects of energy supply (related to climate change and air pollution) globally stands in the range of USD 2.2 trillion – USD USD 5.9 trillion annually against the cost of global energy supply valued at USD 5 trillion per year.6 Major forms of cost arising a rising from energy production is the damage caused by fossil fuel combustion owing to emissions such as carbon dioxide, methane, nitrogen oxides, nitrates, and sulphides.Table.1 shows various pollutants associated with energy energy and transport sector and its externalities impacting human health, crop yield, global warming and overall eco system.
CO2, CH4, N2O, Worldwide N, S effects on mortality, morbidity, coastal impacts, agriculture, energy demand, and economic impacts due to temperature change and sea level rise
Ecosystems
Acid deposition, Acidity and Nitrogen eutrophication deposition
Table.1 Impact Categories, Pollutants and Effects Impact Category
Pollutant
Effects
Source: European Commission Study (2005).
GHG emissions are the primary drivers of climatic changes. Roughly, 2/3rd of GHG emissions around the globe are attributed to energy sector. 7 Electricity generated with fossil fuels such as coal, oil and natural gas produces significant amounts of emissions. The USA Environmental Protection Agency (EPA) identified the average emission levels in the production of 1 MWh of electricity, as shown in Table.2. Ta ble.2. As could be observed, the carbon dioxide content of coal (followed by oil and natural gas) makes it the largest pollutant of all fuels.
Human Health: PM10, SO2, NOx, Reduction in Mortality O3 life expectancy As, Cd, Cr, Ni Cancer Human Health: PM10, O3, SO2 Morbidity PM10, O3 PM10, CO PM10
Crops
NOx, SO2
O3
6 7
Respiratory hospital admissions, Restricted activity days, Congestive heart failure, Cerebravascular hospital Admissions, Cases of chronic cough in children, Cough in asthmatics, Lower respiratory symptoms, Asthma attacks
Table.2 Pounds of Emissions per MWh Carbon Dioxide
Sulphur Dioxide
Nitrogen Oxide
Coal
2,249
13
6
Oil
1,672
12
4
Natural Gas
1,135
0.1
1.7
Nuclear
0
0
0
Source: EPA (2008).
Yield change for wheat, barley, rye, oats, potatoes, sugar, beets. Yield change for wheat, barley, rye, oats, potatoes, rice, tobacco, sunflower seed
Coal-fired power plants are also major sources of air pollution in Pakistan besides industrial activities and pollution arising from vehicles. vehicles. Nevertheless, these these plants in Pakistan are expanding at an incredible rate. Table.3 shows list of all such plants under various stages of construction.
Energy and Climate Change, World Energy Outlook Special Report (IEA), 2015. Energy and Climate Change, World Energy Outlook Special Report (IEA), 2015.
2
total fuel cost of Gas, Liquified Natural Gas (LNG), High Sulphur Fuel Oil (HSFO), Coal-imported and Coal-Thar.
Table.3 Coal Power Projects Project Description
MW
Project Status
Sahiwal Plant
1,320
Operational
Engro Thar Block II
660
In Progress
Port Qasim Karachi
300
In Progress
Gwadar, Pakistan
1,320
In Progress
SSRL Thar Coal
1,320
In Progress
CPHGC, Hub Baluchistan
1,320
In Progress
Rahimyar khan
1,320
In Progress
Muzaffargarh Punjab
1,320
To be initiated
Total Installed Capacity
8,800
Table.4 Total Cost of Electricity Generation (US cents/kWh)
Source: Planning Commission (http://cpec.gov.pk/energy http://cpec.gov.pk/energy))
* n a * n a t i r s l e o a t d s t e t x C o o M E l T C
Internal Cost of Electricity Generation*
Fuel
l a t i p a C
M & O
l e u F
l a t o T
Gas
1.7
0.9
2.7
5.3
2.8
8.1
LNG
1.7
0.9
4.1
6.7
2.8
9.5
HSFO***
1.6
1.0
6.5
9.1
10.4
19.5
CoalImported
2.3
1.0
2.4
5.7
6.8
12.5
CoalThar
2.5
1.0
2.5
6.0
6.8
12.8
The share of coal fired power plants will increase incr ease to 30% (from the existing < than 1%) in 2020 energy mix. At this critical juncture, when the country is ranked among top 10 most vulnerable countries to climatic changes8 , this shift in power base will have massive long-term health and environmental implications.
Source:
Explicit cost of power plants includes Capital cost, Operation & Maintenance (O&M) cost and fuel cost. In Pakistan, NEPRA determines electricity tariff, keeping in view the principles of economic efficiency and service quality according to the prescribed Tariff Standards and Procedure Rules, 1998. Usually, two principles are considered while setting the tariff i.e. Utility should be able to recover its costs with some surplus for capacity expansion or return on equity, and the average sale rate should provide for reasonable rate of return. It could be observed that the explicit cost does not take into account the externalities exacted by energy sector.9
If accounted for externalities, power sector can also significantly gain as per a study by IRENA, which quantified the cost and savings of doubling global Renewable Energy Base. According to it, the cost of change in energy mix for power sector was estimated at 27 billion dollars dollars only against the overall savings of 469 USD. Fig.1 shows the quantified cost and savings for industry, power and transport transport sector.
* Ahmed (2007). ** European Commission (2003). *** HSFO price corresponds to USD 60/barrel of crude
In a study conducted by Ahmad (2007) 10 on total explicit cost of electricity generation, imported coal was the least expensive fuel source followed by Coal-Thar, Gas and LNG., However, However, when accounted for its external cost, coal becomes one of the most expensive expensive sources. sources. If we add the median external cost calculated by a European Commission study in 2005 to Pakistan’s internal cost of electricity, coal becomes one of the most expensive sources after HSFO11. Table.4 shows internal, external and 8
Kreft, Sönke, David Eckstein, and Inga Melchior. Global Climate Risk Index 2017: Who suffers most from extreme weather events? ev ents? Weather-related loss events in 2015 and 1996 to 2015 . German watch Nord-Süd Initiative eV, 2016. 9 SIR, Nepra (2017). 10
Ahmed, M. (2007). Meeting Pakistan’s Energy Needs, in Hathaway, Muchhala, R.M., B. Kugelman, M. (Eds.) Fuelling the Century, Woodrow Wilson International Centre for Scholars Future: Meeting Pakistan’s Energy need in the 21st Century 11
In the absence of proper data on external cost of different energies in Pakistan, median external cost by EC has been used.
3
Fig.1 Cost and Savings with ramped up Renewable Energy Options by Sector, 2030 (USD billion per year). 100
Fig. 2 Most Polluted Cities in the World.
63 35
50
27
0 Industry
-50
Power
-16
Transport
-38
-50
-100 -150 -200 -202
-250
Source: World Health Organization, 2016.
-230 -239
-300 Costs
Reduced Redu ced CO2 Extern Externali alities ties (aver (average) age)
Apart from air pollution, energy sector is also the largest contributor to GHG emissions in the country. Fig. 3 shows the sectoral distribution of GHG emissions in Pakistan.
Reduced Redu ced Air Pol Pollution lution Extern Externaliti alities es (Aver (Average) age)
Source: IRENA, 2016.
Fig. 3 Sectoral Share in GHG Emissions (2012)
Energy transition thus sits at the heart of above analysis. Quantifying external cost of energy sources and monetizing of the environmental damages can make a huge difference. It will not only help not help in optimal decision making but will also result in rectifying the existing energy mix and maximizing social welfare. Next section will take stock of environmental issues of Pakistan and will examine the impact of energy sector on environmental degradation in the country.
Energy Agriculture Industrial Processes Waste
III. PAKISTAN’S ENVIRONMENTAL ISSUES
LUCF
Air pollution is one of the growing environmental problems globally. Energy sector is the largest source of air pollutant emissions, causing 6.5 million deaths every year globally.12 This T his ruinous toll on human human life is expected expecte d to rise further if the modes of energy generation continue to rely on fossil fuels.
Source: Global Change Impact Studies Centre (GCISC)
Though data on air quality in Pakistan is uneven, all studies point to the deteriorating air quality in the country countr y which has had serious health implications Urban air pollution
in
Pakistan
is
amongst amongst
world’s
As per preliminary projection by Ministry of Planning, Development and Reform, these emission levels are expected to increase significantly in the coming decades. Table.5 shows sector wise detail of projected GHG emissions by 2030.
worst,
significantly damaging health. Pakistan has taken 3 slots Also, the among the world’s top most 20 polluted cities. 13 Also, 2018 Environmental Performance Index ranks Pakistan at 169 among 180 countries. 14 Air quality thus remains a leading threat to public health in the country.
12
World Energy Outlook (2016), IEA World Health Organization, 2016. 14 Environmental Performance Index Report, 2018. 13
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Several roadblocks stand in the way of environmental security in Pakistan. Presence of unaccounted externalities in energy sector is one major market failure which has led to inefficient energy mix choices. Quantifying these externalities in a comparable manner can help in aligning appropriate energy mix with social welfare.
Table. 5 Sector wise projection of GHG Emissions (Mt CO2 -Equivalent -Equivalent Sector
2015
2030
Energy
185.97
898
Industrial Process
21.85
130
Agriculture
174.56
457
Combustion of fossil fuels is major driver of global warming and environmental degradation. In the given context, reducing fossil-fuel based infrastructure and decarbonizing the economy has become indispensable i ndispensable for climate stability, and overall environmental sustainability. susta inability. However, the projected increase in consumption of coal at a time when the country is highly vulnerable to climate changes and exposed to alarming level of air pollution, will lead to extensive array of environmental challenges, exacerbating climatic changes and worsening pollution.
Source: Economic Survey of Pakistan, 2017-18 As per the Intended Nationally Determined Contribution (INDC) that falls under Article 2 of Paris Agreement, Pakistan decided to reduce up to 20% of its 2030 projected GHG emissions, amounting to 1603 million ton of carbon car bon dioxide Nonetheless, with the undergoing changing power mix and the strong tilt toward thermal sources (particularly coal-fired power plants), the emissions by energy sector will further go up. This shift in power base will not only fail in accomplishing the indicated reductions in GHG emissions (as per INDC) but will also expose the country to grave climatic and environmental consequences.
Pakistan is at a stage where there is still significant room for laying down extant energy infrastructure as half of the country’s energy demand is still to be met. Internalizing of environmental externalities is imperative for pursuing a sustainable energy system. In this regard, measures shall be taken for identification and valuation valuation of external external cost of various energy energy sources. sources. Renewable Energy (RE) (RE) can IV. CONCLUSION AND RECOMMENDATIONS become economically competitive with conventional Pakistan is caught in the horns of dilemma between b etween grave supplies when properly assessed for their externalities. RE environmental threats and energy shortfalls. generation will not only offset a considerable portion of Environmental change and energy infrastructure are two dangerous emissions, but will simultaneously address separate but closely interlinked challenges. Meeting of energy insecurity challenges in the country. future energy needs should go hand in hand with a In order to pursue a sustainable energy system, a reduction in the dependence on fossil fuels. mechanism for internalizing external cost in energy pricing needs to be devised. devised.
Prepared by: Naila Saleh
Junior Research Officer Institute of Policy Studies (IPS), Islamabad.
For queries: Syed Nadeem Farhat
Senior Research Coordinator
[email protected] | www.ips.org.pk
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