Unlocking climate funds: Pakistan faces several roadblocks

Does Pakistan want to have its cake and eat it too, when it comes to unlocking climate actions funds?

There are prerequisites to unlocking climate-change funds, part of which include reducing carbon emissions. This would then require Pakistan giving up coal as part of the country’s energy mix.

Pakistan – one of the most vulnerable countries to the effects of climate change – has already taken a step towards mitigation by signing the Paris Agreement.

The Paris Agreement, often referred to as the Paris Accords or the Paris Climate Accords, is an international treaty on climate change. Adopted in 2015, the agreement covers climate change mitigation, adaptation, and finance.

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However, becoming a signatory of the accord also offers an opportunity to unlocking funds. But there is a catch. It also requires countries to reduce their carbon footprint in return – one instance being giving up utilising coal reserves.

“There are a lot of green funds in the world that would readily either finance or even give grants for ventures that are expected to reduce carbon emission sustainably,” says Dr Naveed Arshad, who is presently Associate Professor and Director of the National Center in Big Data and Cloud Computing (NCBC) at Lahore University of Management Sciences (LUMS).

“But the problem with most of such funds is that they are G2G (government to government). Therefore, the Pakistani government should step up to accelerate the transformation.”

He is also working in the EV and charging infrastructure space with a startup called Neubolt – currently in its pilot phase.

Dr Arshad said the government has to play an important role in electrification of mobility in Pakistan even if it cannot or doesn’t directly fund the much-needed transformation.

He said that Pakistan is not receiving enough international funding despite being a country most affected by climate change.

“Pakistan has so far not leveraged effectively that it is one of the most vulnerable countries to climate change. It is yet to unlock significant climate-based funding and remains at the bottom in receiving climate change funding.”

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He added that countries were also getting green international financing at a very low rate or even in the form of grants which Pakistan could also benefit from.

Arshad added that the cost of a one EV rickshaw is over a million of rupees, which rickshaw drivers cannot afford. He said that there should be cheap financing options for EV rickshaw buyers as the total cost of ownership is low for EVs.

“But the upfront cost is high therefore innovative ways need to be explored to streamline EV adoption.”

That is easier said than done.

However, people at the helm of affairs in the country apparently despise the Global North for dictating countries like Pakistan to give up their ‘billions of dollars’ worth of black gold reserves – the coal in Thar –when the country’s contribution to global emissions is less than 1%.

“If we have signed the accord then we should abide by it to utilise the climate funds. Or else we should get out of it just as the USA did under Donald Trump. We cannot do both – don’t follow what is required of the agreement while utilising climate financing on offer,” said Manzoor Ahmed Alizai, a Research Associate at a think-tank Policy Research Institute for Equitable Development (PRIED).

“Double standards won’t help secure climate funds.”

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Alizai also added that Pakistan has coordination issues between its own functionaries.

“For instance, the Ministry of Climate Change formulated the EV Policy but the Engineering Development Board (that comes under the Ministry of Industries and Production) and regulates the auto sector complained that it was their domain. Due to this, things were delayed amid departmental friction,” he explained.

“There’s a dire need for capacity building as well as a dedicated authority so that the country can respond to climate change mitigation in a concerted manner,” he added.

Energy sector

The global climate funds don’t revere renewable sources such as wind or solar projects until and unless they directly substitute fossil fuel-based energy production.

Alizai said that Pakistan has been fortunate that it coincidently has a very diverse energy mix.

Quoting National Transmission and Despatch Company (NTDC) officials, Alizai said that Pakistan cannot rely on renewable energy sources especially solar and wind since they have intermittencies – fluctuation in electricity creation.

“It may hold true for Pakistan the country’s transmission infrastructure is old and fossil fuel might be required for grid stability. We also don’t endorse sudden elimination of coal. We want it to be gradually phased out.”

“There can always be back-up coal-powered plants, to support and integrate renewable sources by providing electricity amid intermittencies.”

“Moreover, government studies such as IGCEP suggest that coal is cheaper but they fail to incorporate the social cost of coal mining and its usage incurred for the people, livestock and region,” he added.

According to a report published last year – ‘Recent Developments in Climate Finance: Implications for Pakistan’ – prepared by the International Growth Center (IGC) and the Consortium for Development Policy Research (CDPR), Pakistan should work with innovative multilateral/bilateral DFIs to use cross-border mitigation investment and carbon-trading provisions in the 2015 Paris Agreement to financing the decommissioning of some major coal plants to achieve its target of reducing 2030 greenhouse gas emissions to 50% of baseline projected levels.

But these plans anticipate $151 billion of investment just for energy sector mitigation projects by 2040.

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In the government’s view, any 50% reduction below baseline projected emissions should be financed 15% from domestic sources and 35% from international sources. International financing should be mostly on a concessional basis.

Despite Pakistan’s relatively high emissions and relatively low GDP per capita, accessing concessional international climate finance will require meeting stringent qualifying criteria.

Globally, the volume of concessionary finance is modest. Of the total climate finance – $632 billion in 2019-20 – $65 billion was concessionary finance by multinationals to East Asian economies and only $20 billion worth of grants went to the poorest countries.

Furthermore, the conflict in Ukraine further dampens prospects for substantial increases in overall funds.

Of about $325 billion in recent worldwide annual funding for renewable energy (RE), a great majority was private equity and market-rate debt.

With decreases in per-KWH costs to within the range for fossil fuel alternatives, RE is now expected to cover its costs and provide an adequate return on investment (ROI).

By contrast, only 13% of recent CF came in the form of concessional debt or grant financing – focused on more challenging geographies (e.g., Sub-Saharan Africa) and sectors (e.g., agriculture, forestry, or other land-use projects).

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This suggests developing a strategy to target private external CF both for RE and for other climate change investments.

Concessional CF may well be limited to non-remunerative climate mitigation projects (e.g., agricultural, or electricity transmission system upgrades to accommodate Variable Renewable Energy (VRE)), climate adaptation projects, or components (e.g., safety nets for laid off coal sector or fuel sector workers) of otherwise remunerative mitigation projects that cannot be expected to earn a profit.

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