Energy has been globally recognized as one of the key inputs for the economic growth and social development of a country. Pakistan is one of the rapidly growing developing countries, where the annual growth rate of final energy consumption has enhanced considerably by 9.7%and reached to 55 million tonnes of oil equivalent during 2017-18 due to major increase in consumption of industry, agriculture and transport sectors. In this situation, the concept of Energy Intensity comes under special focus to ensure energy security in an environmentally sustainable way.
The energy intensity level of primary energy is the ratio between energy supply and gross domestic product measured at purchasing power parity at constant prices. It is an indication of how much energy is used to produce one unit of economic output. A lower ratio indicates that less energy is used to produce one unit of output.
Energy Intensity of Pakistani industries is among the highest in the world and stands for enormous energy consumption with an annual increase of 5 percent to 6 percent of electricity demand. In 1980, Pakistan had the same level of energy intensity as India, nonetheless, improvement in energy-use efficiency in India (at 1.9 percent per annum) and Sri Lanka (at 1.5 percent per annum) was somewhat faster than in Pakistan (at 1.3 percent per annum). Now Pakistan is 15 percent more energy-intensive than India.
The major energy-intensive manufacturing industries of Pakistan are that of iron and steel, brick kiln, textiles, fertilizers, cement, and paper, of which cement industry is the most energy-intensive followed by the textile industry. These industries account for over 37.46% of the energy consumed out of total energy supplied to the country. Transport is the second highest energy intensive sector with 33.8% consumption of total energy supplied.
The latest value for the energy intensity level of primary energy (MJ/$2011 PPP GDP) in Pakistan was 4.43 as of 2014. Over the past 24 years, the value for this indicator has fluctuated between 5.63 in 1999 and 4.43 in 2014.
The decline in overall energy intensity, however, conceals the fact that in some sectors of the economy, e.g., commerce and transport sectors, energy intensity has in fact increased, implying less efficient use of energy in these sector. Ironically, these two sectors benefit heavily from the total energy supplied to the country.
Energy inefficiencies play a prominent role in increasing energy intensity while structural changes cause a small reduction in intensity. In the global perspective, some countries (like the US, China, India) have improved the level of energy intensity through the implementations of energy efficiency measures while others (France, Canada, and the United Kingdom) with structural changes.
Pakistan remains one of the most inefficient countries in energy consumption and conversion rate to GDP. In spite of this, the energy savings potential in Pakistan from energy conservation and efficiency measures is substantial, at an estimated 20% of total electricity use, according to NEECA. The savings of 11 million TOE of energy can best be achieved by appropriate pricing and product standardization policies, which force consumers to make appropriate changes in equipment and lifestyle changes. This has happened in the industry, which has stayed energy efficient in order to stay competitive. However, the residential sector that is the biggest consumer of electricity and substantial user of gas remains unmoved because of the low energy commodity rates.
Recently, public outcry on overbilling issues by gas companies was witnessed. Nonetheless, they ignored the fact that the main reason for overbilling is inefficient appliances used by the domestic sector. Currently, almost 90 percent of energy consumers use appliances that are only 22 percent energy efficient whereas in other countries no appliance is allowed to enter the market if it does not meet the minimum efficiency standard (i.e., 50% energy efficiency). To tackle this problem, government should launch standards and labeling regime for energy-guzzling inefficient electric and gas appliances. Awareness campaigns should be started to motivate consumers to replace their conventional inefficient appliances with solar and hybrid appliances. These corrective measures to save gas and electricity can save 4 billion dollars per annum to economy, if fully implemented.
Moreover, energy prices have a significant effect in reducing energy intensity through efficiency channel. High energy prices propel consumers to switch towards energy conservation and more energy efficient appliances. Nevertheless, high energy prices badly impact the competitiveness of the manufacturing sector and decrease the performance of the external sector of the country. Therefore to avoid uncompetitiveness, uninterrupted energy should be available at reasonable and regionally competitive rates.
Transitioning to a liberalized energy market model by bringing greater competition into electricity and gas markets in the interest of creating more competitive markets and reductions in price by privatization, is the way to ensure that the benefits of reliable and affordable electricity can translate into higher economic growth and shared prosperity.
There has been a strong policy bias in favor of household consumption of energy vis-à-vis consumption in productive sectors. The policy needs to be a little more balanced between the final use of energy and its use as an input into economic activity.
Pakistan had experienced high energy intensity since its inception. However, no target was ever set for a significant reduction in energy intensity and no steps were taken to reduce it. As Pakistan has the potential of energy savings, relevant policies should be implemented to reduce energy demand pressures prevailing in the economy.
Government interventions through legislation enforcing minimum standards are required to make a serious impact on the inefficient use of energy. Energy conservation measures are profitable investments compared to new energy supply capacity - also cheaper and quicker to implement.
Without far-reaching institutional restructuring, piecemeal reforms are unlikely to form the basis of a sustainable and efficient energy sector. The quality of energy sector regulators has continuously been declining as a result of creeping bureaucratic capture of both Nepra and Ogra whereas DGPC remains a government department.
The technical organisation and manpower needed to regulate a vibrant market-based energy sector were never hired. The regulators as a consequence have very narrowly interpreted their mandate and limited it to functions they were already performing, i.e., tariff setting. The government should redefine the role of the regulators focusing on operational rather than just tariff setting. The regulators must focus on the creation of energy markets as defined in their acts.
Furthermore, there are no incentives present in Pakistan for small and large consumers to conserve energy and adopt energy-efficient products. The government should recognise and publicize the measures taken by large consumers to save energy. The government should also start awareness campaigns for the people about energy-efficient appliances through the publicity.
A reduction in energy intensity will not only increase the energy savings but will also contribute to increase the economic and social welfare in the economy.