I. INTRODUCTION
5° in the past
Energy is the life blood of an economy. It has become one
of the most important needs of people in the modern era.
However, the benefits of energy consumption in terms of
economic development and improved quality of human
life could be potentially threatened and reversed if its
environmental implications are overlooked.
Approaches on energy have ceased to take it as an infinite
resource with no impacts on ecosystem. Significant
quantities of air pollution are attributed to energy sector. It
is a major culprit of Greenhouse Gas Emissions (GHG),
globally. Increased concentration of GHG emissions in
atmosphere is the primary driver of global warming and
climate change. Against the backdrop, environment
security has acquired world-wide attention. Having its
roots in the emergence of global environmental problems
such as global warming and depletion of stratospheric
ozone, the concept gained significant momentum after
publication of “Our Common Future” by the “World
Commission on Environment and Development” in 1980.
Since then, energy, environment and climate change
agendas have become increasingly intertwined.
Pakistan particularly face potential air quality and climate
change challenges. Concentration of toxic air pollutants in
urban cities are way above safety thresholds. More than
22,600 deaths and 5 million childhood illnesses annually
are attributed directly or indirectly to air pollution in the
country. 1 Additionally, the country is ranked among top
10 most vulnerable countries to climatic changes. Also,
the issue of climate change is particularly sensitive for
Pakistan, owing to its already warm weather. Annual mean
1
Martin P, Nishida J, Afzal J, Akbar S, Damania R, Hanrahan D (2006) Pakistan strategic country environmental assessment, vol-
1. South Asia Environment and Social Development Unit, World Bank, Washington.
2
Climate Change Profile of Pakistan, Asian Development Bank, 2017
3
ibid
4
Ministry of Energy (Power Division). 2017-18.
5
Pakistan Economic Survey, 2016-17
1
temperature in Pakistan has increased by 0.
few decades and is expected to further rise by 3- 5°C.
Floods and droughts have become quite frequent. 2
Additionally, by the end of this century, sea-level in the
country is expected to further rise by 60 cm’s. 3
Despite the stated threats and national environmental
concerns, 64 % of primary energy consumption in
Pakistan comes from fossil fuel. 4 The fossil-fuels based
power generation in the country is projected to further
grow. Coal fired power plants of cumulative capacity of
4,290 MW from indigenous coal and 5,201 MW from
imported coal are under different stages of construction. 5
All these developments will increase the atmospheric
concentrations of GHG emissions and toxic pollutants and
worsen the existing climate change vulnerabilities. In the
light of these challenges, this brief will examine the
relationship between energy and environmental
degradation. It will highlight the implications of the
undergoing changes in Pakistan’s power mix and will
emphasize the need for internalizing external cost of
energy procurement for better allocation of economic
resources and for setting the future energy matrix choices
unto a sustainable pathway.
II. EXTERNAL COST OF POWER GENERATION
AND ENERGY- ENVIRONMENT LINK
External cost refers to the unaccounted cost in terms of
damages done to health or environment. This cost arises
when socio-economic activities of one group adversely
impact another, without compensating the latter. Major
external costs of energy-related activities include air
pollution, water pollution, negative health impacts and Global CO2, CH4, N2O, Worldwide
climatic changes. Warming N, S effects on
mortality,
The external effects of energy supply (related to climate morbidity,
change and air pollution) globally stands in the range of coastal impacts,
USD 2.2 trillion – USD 5.9 trillion annually against the agriculture,
cost of global energy supply valued at USD 5 trillion per energy demand,
year.6 Major forms of cost arising from energy production and economic
is the damage caused by fossil fuel combustion owing to impacts due to
emissions such as carbon dioxide, methane, nitrogen temperature
oxides, nitrates, and sulphides.Table.1 shows various change and sea
pollutants associated with energy and transport sector and level rise
its externalities impacting human health, crop yield, global
warming and overall eco system. Ecosystems Acid deposition, Acidity and
Nitrogen eutrophication
Table.1 Impact Categories, Pollutants and Effects deposition
Impact Pollutant Effects
Category Source: European Commission Study (2005).

Human Health: PM10, SO2, NOx, Reduction in GHG emissions are the primary drivers of climatic
Mortality O3 life expectancy changes. Roughly, 2/3rd of GHG emissions around the
As, Cd, Cr, Ni Cancer globe are attributed to energy sector. 7 Electricity
generated with fossil fuels such as coal, oil and natural gas
Human Health: PM10, O3, SO2 Respiratory produces significant amounts of emissions. The USA
Morbidity hospital Environmental Protection Agency (EPA) identified the
admissions, average emission levels in the production of 1 MWh of
PM10, O3 Restricted electricity, as shown in Table.2. As could be observed, the
activity days, carbon dioxide content of coal (followed by oil and natural
Congestive gas) makes it the largest pollutant of all fuels.
PM10, CO heart failure,
Cerebra- Table.2 Pounds of Emissions per MWh
PM10 vascular
hospital Carbon Sulphur Nitrogen
Admissions, Dioxide Dioxide Oxide
Cases of chronic Coal 2,249 13 6
cough in
children, Cough Oil 1,672 12 4
in asthmatics, Natural 1,135 0.1 1.7
Lower Gas
respiratory
symptoms, Nuclear 0 0 0
Asthma attacks
Source: EPA (2008).
Crops NOx, SO2 Yield change for
wheat, barley, Coal-fired power plants are also major sources of air
rye, oats, pollution in Pakistan besides industrial activities and
potatoes, sugar, pollution arising from vehicles. Nevertheless, these plants
beets. in Pakistan are expanding at an incredible rate. Table.3
O3 Yield change for shows list of all such plants under various stages of
wheat, barley, construction.
rye, oats,
potatoes, rice,
tobacco,
sunflower seed

6
Energy and Climate Change, World Energy Outlook Special Report (IEA), 2015.
7
Energy and Climate Change, World Energy Outlook Special Report (IEA), 2015.
2
 Table.3 Coal Power Projects total fuel cost of Gas, Liquified Natural Gas (LNG), High
Sulphur Fuel Oil (HSFO), Coal-imported and Coal-Thar.
Project Description MW Project Status
Table.4 Total Cost of Electricity Generation (US
Sahiwal Plant 1,320 Operational
cents/kWh)
Engro Thar Block II 660 In Progress
Fuel Internal Cost of

l Cost**
Externa
Median
Port Qasim Karachi 300 In Progress Electricity

Total
Cost
Gwadar, Pakistan 1,320 In Progress Generation*

SSRL Thar Coal 1,320 In Progress

Capital

O&M

Total
CPHGC, Hub 1,320 In Progress

Fuel
Baluchistan
Rahimyar khan 1,320 In Progress Gas 1.7 0.9 2.7 5.3 2.8 8.1
Muzaffargarh Punjab 1,320 To be initiated LNG 1.7 0.9 4.1 6.7 2.8 9.5
Total Installed 8,800 HSFO*** 1.6 1.0 6.5 9.1 10.4 19.5
Capacity
Coal- 2.3 1.0 2.4 5.7 6.8 12.5
Source: Planning Commission (http://cpec.gov.pk/energy) Imported
The share of coal fired power plants will increase to Coal- 2.5 1.0 2.5 6.0 6.8 12.8
30% (from the existing < than 1%) in 2020 energy mix. At Thar
this critical juncture, when the country is ranked among
top 10 most vulnerable countries to climatic changes 8 , this Source: * Ahmed (2007).
shift in power base will have massive long-term health and ** European Commission (2003).
environmental implications.
*** HSFO price corresponds to USD 60/barrel of
Explicit cost of power plants includes Capital cost, crude
Operation & Maintenance (O&M) cost and fuel cost. In
Pakistan, NEPRA determines electricity tariff, keeping in If accounted for externalities, power sector can also
view the principles of economic efficiency and service significantly gain as per a study by IRENA, which
quality according to the prescribed Tariff Standards and quantified the cost and savings of doubling global
Procedure Rules, 1998. Usually, two principles are Renewable Energy Base. According to it, the cost of
considered while setting the tariff i.e. Utility should be change in energy mix for power sector was estimated at 27
able to recover its costs with some surplus for capacity billion dollars only against the overall savings of 469 USD.
expansion or return on equity, and the average sale rate Fig.1 shows the quantified cost and savings for industry,
should provide for reasonable rate of return. It could be power and transport sector.
observed that the explicit cost does not take into account
the externalities exacted by energy sector. 9
In a study conducted by Ahmad (2007) 10 on total explicit
cost of electricity generation, imported coal was the least
expensive fuel source followed by Coal-Thar, Gas and
LNG., However, when accounted for its external cost, coal
becomes one of the most expensive sources. If we add the
median external cost calculated by a European
Commission study in 2005 to Pakistan’s internal cost of
electricity, coal becomes one of the most expensive
sources after HSFO11. Table.4 shows internal, external and

8
Kreft, Sönke, David Eckstein, and Inga Melchior. Global Climate Risk Index 2017: Who suffers most from extreme weather events?
Weather-related loss events in 2015 and 1996 to 2015. German watch Nord-Süd Initiative eV, 2016.
9
SIR, Nepra (2017).
10
Ahmed, M. (2007). Meeting Pakistan’s Energy Needs, in Hathaway, Muchhala, R.M., B. Kugelman, M. (Eds.) Fuelling the
Future: Meeting Pakistan’s Energy need in the 21st Century, Woodrow Wilson International Centre for Scholars
11
In the absence of proper data on external cost of different energies in Pakistan, median external cost by EC has been used.
3
Fig.1 Cost and Savings with ramped up Renewable Fig. 2 Most Polluted Cities in the World.
Energy Options by Sector, 2030 (USD billion per year).

100
63
50 35 27

0
Industry-16 Power Transport
-50
-38
-50
-100

-150

-200
-202
-250 -230 -239 Source: World Health Organization, 2016.
-300
Costs Reduced CO2 Externalities (average) Reduced Air Pollution Externalities (Average) Apart from air pollution, energy sector is also the largest
contributor to GHG emissions in the country. Fig. 3 shows
the sectoral distribution of GHG emissions in Pakistan.
Source: IRENA, 2016.
Fig. 3 Sectoral Share in GHG Emissions (2012)
Energy transition thus sits at the heart of above analysis.
Quantifying external cost of energy sources and
monetizing of the environmental damages can make a
huge difference. It will not only help not help in optimal
decision making but will also result in rectifying the
existing energy mix and maximizing social welfare. Next Energy
section will take stock of environmental issues of Pakistan Agriculture
and will examine the impact of energy sector on
Industrial Processes
environmental degradation in the country.
Waste
III. PAKISTAN’S ENVIRONMENTAL ISSUES
LUCF
Air pollution is one of the growing environmental
problems globally. Energy sector is the largest source of
air pollutant emissions, causing 6.5 million deaths every
year globally. 12 This ruinous toll on human life is expected
to rise further if the modes of energy generation continue
to rely on fossil fuels. Source: Global Change Impact Studies Centre (GCISC)
Though data on air quality in Pakistan is uneven, all
As per preliminary projection by Ministry of Planning,
studies point to the deteriorating air quality in the country
Development and Reform, these emission levels are
which has had serious health implications Urban air
expected to increase significantly in the coming decades.
pollution in Pakistan is amongst world’s worst,
Table.5 shows sector wise detail of projected GHG
significantly damaging health. Pakistan has taken 3 slots
emissions by 2030.
among the world’s top most 20 polluted cities. 13 Also, the
2018 Environmental Performance Index ranks Pakistan at
169 among 180 countries. 14 Air quality thus remains a
leading threat to public health in the country.

12
World Energy Outlook (2016), IEA
13
World Health Organization, 2016.
14
Environmental Performance Index Report, 2018.
4
Table. 5 Sector wise projection of GHG Emissions (Mt Several roadblocks stand in the way of environmental
CO2 -Equivalent security in Pakistan. Presence of unaccounted externalities
in energy sector is one major market failure which has led
Sector 2015 2030 to inefficient energy mix choices. Quantifying these
Energy 185.97 898 externalities in a comparable manner can help in aligning
appropriate energy mix with social welfare.
Industrial 21.85 130
Process Combustion of fossil fuels is major driver of global
warming and environmental degradation. In the given
Agriculture 174.56 457 context, reducing fossil-fuel based infrastructure and
decarbonizing the economy has become indispensable for
Source: Economic Survey of Pakistan, 2017-18 climate stability, and overall environmental sustainability.
As per the Intended Nationally Determined Contribution However, the projected increase in consumption of coal at
(INDC) that falls under Article 2 of Paris Agreement, a time when the country is highly vulnerable to climate
Pakistan decided to reduce up to 20% of its 2030 projected changes and exposed to alarming level of air pollution,
GHG emissions, amounting to 1603 million ton of carbon will lead to extensive array of environmental challenges,
dioxide Nonetheless, with the undergoing changing power exacerbating climatic changes and worsening pollution.
mix and the strong tilt toward thermal sources (particularly Pakistan is at a stage where there is still significant room
coal-fired power plants), the emissions by energy sector for laying down extant energy infrastructure as half of the
will further go up. This shift in power base will not only country’s energy demand is still to be met. Internalizing of
fail in accomplishing the indicated reductions in GHG environmental externalities is imperative for pursuing a
emissions (as per INDC) but will also expose the country sustainable energy system. In this regard, measures shall
to grave climatic and environmental consequences. be taken for identification and valuation of external cost of
IV. CONCLUSION AND RECOMMENDATIONS various energy sources. Renewable Energy (RE) can
become economically competitive with conventional
Pakistan is caught in the horns of dilemma between grave supplies when properly assessed for their externalities. RE
environmental threats and energy shortfalls. generation will not only offset a considerable portion of
Environmental change and energy infrastructure are two dangerous emissions, but will simultaneously address
separate but closely interlinked challenges. Meeting of energy insecurity challenges in the country.
future energy needs should go hand in hand with a
reduction in the dependence on fossil fuels. In order to pursue a sustainable energy system, a
mechanism for internalizing external cost in energy
pricing needs to be devised.

Prepared by:
Naila Saleh
Junior Research Officer
Institute of Policy Studies (IPS), Islamabad.

For queries:
Syed Nadeem Farhat
Senior Research Coordinator
nadeem@ips.net.pk | www.ips.org.pk