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ADB Approves $300 Million to Reform Pakistan’s Energy Sector

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The Asian Development Bank (ADB) today approved a $300 million policy-based loan that will help the Government of Pakistan to address financial sustainability, governance, and energy infrastructure policy constraints in Pakistan’s energy sector.

The financing will support the first of three subprograms totaling $1 billion under the Energy Sector Reforms and Financial Sustainability Program, a key component of a comprehensive multidonor economic reform program led by the International Monetary Fund that aims to put Pakistan’s economy on the path to sustainable and inclusive growth after a deterioration in its fiscal and financial position in recent years.

“The cash shortfall across the power supply chain in Pakistan, also known as circular debt, has shot up to more than $10 billion and is a longstanding chronic issue ailing the country’s power sector,” said ADB Director General for Central and West Asia Mr. Werner Liepach. “A comprehensive and realistic Circular Debt Reduction Plan, assisted by ADB in close coordination with other development partners, is the cornerstone of this subprogram. The plan aims to drastically cut the new flows of circular debt and provides policy directions on addressing accumulated circular debt.”

While Pakistan has made significant effort in recent years to expand its electricity generation capacity and stabilize supply, the country is yet to overcome the challenge of inefficiencies, distortions, and uneven reform progress in the sector. These inefficiencies were estimated to have cost the country’s economy up to $18 billion, or 6.5% of gross domestic product, in 2015.

The energy reform program aims to address the underlying causes of circular debt with a focus on improving inadequate tariff and subsidy systems, strengthening energy accounting, and reducing generation costs.

ADB will finance the program with support from its development partners. The Export–Import Bank of Korea has confirmed it will provide $80 million in cofinancing for the first subprogram.

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Global emissions are set to surge to an all-time high

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Governments worldwide are deploying an unprecedented amount of fiscal support aimed at stabilising and rebuilding their economies, but only about 2% of this spending has been allocated to clean energy measures, according to new analysis from the International Energy Agency.

The sums of money, both public and private, being mobilised worldwide by recovery plans fall well short of what is needed to reach international climate goals. These shortfalls are particularly pronounced in emerging and developing economies, many of which face particular financing challenges.

Under governments’ current recovery spending plans, global carbon dioxide (CO2) emissions are set to climb to record levels in 2023 and continue rising in the following years. This would leave the world far from the pathway to net-zero emissions by 2050 that the IEA set out in its recent Global Roadmap to Net Zero.

These findings come from the new Sustainable Recovery Tracker that the IEA launched today to help policy makers assess how far recovery plans are moving the needle on climate. The new online tool is a contribution to the G20 Ministerial Meeting on Environment, Climate and Energy in Naples, which takes place on 22 and 23 July under the Presidency of Italy.

The Tracker monitors government spending allocated to sustainable recoveries and then estimates how much this spending boosts overall clean energy investment and to what degree this affects the trajectory of global CO2 emissions. The Tracker considers over 800 national sustainable recovery policies in its analysis, which are publicly available on the IEA website.

“Since the Covid-19 crisis erupted, many governments may have talked about the importance of building back better for a cleaner future, but many of them are yet to put their money where their mouth is. Despite increased climate ambitions, the amount of economic recovery funds being spent on clean energy is just a small sliver of the total,” said Fatih Birol, the IEA Executive Director.

Governments have mobilised USD 16 trillion in fiscal support throughout the Covid-19 pandemic, most of it focused on emergency financial relief for households and firms. Only 2% of the total is earmarked for clean energy transitions.

In the early phases of the pandemic, the IEA released the Sustainable Recovery Plan, which recommended USD 1 trillion of spending globally on clean energy measures that could feature prominently in recovery plans. According to the Plan – developed in collaboration with the International Monetary Fund – this spending would boost global economic growth, create millions of jobs and put the world on track to meet the Paris Agreement goals.

According to the Tracker, all the key sectors highlighted in the IEA Sustainable Recovery Plan are receiving inadequate attention from policy makers. Current government plans would only increase total public and private spending on clean energy to around USD 350 billion a year by 2023 – only 35% of what is envisaged in the Plan.

The Tracker shows the stark geographic disparities that are emerging in clean energy investment. The majority of funds are being mobilised in advanced economies, which are nearing 60% of the investment levels envisaged in the Sustainable Recovery Plan. Emerging and developing economies, many of which have limited fiscal leeway, have so far mobilised only about 20% of the recommended spending levels.

“Not only is clean energy investment still far from what’s needed to put the world on a path to reaching net-zero emissions by mid-century, it’s not even enough to prevent global emissions from surging to a new record. Many countries – especially those where the needs are greatest – are also missing the benefits that well planned clean energy investment brings, such as stronger economic growth, new jobs and the development of the energy industries of the future,” Dr Birol said

“Governments need to increase spending and policy action rapidly to meet the commitments they made in Paris in 2015 – including the vital provision of financing by advanced economies to the developed world,” Dr Birol added. “But they must then go even further by leading clean energy investment and deployment to much greater heights beyond the recovery period in order to shift the world onto a pathway to net-zero emissions by 2050, which is narrow but still achievable – if we act now.”

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Portugal’s energy policies set a clear pathway towards 2050 carbon neutrality

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Portugal’s equitable and well-balanced plans for reaching a carbon-neutral economy should support the country’s economic growth and energy security, according to a new energy policy review by the International Energy Agency.

Portugal’s energy and climate policies aim to reach carbon neutrality primarily through broad electrification of energy demand and a rapid expansion of renewable electricity generation, along with increased energy efficiency. These measures are backed by a strong focus on reducing dependency on energy imports and maintaining affordable access to energy. In the longer term, Portugal is aiming for hydrogen to play a major role in achieving carbon neutrality.

“Portugal was among the first countries in the world to set a target for carbon neutrality by 2050, and its Roadmap for Carbon Neutrality shows a strong commitment to electrifying its economy and ensuring a secure and affordable energy transition,” said Fatih Birol, the IEA Executive Director, who is launching the policy review today at an event with João Pedro Matos Fernandes, Portugal’s Minister for the Environment and Climate Action. “The IEA looks forwards to supporting the Portuguese government as it works on a fair and inclusive transition to a carbon-neutral economy.”

Portugal’s climate and energy goals still face notable challenges, the IEA policy review notes, with an economy that remains heavily reliant on imported fossil fuels today. The report welcomes steps the government is taking to address these challenges. An effective auction process for renewable energy projects should result in almost 2 gigawatts of new renewable generation coming online in the next few years, which will triple Portugal’s solar PV capacity.

Portugal is pushing to reduce oil demand and associated emissions through transport decarbonisation, with over EUR 10 billion of investments in electrified rail and public transport, favourable tax treatment for electric vehicles and support for charging infrastructure. Portugal is also taking a major step towards lowering emissions and reducing energy import dependency by phasing out coal-fired electricity generation in 2021.

Portugal sees a key role for hydrogen produced from renewable energy in hard-to-decarbonise sectors and for achieving carbon neutrality. The National Hydrogen Strategy sets a goal for hydrogen produced from renewable energy to cover 1.5-2% of Portugal’s energy demand by 2030, with use in industry, domestic maritime shipping, road transport and for injection into the natural gas network and potential exports.

“I congratulate Portugal for developing a broad policy framework with robust measures to achieve emission reductions,” Dr Birol said. “Portugal has found a good balance of ambitious targets and competitive support measures needed to drive a cost-effective energy transition.”

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EU energy programme with Eastern partner countries extends into second phase

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The European Commission has launched the second phase of its EU4Energy programme, which promotes low-carbon and clean energy transitions in the Eastern Partnership (EaP), a joint initiative involving the European Union, its Members States and six Eastern European Partners: Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine.

“Promoting the Clean Energy Transition in the Eastern Partnership Countries: EU4Energy Phase II” will run for the next four years and will help develop legislative and regulatory frameworks that support the region’s energy transformation and the liberalisation of its energy markets, as well the digitalisation of its energy systems. Beyond reducing emissions, the programme’s goal is to provide the citizens of the Eastern Partnership Countries with more stable and resilient energy supplies, empowering consumers and increasing energy security.

The International Energy Agency is a partner in the EU4Energy programme along with the Council of European Energy Regulators (CEER) and the Energy Community Secretariat (EnCS). The 8 July kick-off conference for the programme’s second phase includes country representatives from Armenia, Azerbaijan, Georgia, Moldova and Ukraine who will share their knowhow and experience to further enhance cooperation in the energy sector within the region.

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