# Policy options to address climate change

Policy options to address climate change can take one of two forms:

**Mitigation policies** seek to reduce Pakistan’s contribution to global and local climate change. Although Pakistan – according to the Carbon Dioxide Information Analysis Center – only contributed around 0.46 percent of global carbon emissions in 2014, mitigation policies that seek to reduce emissions or limit their rise as the economy grows are relevant because of Pakistan’s high emission intensity of GDP. Unless emissions intensity declines more quickly than in the past, Pakistan’s emissions are expected to more than double by 2080 as the country develops **.**<sup>6</sup> While reduced contribution global emissions are a clear benefit, albeit small, mitigation measures can also generate important co-benefits that support the economy.

**Adaptation policies** can help reduce Pakistan’s vulnerability to climate change shocks. Adaptation includes all policies that reduce the economic and social impact of climate degradation. While adaptation is often beneficial at the individual level, meaning that the private benefits will exceed the cost of adaptation, there are many cases in which externalities or market failures imply that private individuals will not undertake the investment, even though at the social level the benefits of adaptation (private and social) would exceed the costs. For example, economies of scale mean that the benefits from a single dyke around a community might exceed the costs of its production and might be much less expensive than many private dykes.

# Existing climate mitigation policy in Pakistan

The energy sector represents 46 percent of emissions in Pakistan with agricultural emissions (principally from livestock) reflecting a substantial 41<sup>7</sup> percent share (Sánchez-Triana et al. 2014; World Bank 2018b). Energy is the fastest growing contributor to GHG emissions, with increasing demand for energy being met primarily through imported natural gas and oil, with some contribution from hydropower (Figure 1).

Three factors drive the negative climate implications of the energy sector. First, Pakistan’s energy mix directly exacerbates GHG emissions, as natural gas losses during transport are high<sup>8</sup> and natural gas releases methane, which, when it is leaked, traps 28-34 times more heat in the atmosphere than an equivalent amount of carbon. Second, significant subsidies result in lower domestic market prices for natural gas than international market prices, thus increasing demand. Third, the non-hydroelectrical portion of Pakistan’s power sector is characterized by a dominance of comparatively inefficient public power plants, whose operational performance is further constrained by underpriced electricity and high transmission and distribution losses. The lack of access to reliable electricity for households and firms imposes significant economic costs, as firms and individuals are forced to rely on inefficient and highemission private generators which contributes to reduce household and firm productivity. Estimates put these costs at around 4.75 percent of GDP (Zhang, 2018).

Reducing emissions requires policy measures that internalize environmental externalities in gas and oil consumption, reduce gas leakage, limit theft of electricity and promote renewable energy use. Under the Paris Agreement Pakistan has highlighted its intention to reduce GHG emissions by 20 percent by 2030, relative to the projected emissions. Prioritized future mitigation pathways to achieve this target include,

> 6 After India, Pakistan produces more GHG emissions per GDP than any other country in the region.

> 7 <u>https://www.climatelinks.org/sites/default/files/asset/document/GHG%20Emissions%20Fact%20Sheet%20Pakistan_6-32016_edited_rev%2008-18-2016.pdf</u>

> 8 Natural gas losses peaked at 14.3 percent in 2015 – compared to 1 to 2 percent in OECD countries.

5