Pakistan’s industrial sector—cement, steel, textiles and fertilizer—sits at the center of the country’s growth ambitions. Yet, it also accounts for some of the highest levels of energy consumption and emissions. In an economy grappling with rising costs, import dependence, and volatile energy supplies, the debate around renewables often dominates the policy discourse.
But before pouring billions into new generation capacity, whether fossil or renewable, Pakistan’s industries must recognize that the cheapest, cleanest, and most immediate resource is already within reach: energy efficiency.
Efficiency as the first fuel:
In the energy management pyramid, efficiency is the foundation—preceding conservation, demand management, and renewable integration. Global best practice shows that industries prioritizing efficiency unlock faster gains in productivity, competitiveness, and emissions reduction than those that rush into new generation projects. For Pakistan, this logic is particularly urgent.
As of now, reportedly, the country has imported around 40 GW worth of solar panels, most of which will be injected into the grid via residential and industrial users. While this rapid uptake signals enthusiasm, it also risks destabilizing an already fragile grid with limited transmission capacity. Adding more megawatts without first addressing how efficiently existing power is used is akin to filling a leaking bucket.
The industrial sector, being the largest bulk consumer of electricity and gas, holds the greatest potential. By prioritising efficiency upgrades—whether in motors, boilers, kilns, or process design—Pakistan can reduce demand pressure, cut costs, and delay expensive generation and transmission investments. The space already occupied by inefficient systems can be replaced with advanced, efficient equipment without requiring additional land, which is a critical constraint for new power plants.
The competitiveness gap:
The inefficiency of Pakistan’s industries is stark when measured against peers. The country’s energy intensity stands at 2.4 MWh per USD of GDP, significantly higher than India (1.77) and Bangladesh (1.9). While the absolute figures may vary across sectors, the bottom line is clear: Pakistani firms consume more energy to produce less economic output compared to competitors. This directly erodes export competitiveness while locking industries into high operating costs.
Steel provides a revealing example. Pakistan’s steel industry emits 0.29 tons of CO2 per ton—better than the global average of 0.7—but energy audits reveal potential for 10–20 percent more savings. Cement, emitting 0.39 tons per ton of clinker, could cut this to 0.31, reducing daily national emissions by 548 tons. Similarly, textile mills—Pakistan’s export backbone—can significantly lower costs through efficiency in spinning, weaving, and dyeing. Fertilizer plants, already dependent on scarce natural gas, could ease pressure on LNG imports through efficiency upgrades. Energy efficiency is not just about environmental compliance; it is about maintaining market access and reducing exposure to shocks in fuel prices and currency depreciation.
The carbon border threat:
Another dimension shaping this debate is the EU’s Carbon Border Adjustment Mechanism (CBAM). For Pakistani exporters in cement, steel, textiles and fertilizer, CBAM could impose a levy of up to €90 per ton of carbon embedded in exports. Without corrective measures, this could sharply undermine access to EU markets. Yet studies show that efficiency retrofits alone can reduce emissions costs by €42.5 per ton—nearly halving the penalty—helping preserve EU market access while advancing sustainability.
This challenge also creates an opportunity. If Pakistan establishes robust monitoring, reporting, and verification (MRV) systems aligned with global standards, industries could monetize efficiency-driven emission cuts via carbon credits. The EU and other trading blocs are already channelling climate finance into industrial decarbonization. Denmark has achieved remarkable results through industry-led efficiency schemes backed by strong government oversight and incentives. Japan’s Energy Conservation Law mandates continuous improvement through energy management systems, making its industries among the world’s most efficient. Pakistan can adapt these models, positioning efficiency at the core of both climate and trade strategy.
The financing puzzle:
If the economic and environmental case for efficiency is so compelling, why does under-investment persist? The barriers are familiar: high upfront costs, long payback periods, limited collateral value of energy-saving equipment, and a perception of risk. As a result, industries often prefer to spend on capacity expansion or captive power rather than retrofits.
Breaking this cycle requires innovative financing structures. Blended finance, public-private credit guarantees, and energy performance contracting can de-risk projects and crowd in private capital. Instruments such as the State Bank of Pakistan’s Green Financing Scheme and potential NEPRA tariff incentives could be leveraged to create a pipeline of efficiency projects. Multilateral development banks and climate funds should also support Pakistan with concessional lending, tied to measurable efficiency outcomes.
Efficiency before expansion:
This does not mean turning away from renewables. Solar and wind will remain critical for Pakistan’s long-term energy transition. But in the immediate term, efficiency must come first. Every megawatt saved through industrial retrofits reduces pressure on the national grid, frees up scarce foreign exchange, and cuts carbon exposure. It is the fastest route to improving competitiveness in hard-to-abate industries while buying time for the grid to evolve and integrate larger volumes of variable renewable energy.
A policy reset is overdue. Pakistan’s National Energy Efficiency and Conservation Authority (NEECA) has a mandate, but enforcement and industry buy-in remain weak. A sharper regulatory push, aligned with export competitiveness imperatives, could create the tipping point. Industrial associations, chambers of commerce, and financial institutions must also step up, framing efficiency not as a compliance burden but as a strategic investment.
Energy efficiency is often called the “first fuel” for a reason. It is abundant, cost-effective, and clean, but it remains largely invisible in policy and business discourse. For Pakistan’s industry, embracing efficiency is not just an option—it is an imperative for survival in an increasingly carbon-conscious global economy.
Copyright Business Recorder, 2025
The writer specializes in Energy Policy and Management and talks about energy and climate-related issues. He works at CPEC Center of Excellence, PIDE and can be reached at saqibmughal@pide.org.pk.