Pakistan’s energy sector affordability concerns are about to be compounded by a sustainability crisis that could severely impact its export industry.
Analysts warn that the type of electricity used for production will play a crucial role in the long-term success of exporting goods to the European Union (EU). This article explores the impending sustainability challenge faced by Pakistan’s export sector and how it relates to the EU’s new Carbon Border Adjustment Mechanism (CBAM).
The EU’s Carbon Border Adjustment Mechanism (CBAM)
An agreement between the European Parliament and the Council of the European Union has mandated that all companies in Europe start reporting on “carbon emission-intensive” imported goods. The objective is to impose carbon fees on imports into the EU from non-member countries. These new trade rules are set to become more stringent over the coming years.
Impact on Pakistan’s Export Industry
Dr. Khalid Waleed, a research fellow at the Sustainable Development Policy Institute in Islamabad, warns that if Pakistan’s export industries continue to rely on electricity generated by coal-based power plants, their products will become significantly more expensive within a decade. This means that the EU, a primary destination for Pakistani exports, is introducing renewable energy as a trade barrier.
CBAM Implementation Timeline
The CBAM’s implementation schedule includes quarterly reporting starting on October 31, and a complete implementation phase commencing in 2025. From January 1, 2030, the regime will apply to all imported goods. Pakistan’s competitiveness in the EU market could suffer if it persists in expanding its reliance on coal while overlooking renewable energy solutions.
Current Energy Mix in Pakistan
As of the latest available data in August, coal accounted for 10.3% of locally generated energy and 4.5% of imported energy. Hydel power and imported gas were the two dominant sources, making up 37.6% and 17.2%, respectively. Other contributors to the energy mix included nuclear (12.8%), local gas (7.6%), wind (5%), furnace oil (4.1%), and solar (0.5%).
Conclusion
The EU’s Carbon Border Adjustment Mechanism presents a significant challenge for Pakistan’s export sector. To maintain competitiveness and avoid higher costs in the European market, Pakistan must consider transitioning to renewable energy sources. The sustainability of the energy sector will play a pivotal role in the future of the country’s exports to the EU and must be addressed promptly
