Unlocking Private Finance for Energy Transition and Low Carbon Development in Pakistan

Unlocking Private Finance for Energy Transition and Low Carbon Development in Pakistan

Donor: Private Financing Advisory Network (PFAN)
Time: March 2023 – December 2023. 
Resource Person: Mr. Ubaid ur Rehman Zia.

Description
To support global transition in line with Paris Agreement goals, substantial investments are required to facilitate low-carbon development. This may be categorized by the flow of finance from developed to developing countries as per international commitments, mobilization of local finance through the private sector and local banks, and flow of finance through Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs). Enabling these investments and financial flows for energy and climate action require efficiently deploying green financing mechanisms. Furthermore, for developing countries such as Pakistan, establishing these mechanisms requires support from public and private entities as well as policies that protect financial assets in the capital market, and facilitate a low-emission infrastructure. 
Under the updated Nationally Determined Contributions (NDCs), presented in 2021, Pakistan has committed to an emission reduction target of 50% by 2030, subject to the availability of international finance. The associated cost is estimated at $7-14 billion per annum till 2050 for adaptation and $101 billion for clean energy transition by 2030. However, despite its high vulnerability to climate change and external shocks such as the COVID-19 pandemic and the floods of July 2022 (with an estimated adaptation cost of $40 billion), Pakistan has still not been able draw significant resources for this purpose. As the country seeks to curb its greenhouse gas emissions by devising climate adaptation and mitigation plans, while simultaneously battling the intensifying energy and economic crises, the opportunity to develop an effective system to deliver green finance for vital projects has never been more significant.
With $9.8 trillion worth of global assets under management in July 2022 , the private sector has a critical role to play in the process. This would encompass technological research and development of a wide range of low-carbon projects, facilitated by a massive roll out of “Asset Finance ”. However, the current market structure and insufficiency of existing regulatory support in Pakistan is a key obstacle in harnessing the available investment opportunities, locally as well as internationally. Unleashing private finance requires a well-coordinated action plan from both public and private actors; blending both streams could substantially de-risk investments for the private capital market. At the same time, an inter-sectoral approach is pertinent to consult technology developers from all related domains and other stakeholders to  ensure that the country is ultimately not left to deal with the effects of misdirected resources and stranded assets in an attempt to achieve a low carbon recovery. To this end, investments would be required in areas, such as the improvement of a company's production structure, labor market programs, technical and vocational training programs that promote skills needed for low carbon industries, and resilient livelihoods. 
Furthermore, policy reforms are very critical to creating a conducive environment for green and climate-positive projects, especially in the context of a developing country like Pakistan. They are essential to coming up with effective monetary and fiscal solutions, enhance international coordination, and diversify sources of funding; capacity-building interventions would be required at a large scale as well.

Project Objective
Considering the severity of development challenges, coupled with concerns for energy security and the environment, a comprehensive strategy for green financing is required to analyze the role of the finance industry in achieving low carbon development in Pakistan. In the backdrop of the opportunities and challenges highlighted above, this project aims to analyze the way forward for mobilizing private finance for low-carbon development projects in Pakistan.
Key objectives of the project include:
• To explore different avenues for financing institutions and development partners to bridge the financing gap needed to achieve a timely and just energy transition in Pakistan and fulfil its NDC commitments.
• To discuss the opportunities and challenges associated with mobilizing private finance to support energy transition and low carbon development.
• To analyze the role of the public and private sectors, and identify key resources and potential synergies that would facilitate the process.

Project Activities
1. Annual State of Renewable Energy Conference: Unlocking private finance to support renewable energy transition in Pakistan.