Analysis Of Energy Demand,Economic Growth And Emission Mitigation In Pakistan

Pakistan is an energy deficient country and has a rapidly growing demand for energy.Historically,oil and gas was the main source of energy and fiscal revenue.Oil and gas wasmainly used for transportation and manufacturing.Oil was mainly an imported commodity whilethe gas was produced indigenously.Electricity was produced mainly from hydro resources.However,due to the increase in industrialization,urbanization,and economic expansion thedemand for electricity increased and the government starts thermal power projects.Now thethermal power projects have overtaken the hydro power projects,which is a serious compromiseon energy security and environmental sustainability.Currently,Pakistan is facing a severeenergy crisis which is badly affecting the economy.The Government of Pakistan has publishedan official document 'Pakistan 2025,One nation One vision' which has the objective to elevatePakistan in the world top 25 economies in respect of economic growth by 2025.This documentalso have the objective to increase peoples access to energy from 67%to 90%of the populationand to mitigate the climate change.Since these often conflicting objectives need a delicatebalance in the formulation of national energy policy.Therefore,this dissertation has been carriedout to analyze energy demand and economic growth with reference to energy conservation,substitution and emission mitigation.As a first step we analyze the long run determinants of energy demand in Pakistan using theJohanson Co-integration approach.The results showed that economic growth is major factorpositively affecting the energy demand.The energy price,labor productivity and capital intensityare the factors reducing the energy demand in the long run.We further utilized these factors inpredicting the future energy demand for Pakistan.Besides this,utilizing some specially designedscenarios,we estimate the energy conservation potential for Pakistan.Our results employ that theenergy price reforms,increasing the labor productivity and the technological advancement&investment in research and development(R&D)are critical to exploit the high energyconservation potential,especially in the context of achieving high economic growth by 2025.Since Pakistan,in order to meet the growing energy demand,adopted the thermal power projectsinstead of hydro power projects,which have fiscal cost and environmental damages.Therefore,to analyze this technical change,we used trans-log production function by employing energy andnon-energy inputs to estimate elasticity of substitution.The results reveals that capital&energyand labor&energy are substitutes,thereby suggesting the need for an increased focus ontechnological advancement and skilled employment generation to conserve energy and mitigateemissions.The energy price reforms making the price reflecting the true cost is required todiscourage the increased energy consumption and promote capital intensive production methods.Scenario analysis based on substitution of capital&energy and oil&gas further encourages theenergy saving and emission mitigation.Results further suggest the importance of energy supplymix characterized by renewable energy alongside natural gas.We also did the substitutionanalysis for transport sector as it is the most emerging sector in respect of output,energy andenvironment.Also it is part of the objective of the Vision 2025.The results suggest that bycontinuous upgrading of transport capital,substitution between labor and capital can be achievedand the transition of Pakistan transport from labor intensive to capital intensive can be realized.While doing a little analysis of emission mitigation in the above mentioned studies,we also didseparate analysis for energy related CO2 and the reduction potential as Pakistan is one of thehighly vulnerable country to the effects of climate change.We used LMDI approach ofdecomposition to decompose the change in CO2 emissions into pre-determined factors based onKaya identity.The study shows that GDP per capita and population growth are the major factorsto increase the emission,while the energy intensity and fuel substitution have mixed andunstable effects.Based on the designed scenario analysis,we simulate the future emission andthe reduction potential.We believe that carbon tax,energy price reforms,diversification ofenergy supply mix in favor of clean energy and energy conservation are critical to materializeemissions reduction potential.While we did few studies,mentioned above,to suggest for achieving high economic growth vis-a-vis energy security and environmental sustainability,there are few policy recommendationswhich are common among these studies.These include energy conservation,energy substitutionor diversification of energy supply mix,promotion of renewable energy and energy price reform.While we analyzed the energy conservation and substitution in the above studies,somecomprehensive studies on renewable energy and energy price reforms in Pakistan economy areneeded for further policy implications.