Green financing has become an important tool in funding projects to reduce carbon emissions. Energy transition cannot be viewed in isolation; it has to be seen in the broader context of economic transition. Without energy, industries stagnate, jobs disappear and income levels remain low. More importantly, in Pakistan, where more than 70% of banking assets are directed towards the sovereign, little space is left for private sector lending or green financing.

However, in Pakistan, where a relatively clean energy mix already exists, when it comes to financing the energy transition, a shift in focus is necessary, and rather than pouring resources into increasing generation capacity, the emphasis should be on improving energy efficiency.

The challenge lies not in generating more power but in using the available energy more effectively to support economic growth and minimise waste.

Global narratives about energy transition tend to focus on regions with high fossil fuel dependence, suggesting a one-size-fits-all solution that may not apply to every country. It is estimated that roughly 68% of the electricity generated in South Asia is derived from fossil fuels, yet in Pakistan, it is estimated at under 30%. This suggests that Pakistan would be better off allocating this generation towards better efficiency.

Pakistan’s energy mix is already significantly cleaner, with 55% of the energy coming from hydropower, nuclear and other renewable sources, and this share will increase as more hydropower projects come online. Furthermore, Pakistan’s energy generation is relatively sustainable compared to many industrialised nations. Its per capita CO2 emissions stand at 0.81 tons as of 2020 – one of the lowest globally.

Given this scenario, Pakistan’s focus should not be on increasing generation from renewable sources but on making the existing system more efficient.

While integrating renewable energy into the grid is essential, it must be complemented by reliable and affordable baseload energy. Historically, no country has achieved sustained economic growth without access to affordable energy, and given that renewables (solar and wind) cannot always provide the continuous power needed to support heavy industries, affordable base-load energy from indigenous sources is vital. This will provide cheaper electricity as well as conserve foreign exchange. Therefore, climate finance, particularly through local financing, must be directed toward making base-load energy more affordable.

The declining cost of batteries presents an even greater opportunity. Experts are predicting that by 2029, it could be cheaper for businesses and households to install batteries and disconnect from the grid entirely. However, this trend may lead to what is termed the ‘death spiral’ of traditional grids. To prevent this, Pakistan must evolve its grid system to accommodate distributed renewable energy sources and storage solutions.

One of the most promising areas for green financing is the electrification of mobility – in other words, the transportation system. With over 30 million motorcycles on the roads, electrifying this segment could result in savings of over five billion dollars annually in fossil fuel imports. Climate finance should be channelled into supporting these initiatives. However, electrifying mobility will require more than just electric vehicles. The grid must be modernised to handle the increased demand for electricity and support the charging infrastructure required. The focus should be on upgrading grid infrastructure, making it more efficient, and being able to support widespread electrification.

For countries like Pakistan, where the energy mix is relatively clean, the emphasis must shift towards efficiency.

How efficiently we move electrons around the grid and how effectively we displace fossil fuels in other sectors like transportation and industry are the questions that need answers. In other words, climate finance should not be solely about how to generate cleaner energy but about how to use the energy we generate more efficiently. By focusing on grid modernisation, electrifying transportation and boosting industrial efficiency, Pakistan can make significant strides in reducing emissions and increasing economic productivity. Furthermore, Pakistan needs to develop homegrown, indigenous solutions tailored to its specific energy and economic needs.

Pakistan’s energy landscape is unique, and its challenges are equally distinct, and while the world focuses on transitioning away from fossil fuel generation, Pakistan’s focus must be on modernising its energy infrastructure and improving efficiency. Green financing should be targeting these areas.

Ammar H. Khan is a macroeconomist.
ammar.habib@gmail.com