Introduction
“The sky is falling”, cried Chicken Little. All those who saw his frightened face laughed and questioned his sanity.
Unlike Chicken Little’s story, the Pakistani sky is not falling. It has disappeared behind the smog that covers the sunlight and suffocates those who breathe. Pakistan is on the brink of an environmental crisis as glaciers melt faster each passing year. The province of Punjab, especially, and major cities like Lahore face increasingly warm summers and smoggy winters. IQAir ranked Pakistan as the 3rd most polluted country in 2021.[1] In 2022, Pakistan outdid itself and took silver in the pollution Olympics.
Now, if you think that all of this is a byproduct of climate change and global warming, then yes, it is. This acknowledgement begs a deeper dive into the causes of global warming and climate change.
As per the United Nations, fossil fuels (coal, oil and gas) are one of the largest contributors to global climate change.[2] They account for 75% of global greenhouse gas emissions and 90% of all carbon dioxide emissions. The World Data Atlas states that Pakistan’s CO2 emissions have substantially increased from 18.1 million in 1971 to 217 million tons in 2020.[3] The Pakistani energy sector, indeed, substantially relies on fossil fuels for energy production. However, despite Pakistan only contributing less than 1% to global greenhouse gas emissions, it is still one of the most susceptible and vulnerable countries to climate change.[4] It is, therefore, crucial to decrease the country’s own emissions by employing renewable energy.
In addition, since Pakistan imports most of its fuels, it is also not self-reliant to respond to the growing demand of the nation. This, coupled with the fact that Pakistan is currently the 5th largest population in the world and is increasing rapidly,[5] explains the power shortage in the country.
Potential Solutions to the Climate Change Problem?
Clearly, Pakistan needs an alternative source of energy that is environmentally friendly, cost-effective, and sufficient to cater to the growing need of the Pakistani energy market. This is where renewable energy comes into the picture. A quick search on Google defines renewable energy as “energy from a source that is not depleted when used, such as wind or solar power”.[6] Here, the word “energy” mainly refers to electricity. Therefore, renewable energy is the production of electricity from natural resources which are not exhausted when used to produce more electricity; they only change their form (i.e., wind to electricity, water to electricity or sunlight to electricity).
The NEPRA Report 2020 states that Pakistan’s total installed power generation capacity is 38,700 megawatts.[7] However, the International Trade Administration notes that Pakistan has an exploitable potential of 50,000 megawatts of electricity only through wind turbines.[8] Similarly, Pakistan has immense potential for making renewable energy through solar power. Other possible sources to be implemented are hydroelectric plants and hydro plants.[9]
With all four seasons and multiple locations with varying altitudes, Pakistan has the capacity to cater to the demands of its energy market without any external help. However, this can only be done if Pakistan adopts renewable energy as its main source of electricity generation. For obvious reasons, this would allow Pakistan to decrease the finances invested in importing fossil fuels – with an added benefit of controlling its CO₂ emissions and giving the nation the hope of clearer skies or fresher air.
How is the Pakistani legal framework promoting the use of renewable energy?
Previous Legislation
In 1997, the Pakistani government enacted the first act providing for the “Regulation of Generation, Transmitting and Distribution of Electric Power”, with the aim to overcome the actual shortage of power in the country.[10] The Act sought to guarantee the greatest level of transparency and certainty in regulating the electric power markets in the country. Section 3 of the Act provides for establishing the National Electric Power Regulatory Authority (“NEPRA”),[11] responsible for the regulation of electric power services all over the country. With the aim to promote a liberalized market, NEPRA encompasses a wide range of functions – e.g., granting licenses, determining procedures and standards for investments, enforcing performance standards and issuing guidelines.[12] Among other functions, NEPRA also determines tariffs, rates and conditions for renewable energy supply.[13] In this regard, the Regulation of Generation, Transmission and Distribution of Electric Power Act was amended in 2018 to foster renewable energy development under Pakistan’s international obligations.[14]
Under Article 14(A) of the 1997 Act, the Federal Government is responsible for enacting a national electricity policy to develop certain power markets, including sustainable renewable energy.[15] The first Pakistani regulatory framework applicable for developing, financing, operating and selling power from renewable energy projects – the “Policy for Development of Renewable Energy for Power Generation” – was established in 2006. It determined strategies to exploit energy resources and attract investments in the wind and solar power sectors, as well as hydropower under 50MW capacity.[16] Although this Policy of 2006 encouraged private investments by giving numerous incentives, a fixed rate of return and attractive tariffs,[17] it did not lead to a massive increase in the use of renewable energy.[18] The effectiveness of such a regulatory framework was indeed subordinated to the implementation of NEPRA regulation on competitive bidding.[19] This Energy Policy is now expired following the adoption of the Alternative and Renewable Energy Act (“ARE Act”) in 2019.
In 2010, the Senate Secretariat provided for the establishment of the Alternative Energy Development Board (AEDB) under the “Alternative Energy Development Board Act” as an autonomous body to implement national policies, programs and strategies, as well as evaluate and monitor projects in the field of renewable energy resources.[20]
Current legislation
Several renewable energy regulations have been developed by NEPRA. In 2015, the authority established a regulatory framework under section 47 of the 1997 NEPRA Act for distributing electricity using alternative and renewable energy and net metering – also known as “NEPRA (Alternative and Renewable Energy) Distributed Generation and Net-Metering Regulations”.[21] Under section 7(2)(i) of the 1997 NEPRA Act, the Authority notifies the guidelines to maximize renewable energy generation potential utilization and streamline its evacuation. In this regard, NEPRA enacted “Guidelines on the Sale of Electric Power by Renewable Energy Companies” in 2015.[22] Lastly, under the powers conferred by section 47, read with section 7, of the 1997 NEPRA Act, the Authority can make regulations to facilitate the interconnection of renewable energy-based projects with the electrical networks of the distribution or transmission companies. “Regulations on the Interconnection for Renewable Generation Facilities” were developed in 2015.[23]
The government of Pakistan (GOP) has developed the “Alternative and Renewable Energy (ARE) Policy” 2019, which provides a regulatory framework that stimulates the generation of renewable energy (RE) and the use of ARE technologies (RET) for the country’s economic and social development. It aims to promote competitive pricing.[24] The share of ARE in the total power supply is 5% which GOP plans to increase to 20% by 2025 and 30% by 2030.[25]Regardless of this fact, Pakistan is still inclined toward importing energy rather than producing its own, which may cut costs and reduce tariffs. Moreover, targets for the future are set per the capacity of RET’s grid rather than demand itself. The document also disregards the installed capacity of RETs and sustains it exclusively for their potential rather than being proportionate to energy level to reduce electricity prices. Furthermore, since the policy does not postulate the respective shares of various RETs in different regions, implementation might be challenging.[26]
The framework introduces three project development methods: competitive bidding, government-to-government (G2G), and unsolicited projects that allow cost-plus tariffs. The last method disregards competition in the market[27] as it allows the provinces to develop their own RE generation projects, leading to a non-cohesive structure for energy generation. Instead, the projects should be centrally coordinated between the federation and the provinces.
It also provides the modes for selling ARE Technologies (ARETs) projects to Public Utilities. It mandates the National Transmission and Dispatch Company (NTDC) and the Distribution Companies (DISCO) to purchase all the electricity without assessing their technical and financial implications. The policy offers exemption from corporate income tax and customs duty on importing equipment installed in RE projects, repatriation of equity with dividends, raising foreign finance with SBP’s approval, and maximizing indigenization.[28]
The policy also regulates projects with private use or sale to third parties requiring approval from the Alternative Energy Development Board (AEDB) and acquiring a license by NEPRA. Unlike public developments, self-use projects require Tariff Determination from NEPRA. Income tax is only exempted for the sale of electricity to another party.
The primary purpose of the new National Electricity Policy (NEP) of 2021 is to supply reliable, secure, efficient, and affordable electricity for the sustainable growth of the economy. For this purpose, it requires the GOP to expand generation capacity by using various energy resources, including renewable sources. The policy demands a reduction in the reliance on imported fuels and moves towards optimal renewable sources utilization. It requires a sustainable renewable energy market to be developed to increase its share in power generation.[29]
Future legislation
Looking at the future, the NTDC prepared the “Indicative Generation Capacity Expansion Plan 2047” (IGCEP) to be approved by NEPRA for the power generation, transmission, and distribution capacity expansion for the next 28 years (2020-2047). The plan aims to formulate a minimum cost strategy and offer optimized solutions to supply power demands within prevailing technical, economic and political constraints. Power System Planning (PSP) is responsible for the transmission and generation development plans with low cost and risk.[30]
In 2030, the proposed optimal generation mix plan for renewable resources plants was set at 25%, which will decrease to 15% in 2047. The project does not seem to be as per Pakistan’s energy and climate change policies, precedents, and international obligations. IGCEP also dismissed the GOP’s target of increasing ARE shares to 20% and 30% by 2025 and 2030. They appear unrealistic due to the incapability of current grid infrastructure to deal with intermittent sources of energy.[31]
The recent tariff determinations issued by NEPRA for RETs are lower than fossil-fuel-based technologies. NTDC needs to overcome challenges constituted by the intermittency of renewable resources and upgrade the grid infrastructure. IGCEP emphasizes switching from imported fuel to local coal, disregarding the negative impacts of coal-based plants on air pollution in Pakistan. NEPRA needs to ensure that IGCEP considers Pakistan’s international obligations to be conforming with State’s responsibility to mitigate climate change. The share of coal will increase from 14% in 2019 to 36% in 2047, resulting in increased GHG emissions.[32]
NEPRA needs to reconsider IGCEP 2047 and formulate a generation expansion plan that contemplates environmental issues and threats to climate change in Pakistan. However, in 2021, NEPRA approved IGCEP 2021-2030, which envisages increasing renewable energy share to 60%.[33]
The Institute for Energy and Financial Analysis (IEEFA) raised objections to this plan as it cannot be considered the least cost and minimum risk plan. Costly overcapacity is a product of excessive power demand forecasting, a growing issue in Pakistan. Instead of solar and wind installations, increased emphasis is placed on hydropower.[34]
International obligations
Pakistan ratified both the Kyoto Protocol in 2005 and the Paris Agreement in 2016.[35] Whereas the former asks countries to adopt specific policies and measures to reduce greenhouse gas emissions,[36] the second provides a legal framework to limit the impact of climate change by keeping the global temperature rise below 2 degrees Celsius compared to pre-industrial levels.[37] Even though Pakistan does not have a specific legal framework for selling environmental attributes, both these international instruments allow the country to access global carbon crediting markets, environment and climate funds and other global financing options.[38]
However, unlike in developed countries, the implications of not fulfilling obligations under the 2005 Protocol or the 2016 Agreement are less heinous for underdeveloped countries like Pakistan. The international forums understand that lack of funding may play a key role in countries like Pakistan being unable to adopt environmentally friendly sources for the production of electricity. This has caused international financial institutions like the World Bank to actively invest in the country’s energy sector.
Criticism of the current legal framwork
Although the purpose of the recent ARE 2019 was to counterbalance the adverse effects of fossil fuel emissions by fostering renewable energy, a series of criticisms of the current legal framework can still be raised. First of all, the Act does not cover nuclear energy or hydropower technologies, which are indeed controlled by the Pakistan Atomic Energy Commission and the Water Power Development Authority (WAPDA), respectively.[39] Secondly, the procurement of renewable energy through public utility is subject to the Indicative Generation Capacity Expansion Plan (IGCEP) requirements, thus disincentivizing investments in the sector. Investments are also discouraged due to accepting unsolicited proposals with tariffs below the national average.[40] Moreover, under ARE 2019, tariffs for renewable energy power are established according to the market price and Feed-in Tariff (FiT) – that is, fixed prices set by the government – are not allowed.[41] This stands in stark contrast to the 2006 policy, which guaranteed more incentives and benefits to attract investors to renewable projects. Another critique concerns a lack of adequate action to ensure a smooth transition of the workforce from fossil fuel to renewable energy, along with a missed assessment of the domestic production capacity to meet demand before removing tax exemptions from the import of renewable energy to promote the local market.[42] Lastly, the fact that investors require the project’s approval from AEDB while NEPRA determines tariffs creates confusion and a lack of cohesive action toward renewable energy.[43]
Conclusion
While various policies and laws have been adopted to promote renewable energy in Pakistan, the regulatory framework is still inadequate to overcome the current energy crisis the country is facing, particularly when compared to European countries.[44] Barriers to the development of the renewable sector in the country are: the lack of relevant infrastructures to extract energy from renewable sources, high upfront costs, lack of adequate subsidies and inadequate incentive schemes to attract investors.[45] Besides, the lack of an RE framework prevents the general public from investing in the sector. Challenges also exist in implementing current regulations, even due to the lack of coordination and clear roles between different authorities.
To conclude, there is no doubt that Pakistan urgently needs to develop a more comprehensive and coordinated energy plan across the country, harmonizing the different roles of stakeholders involved as well as federal and provincial policies.
[1] IQAir, ‘World’s most polluted countries & regions (historical data 2018-2021), available at <https://www.iqair.com/world-most-polluted-countries>.
[2] UN, ‘Causes and effects of climate change’, available at <https://www.un.org/en/climatechange/science/causes-effects-climate-change>.
[3] Knoema, ‘Pakistan – CO2 emissions’, available at <https://knoema.com/atlas/Pakistan/CO2-emissions>.
[4] Government of Pakistan, ‘Updated Nationally Determined Contribution 2021’, 12, available at <https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Pakistan%20First/Pakistan%20Updated%20NDC%202021.pdf>.
[5] World Population Review, ‘Pakistan Population 2022’, available at <https://worldpopulationreview.com/countries/pakistan-population>.
[6] Oxford Language, ‘Renewable Energy’, available at <renewable energy dictionary – Google Search>.
[7] Nepra, ‘State of Industry Report 2020’, available at <State of Industry Report 2020.pdf (nepra.org.pk)>. Specifically, 57% of this energy comes from fossil fuels, 31% from hydro, 4 % from renewable energy (wind, solar and bagasse) and 8% from nuclear energy.
[8] International Trade Administration, ‘Renewable energy’ (27 January 2022), available at
<Pakistan – Renewable Energy (trade.gov)>.
[9] Ibid.
[10] Regulation of Generation, Transmission and Distribution of Electric Power Act (16 December 1997), available at <https://nepra.org.pk/Legislation/1-Act/NEPRA%20Act%201997%20as%20amended%20vide%202018%20Act.pdf>.
[11] Ibid, Section 3.
[12] Ibid, Section 7(1).
[13] National Electric Power Regulatory Authority, ‘About Us’, available at <https://nepra.org.pk/About.php>.
[14] Regulation of Generation, Transmission and Distribution of Electric Power (Amendment) Act (2 May 2018), available at <https://nepra.org.pk/Legislation/1-Act/NEPRA%20Act%20May%202%202018.pdf>.
[15] Regulation of Generation, Transmission and Distribution of Electric Power Act (n 10), Section 14A.
[16] Policy for Development of Renewable Energy for Power Generation (2006), available at <http://www.aedb.org/Documents/Policy/REpolicy.pdf>.
[17] Lexology, ‘Q&A: The legal framework for renewable energy in Pakistan’ (28 August 2021), available at <https://www.lexology.com/library/detail.aspx?g=8e0f9117-eeb4-4cd1-897a-e3cc970edae0>.
[18] It was only able to add 1235.20MW capacity through wind power projects and 430mW through solar projects. See Courting The Law, ’Renewable Energy Policy in Pakistan: A Critique’ (19 April 2021), available at <https://courtingthelaw.com/2021/04/19/commentary/renewable-energy-policy-in-pakistan-a-critique/>.
[19] Mehran Idris Khan, Imtiaz Ahmed Khan, Yen-Chiang Chang, ‘An overview of global renewable trends and current practices in Pakistan: A perspective of policy implications’ 12 (2020) Journal of Renewable and Sustainable Energy.
[20] Alternative Energy Development Board Act (25 May 2010), available at <https://www.aedb.org/images/act/aedbact.pdf>, section 8.
[21] NEPRA (Alternative and RE) Distributed Generation and Net-Metering Regulations, 2015 (1 September 2015), available at <https://www.nepra.org.pk/Legislation/Regulations/NOTIFICATION%20SRO%20892%20-2015.PDF>.
[22] NEPRA (Sale of Electric Power by Renewable Energy Companies) Guidelines, 2015 (23 January 2015), available at <https://nepra.org.pk/Legislation/5-Guidelines/5.2%20NEPRA%20(Sale%20of%20Electric%20Power%20by%20Renewable%20Energy%20Companies)%20Guidelines,%202015/SALE%20OF%20ELECTRIC%20POWER%20BY%20RENEWABLE%20COMPANIES).pdf >.
[23] NEPRA (Interconnection for Renewable Generation Facilities) Regulations, 2015 (22 December 2015), available at <https://nepra.org.pk/Legislation/3-Reg/3.15%20Interconnection/NOTIFICATION%20S.R.O%201266.%202015.pdf>.
[24] Alternative and Renewable Energy (ARE) Policy 2019 (21 July 2019), available at <https://www.aedb.org/images/Draft_ARE_Policy_2019_-_Version_2_July_21_2019.pdf>.
[25] Khaleeq Kiani, ‘Alternative energy policy unveiled,’ Dawn News (12 August 2020), available at <https://www.dawn.com/news/1574133>.
[26] Dr. Shahid Rahim, ‘Alternative and Renewable Energy Policy 2019: A Classic Case of Moving Backward’, Daily Times (20 December 2019), available at <https://dailytimes.com.pk/523336/alternative-and-renewable-energy-policy-2019-a-classic-case-of-moving-backward/>.
[27] NEPRA (Alternative and RE) Distributed Generation and Net-Metering Regulations, 2015 (n 21).
[28] Ibid.
[29] Government of Pakistan, National Electricity Policy, 2021, available at <http://www.mowp.gov.pk/userfiles1/file/National%20Electricity%20Policy%202021.pdf>.
[30] NTDC, Indicative Generation Capacity Expansion Plan 2047 (April 2020), available at <https://nepra.org.pk/Draft/IGCEP-2047%20along%20with%20Annexures.pdf>.
[31] Aneesa Agha, Mariam Noor, ‘Indicative Generation Capacity Expansion Plan 2047’ (18 September 2022), available at <http://www.rmaco.com.pk/the-indicative-generation-capacity-expansion-plan-2047-igcep>.
[32] Ibid.
[33] The News, ‘NEPRA approves IGCEP 2021-30, envisions RE share of 60 percent’ (25September 2021), <https://www.thenews.com.pk/print/895082-nepra-approves-igcep-2021-30-envisions-re-share-of-60-percent>.
[34] Simon Nicholas, ‘IEEFA: Pakistan’s new long-term power plan – one step forward, two steps back’ (16 July 2021), available at <https://ieefa.org/ieefa-pakistans-new-long-term-power-plan-one-step-forward-two-steps-back/>.
[35] UN Climate Change, ‘Pakistan’, available at <https://unfccc.int/node/61134>.
[36] UN Climate Change, ‘What is the Kyoto Protocol?’, available at <https://unfccc.int/kyoto_protocol>.
[37] UN Climate Change, ‘The Paris Agreement’, available at <https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement>.
[38] Lexology, ‘Q&A: The legal framework for renewable energy in Pakistan’ (n 17).
[39] Courting The Law, ’Renewable Energy Policy in Pakistan: A Critique’ (n 18).
[40] Ibid.
[41] Ibid.
[42] Ibid.
[43] Lexology, ‘In brief: Renewable energy projects in Pakistan’ (28 August 2021), available at <https://www.lexology.com/library/detail.aspx?g=d6f77170-e66f-4eeb-b62d-58e31b30f647>.
[44] Mehran Idris Khan, Imtiaz Ahmed Khan, Yen-Chiang Chang, ‘An overview of global renewable trends and current practices in Pakistan: A perspective of policy implications’ (n 19).
[45] Shah, Solangi, Ikram, ‘Analysis of barriers to the adoption of cleaner energy technologies in Pakistan using Modified Delphi and Fuzzy Analytical Hierarchy Process’ 235 (2019) Journal of Cleaner Production, 1037.
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Authors
Esha Amer, Research Assistant, RCIL & HR (eshaamer@yahoo.com)
Mahbano Kazmi, Research Assistant, RCIL & HR (mahbanokazmi@gmail.com)
Sara Ciucci, Research Assistant, RCIL & HR (sara.ciucci3@gmail.com)