Green financing for Pakistan

It is unfortunate that when other countries are taking steps to cope with global warming, Pakistan is dwelling on provision of the necessities of life such as food, shelter, health and education. But it would be foolish to use the developing state of our economy as an excuse to turn a blind eye to environmental issues because it will not stop at our borders and leave us alone for being poor. It is going to affect us equally or perhaps even more than other countries in the region if we keep exploiting natural resources. Therefore, it is imperative to devise long term economic policies to achieve Sustainable Development Goal (SDG) of keeping average global warming below two degrees above pre-industrial revolution levels and aiming to increase the limit to 1.5 degrees.

Despite having several multilateral institutes working on the problem, temperature records continued to break in 2018. Quite worryingly, it indicates that our collective efforts at the global level, in their current state, are not enough to fight the problem. If we look at Green House Gas (GHG) emission, as one of the factors responsible for rapid climate change, it is caused by consuming fossil fuel at large scale. According to Asian Development Bank, in 2018,global energy investment in renewables and energy efficiency failed to keep up the growing pace of the past several years; rather it declined by three percent.

When developed countries like Germany (that closed its last coal mine last month) are adopting renewable energy technologies, Pakistan like some other developing countries (Bangladesh, South Africa) is far behind in the line. Pakistan generates more than 60 percent of its utility electricity from fossil fuels including coal, gas, and furnace oil. While the new government in Pakistan has shown its commitment to CPEC and it aspires to achieve a clean, green Pakistan, it still has to spell out its preferences in terms of clean energy. However, the previous government had already proposed its clean energy policy by aiming to achieve 20 percent of total commercial energy by 2030 from renewable technologies that currently stands at only five percent. Interestingly, 92 percent of renewable energy investment comes from foreign investors, mainly China and Turkey.

The biggest hurdle in fighting climate change is financing the investment in renewable energy projects because it involves more risk and lesser rate of return in the short run

The biggest hurdle in fighting climate change is financing the investment in renewable energy projects because it involves more risk and lesser rate of return in the short run. Therefore, private investors are reluctant to invest in such projects. What is more surprising is that even though the purpose of multilateral financial institutions is to channel world savings into projects that will make this world a better, more liveable place, they choose to invest in real-estate bubbles and projects that exacerbate global warming. Perhaps it is time to embrace the problem and devise an effective long-term policy not only to abate global warming but also to diversify the existing energy sources. But the question is how to do it; how to bring in investment? The answer to this question can be addressed both at the macro (monetary and fiscal policy) and micro (community-based funds) levels.


Supporters of clean energy have come up with a new financing system known as green financing to provide reasonably priced capital to environment friendly projects. The central bank is responsible for the financial market of any economy, therefore, it must address climate-related problems by adopting green central banking. It has the powerful position to develop a green finance system due to its access and in-depth understanding of the monetary system of the country. It will be more feasible to plan on developing non-banking institutes for green financing as banks are reluctant to invest in long-term renewable energy projects because most of their funds come from small and medium-term credits. These institutions could be pension and insurance companies as they hold long-term financial resources.

Just like monetary policy, the fiscal side of the economy can play an active role in this regard. They should start from increasing the role of the private sector and providing tax relief to promote the renewable energy sector. We can learn from developed countries like the USA that supports its wind energy and solar energy by production tax credit and investment tax credit respectively. Similarly, implementing carbon pricing or carbon tax system, which simply means to put a price on carbon emissions, could also help. This system was introduced by the World Bank and as of November 2018, 46 countries are putting a price on carbon. Pakistan hosted a meeting in January 2018, exploring the possibility of levying tax on carbon emissions. On July 1, 2010, India introduced a nationwide carbon tax of 50 rupees per tonne of carbon emission. Funds generated from carbon pricing could be used in promoting renewable energy.

Community-based funds could be generated at the local level, but this policy instrument comes with some prerequisites, education being the most important one. It is essential to provide financial education to our small and medium sized private investors. Devising a strong and effective policy to mitigate environmental deterioration is important right now, because at COP-24 in December 2018, Pakistan was elected as Vice President to United Nations Framework Convention on Climate Changefor next Conference of Parties (COP) which will be help in Chile this year.For that Pakistan would need to show that it is actively engaging in clean and green energy technologies. Also, according to Paris Agreement 2015, Pakistan like other developing countries who are not biggest polluters have to be more open and transparent regarding their climate change policy from 2020 and it is not that far away. Nevertheless, we must not forget our responsibility at individual level and adapt a lifestyle that is more climate friendly.

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