Beyond tax breaks

February 18, 2019


The writer is an analyst specialising in energy policy and political economy.
The writer is an analyst specialising in energy policy and political economy.

THE PTI-led government seems to have realised that renewable energy technologies can help tackle the economy’s multipronged challenges. Although this recognition existed before, the need and possibility to translate this into a reality have not been stronger.

In the latest budget speech, Asad Umar proposed to continue the exemption of import duty on renewable energy plants and to offer fiscal incentives for domestic manufacturers of these technologies. The aim, the finance minister stressed, is to promote renewables since they are inexpensive, clean and can reduce the ballooning trade deficit.

Let’s be reminded that the incentives for project developers have been in place for many years. Despite developers vying to invest in renewables, the outcomes are underwhelming. This underlines the structural issues within the power sector and the absence of a credible energy strategy.

The focus should be on renewable energy technologies.

At a recent wind power conference in Ka­­rachi, the world’s leading wind turbine manufacturers vowed to localise production, given there’s enough demand in Pakistan — without mentioning the desire for tax concessions. The federal government didn’t capitalise on the opportunity to engage with global heavyweights and is resorting to jugaad-style initiatives like its predecessors. The government must nurture systems thinking in our power corridors to realise its ambitious goals.

In a recent essay for the Herald, Adil Najam rightly identified the energy transition among the seven global forces that will shape Pakistan’s future. Therefore, before creating a blueprint for our energy sector and economy, we should understand how this transition is set to transform the global energy systems and economic development paradigm.

Towards the end of the 20th century, a growing number of stakeholders started questioning the fundamentals of contemporary economic development models. The relentless pursuit of higher economic growth and consumption, amid growing income inequality and environmental damage, was deemed unsustainable.

As the Paris Climate Agreement was signed, the need to transform global energy systems became central to achieving the goals of decarbonisation and sustainability because the extraction, conversion and combustion of fossil fuels are the single largest source of greenhouse gas emissions. Thanks to the instrumental innovation in renewable energy technologies and their cost competitiveness, the path to a clean energy future is commercially and technically viable with added benefits for environment and society.

Oil and gas majors understand that fossil fuels will reach their peak demand in the next few decades. So, despite soaring profits in 2018, many are compelled to rethink their business models. Two recently concluded tenders in Saudi Arabia demonstrated the ability of solar and wind to become the cheapest sources of power generation in the kingdom. The promotion of renewables is now embedded in Saudi Vision 2030.

Circling back to our local context, the ongoing exercise of energy policy formulation is a good starting point to bolster renewable ene­rgy deployment. As the government is conte­m­plating the revival of five-year plans, they would help maximise the cross-sectoral benefits of renewables by integrating their exp­l­oitation into an overarching socioeconomic de­­­velopment strategy. Further, we can align our national and provincial policies toward rural and urban development, environment, transportation, innovation and digitalisation etc.

Take the exa­m­ple of China and India’s incre­asing determination to electrify their transport sector, whereas Pakistan’s Automotive Development Policy 2016 has no mention of a desire to shift away from internal combustion engines. Such fragmented, short-sighted measures entail minimal, and temporary, benefits at best.

In the immediate future, the government is encouraged to present and debate the energy policy draft in both houses of parliament, provincial assemblies and with the public. This should be a national exercise to manoeuvre the course of our energy, economic and environmental security. Let’s have no illusions that if some ministry officials are to decide our energy future together with state-owned energy companies, we’ll be stuck with expensive, obsolete technologies and see the world — with awe and nai­vety — leap into a new era of industrialisation.

Given the right environment, renewable energy technologies could become the lynchpin of our economic development, heralding an era of industrial growth and technological advancement. This, however, requires decision-makers to put more effort into strategising and implementing these programmes. Tax incentives alone won’t do any magic.

Today’s Pakistan has the opportunity — and most importantly the necessity — to be part of this transformation and hedge against its flickering economic growth. The energy transformation will define the winners and the losers of future. Over to you, Mr Prime Minister.

The writer is an analyst specialising in energy policy and political economy.

Published in Dawn, February 18th, 2019