KNOWLEDGE NOTES Pakistan Energy Efficiency INDUSTRIAL ENERGY EFFICIENCY AND DECARBONIZATION (EE&D)  1 Industrial Energy Efficiency And Decarbonization (EE&D) Why is industrial energy efficiency relevant for Pakistan? Improving the energy efficiency of industrial production can reduce energy expenditure, increase industrial competitiveness while providing wider economic and environmental benefits. Pakistan has faced rapidly rising energy costs in recent years with electricity tariffs doubling and gas tariffs increasing five-fold. This surge in energy prices has placed a significant strain on industrial operations and profitability, necessitating infrastructure upgrades and making a compelling case for industrial energy efficiency (IEE) improvements. Furthermore, IEE is a crucial component of Pakistan’s Nationally Determined Contributions (NDCs), targeting the country’s globally uncompetitive carbon intensity and regionally uncompetitive energy intensity. Investments in IEE offer a tangible solution by yielding energy savings, lowering costs, and stimulating economic growth. Additionally, Pakistan’s energy intensity of gross domestic product (GDP) is relatively high compared to other countries in the region, presenting substantial potential for improvement in demand-side efficiency. Pakistan’s energy intensity—the amount of energy needed to produce US$1 of GDP—was 4.2 megajoules (million joules, MJ) per United States dollar (US$), compared to 1.9 MJ/US$ in Bangladesh, and just 1.7 MJ/US$ in Sri Lanka. As the industrial sector accounts for over 37 percent of energy use in the country (over 14 million tonnes of oil equivalent or MTOE in fiscal year (FY) 2023),1 reducing the energy intensity of industrial production through energy efficiency and decarbonization interventions in priority sectors could reduce the energy intensity of GDP, improve industrial competitiveness, and provide economic and environmental benefits.2 Heavy reliance on coal in particular makes industry a disproportionate contributor to air pollution and greenhouse gas (GHG) emissions.3 At 55.13 grams of carbon dioxide (gCO2)/MJ, Pakistan’s carbon intensity of industrial energy consumption is nearly 38 percent greater than that of North America, and 50 percent more than in the European Union (EU).i Industrial energy efficiency targets for manufacturing sectors aim to reduce industrial emissions by 5.33 metric tonnes of CO2 equivalent (MtCO2e) through 2030, according to Pakistan’s NDCs.4 Specific measures selected for industrial decarbonization include upgrading industrial processes and technologies, promoting energy efficiency, and conducting energy audits, with the highest sector-specific 1 Pakistan Energy Yearbook 2022–2023 (HDIP 2023). The final energy consumption in the industrial and transport sectors was comparable in the referenced year at 14,197 and 14,972 MTOE respectively. 2 Based on energy intensity of production and CO2 emissions intensity, priority sectors for industrial energy efficiency in Pakistan include cement, textile, steel, fertilizer and paper/pulp manufacturing. 3 In 2020, industry represented 37 percent of total energy consumption and 73 percent of coal consumption (mostly imported). 4 Pakistan updated intended nationally determined contribution 2021, unfccc.int. 6 targets assigned to textile and fertilizer manufacturing (1.56 and 1.45 MtCO2e respectively).5 The World Bank conducted a comprehensive study on industrial energy efficiency and decarbonization in Pakistan from mid- 2022 to 2023. The key findings of this study are presented below, with details on approach, data collection, and methodology provided in annex 1. What are the most immediate Opportunities for Industrial EE&D? Industrial EE&D can be achieved through multiple pathways. Pakistan’s industrial sector offers a significant and achievable opportunity for energy efficiency and decarbonization (EE&D), with the potential to substantially reduce energy demand, generate cost savings, and defer the need for new power generation capacity. Given that industry accounts for a substantial share of the country’s energy consumption, targeted EE&D interventions could include replacing inefficient equipment with market-ready or emerging efficient technologies and waste heat recovery, fuel switching (using clean sources of energy instead of fossil fuels), increasing electrification (converting high temperature range, gas-based processes to electricity generated from renewable resources for instance), increasing the use of distributed renewable energy as an alternative to grid-supplied electricity, process improvements, implementing circularity (increasing reuse through improved utilization of existing material stocks, remanufacturing, and recycling), and deploying carbon capture utilization and storage (CCUS) initiatives.6 In Pakistan, the most immediate opportunities for industrial EE&D include replacing inefficient equipment with efficient technologies and fuel-switching. The trend of increasing use of distributed renewables is already taking place in the country.7 Replacing ubiquitous industrial technologies such as motor‑driven systems, boilers, and cooling systems, with readily available, cost‑competitive efficient alternatives could achieve rapid, near‑term gains in energy efficiency. Although some manufacturers have implemented EE&D technologies to conserve resources or comply with environmental standards prescribed by international customers, efficient alternatives to many types of technologies remain scarce in local industrial applications.8 Significant near-term energy savings in industrial production can be achieved through the adoption of efficient motors, boilers and compressors, retrofitting variable control drives on motor-driven systems and installing vapor absorption chillers for waste heat recovery (See box 1 for details).9 To improve the energy efficiency of local industries even further and consequently achieve deep decarbonization, manufacturers can explore additional, sector-specific readily available and emerging EE&D technologies. See sector specific Knowledge Notes for details on energy and emission savings, cost reductions, and payback periods of existing and emerging technologies. 5 Other sectors targeted for energy efficiency in Pakistan’s NDC include food and beverage, wood and paper, cement manufacturing, and brick kilns. 6 See annex 2 for details on EE&D pathways and the technologies associated with each option. 7 In addition to this Knowledge Note focused on overall Industrial EE&D, the World Bank has also published five sector‑specific Energy Efficiency Knowledge Notes for Textile, Cement, Steel, Fertilizer, and Paper & Pulp industries. 8 Technology solutions for industrial decarbonization are typically categorized into energy efficiency, renewable energy, fuel switching, carbon capture utilization and storage, process improvement, circular production and innovative emerging technologies (such as green hydrogen, sustainable bioenergy and heat pump boilers). 9 The energy and cost savings impact of these interventions is summarized in annex 3. Industrial Energy Efficiency And Decarbonization (EE&D) 7 BOX 1: Near‑term crosscutting EE&D measures for industries in Pakistan Motor replacement Motors are used in industrial applications to estimated 14 million electric motors installed drive equipment such as compressors, fans, in the industrial, commercial, and domestic pumps, conveyors, and other manufacturing sectors, that consume almost half of the machinery. For an electric motor with a overall electricity supply. The potential typical lifespan of 15 years, the motor’s energy savings are around 3.3 terawatt operational cost (energy and maintenance) hours (TWh), and potential emissions comprises over 85  percent of the overall reduction is roughly 2.3  million tons of life-cycle cost of the machine. Reducing CO2 for replacing 300,000 motors. The the amount of energy required to run payback period of efficient motors varies motor‑driven systems can therefore provide between 1.4 years for 5.5  kilowatt (kW) relatively rapid and substantial efficiency motors and 1.6 years for 110 kW motors. gains to the industrial sector while reducing (see annex 3, figure 3A.1) production costs. In Pakistan, there are an Boiler replacement An estimated 5,000 to 7,000 mostly with a reliably supplied sustainable, carbon- gas- and coal-fired boilers are currently neutral fuel source). On the other hand, the installed in Pakistan. Many are 15 to 20 technology does require more maintenance, years old and approximately 80 percent use offers fewer automation features and has inefficient technologies with low thermal additional operational costs associated with efficiencies.10 Compared to electric motor the transportation, handling, on-site storage, replacement, boiler replacement is complex, and seasonal supply variability of biomass and the feasibility of a specific technology fuel. Nevertheless, industrial GHG emissions application can vary considerably based on from boilers could be brought down by as the energy source used to fuel the boiler and much as 90 percent if the country’s existing temperature requirements of the application. boiler fleet were replaced by efficient For instance, although heat pumps are more biomass boilers run with reliably supplied energy-efficient than natural gas or biomass sustainable fuel. An efficient natural gas boilers, their application in industrial boiler can save 109.9  million BTU per processes is limited, due to high electricity year compared to existing inefficient prices in Pakistan and technical provisions gas boilers, resulting in cost savings of for heat.11 In contrast, biomass boilers cost US$815 million annually. A biomass boiler the least to operate and have a better GHG can save 67.2  million BTU per year, with emissions profile than natural gas boilers annual cost savings of US$2,030  million (provided biomass boilers are operated (see annex 3, table 3A.1).12 10 Assumed efficiency averages 70 percent but, in some cases, can be as low as 65 percent. Rated efficiency based on the lower heating value (LHV) of fuel. 11 Currently, output temperatures of up to 150°C can be achieved if waste heat of about 100°C is available for input. However, heat pumps that generate output temperatures of between 150°C and 200°C are still in the early prototype stage and require special refrigerants and compressors. 12 Assumed currency conversion rate 278 PRs: 1 US$. 8 Pakistan Energy Efficiency - Knowledge Notes Compressor replacement Compressed air used in pneumatic controls that the replacement of a 20-horsepower screw such as actuators, tool powering, and compressor with an efficient alternative can conveying, is the most essential industrial utility conserve up to 50,000 kilowatt hours annually next to fuel and water. In the United States (US), and the investment can be recovered in less between 10 and 30 percent of electricity use in than two years. Compressor replacement an average industrial facility can be consumed can potentially reduce Specific Energy in producing compressed air. The Indian Consumption (SEC) by 30 to 50 percent (see Bureau of Energy Efficiency (BEE) estimates annex 3, figure 3A.2). Retrofitting Variable Control Drives on motor‑driven systems An estimated 60 to 80  percent of all motor- with a VFD can reduce energy consumption driven systems installed in Pakistan (especially by 20 to 30 percent while decreasing indirect compressors and pumps) are operated emissions. The capital cost of a 30 kW VFD without variable frequency and speed control is approximately PRs 0.85  million and the drives. Installing variable frequency drives payback on the investment is an estimated (VFDs) and variable speed drives (VSDs) on 39 months (see annex 3, figure 3A.2). Due motor-driven systems, including pumps and to the specific operational characteristics of compressors, can provide several benefits, air compressors, the 39-month VFD retrofit such as improving the energy efficiency of payback may be longer compared to the the system, reducing maintenance costs, efficiency gains achievable in other motor- and increasing the reliability of equipment. driven systems. Retrofitting an existing screw air compressor Installing vapor absorption chillers for waste heat recovery (WHR) Vapor absorption chillers offer a potential varies depending on the size and capacity of the solution for recovering waste heat from exhaust unit; a 300-ton absorption chiller is estimated gases produced by furnaces, kilns, and power to cost around US$1,330 per ton, while a generation systems. By replacing conventional 1,000-ton capacity chiller costs US$930 per electric vapor compression systems with ton of cooling capacity. The potential energy absorption chillers driven by waste heat, savings achievable from installing efficient industries can reduce up to 80  percent of the compressors and control drives are up to electricity used in cooling applications. The 30 percent (see annex 3, figure 3A.2). capital cost of installing vapor absorption chillers Industrial Energy Efficiency And Decarbonization (EE&D) 9 What are the main barriers to improving industrial energy efficiency in Pakistan? Investments in many readily available, efficient technologies with relatively short payback periods are hindered by information, policy and financial barriers. Other notable barriers to industrial energy efficiency include behavioral inertia (natural reluctance to do things differently or try new approaches) and the cost of production downtime to complete retrofits and implement process changes Information barriers — Many companies in Pakistan believe that investments in energy efficiency raise production costs and erode competitiveness. This wariness substantially increases when the term ‘decarbonization’ is used instead of ‘energy efficiency’. While some energy efficiency investments, such as upgrading to advanced machinery or implementing new process controls, may initially increase capital expenditures or require operational adjustments, the long-term benefits far outweigh these initial costs. Concerns about loss of competitiveness are rarely warranted because energy efficiency and decarbonization investments ultimately reduce overall production costs. On the contrary, energy efficiency and decarbonization investments reduce production costs for industries. High-efficiency boilers, high-efficiency motors, efficient compressors, control drives for motor-driven systems, and waste heat recovery (WHR) technologies, are examples of energy- efficient equipment that can deliver significant energy-savings with payback periods often within three years, even at commercial rates of finance. Commercial companies should strongly consider energy efficiency investments with payback periods of three years or less. Except for some textile manufacturers, local industry is generally unaware of the advantages of energy efficiency and lacks technical knowledge and awareness to source energy-efficient equipment. Policy barriers — Policies are needed to incentivize energy efficiency and create a level playing field for industrial EE&D interventions. While IEE inherently contributes to reduced GHG emissions, it is essential to clarify the policy focus. Given Pakistan’s vulnerability to climate impacts and its commitment to NDCs, integrating decarbonization goals with IEE policies is strategically important. EE&D in the industrial sector of Pakistan would require a new regulatory framework to encourage market transformation by mandating industrial CO2 reductions through target setting and enforcing minimum energy performance standards (MEPS) for instance. Improving access to finance for all types of manufacturers is also critical to develop a market for industrial energy efficiency Pakistan’s industrial sectors covered under the study, namely textile, cement, paper and pulp, steel and fertilizer, may face increasing exposure to the Carbon Border Adjustment Mechanism (CBAM) implemented by the European Union and other developed economies. Failure to adopt robust IEE and decarbonization practices could result in significant trade barriers and increased costs for Pakistani exports, impacting their competitiveness in international markets.ii Financial barriers — The high cost of commercial finance is a major barrier for all industrial EE&D investments, and procuring financing is reportedly more difficult for small and medium-sized enterprises (SMEs). In addition, banks are unfamiliar with energy-efficiency products and lack the technical capacity to assess the savings achieved through energy efficiency interventions. Despite having the Energy Conservation Fund (ECF) in place, the fund’s current scale is insufficient to meet the substantial financing needs of the industrial sector. To overcome these limitations, the fund’s board must adopt a more proactive approach, taking calculated risks to develop innovative financing solutions. This could involve pilot programs for small-scale, high-impact projects that 10 Pakistan Energy Efficiency - Knowledge Notes demonstrate the viability and financial returns of EE&D investments. Successful demonstrations of principal and markup recovery would then pave the way for supplementary funding from donors and development partners, scaling up these initiatives. Furthermore, the fund should allocate resources for research and development (R&D) and the demonstration of new, energy-efficient technologies. Such investments are crucial for fostering innovation and accelerating the adoption of cutting-edge solutions across the industrial landscape. Technology feasibility barriers — Several emerging or innovative EE&D technologies need feasibility studies and piloting to fully understand their costs and implementation challenges in Pakistan’s context. These include the use of the Organic Rankine Cycle (ORC) for WHR, using heat pumps for hot water and steam generation, using sustainable bioenergy as fuel, and implementing circular economy approaches across subsectors. In additional emerging solution that is being widely developed by many countries worldwide is green hydrogen. Industrial Energy Efficiency And Decarbonization (EE&D) 11 Table 1:  Industrial Energy Efficiency - Barriers, Recommendations and International Examples. Barriers Recommendations International examples Manufacturers’ • Establishment of a cross-sectoral or sector-specific nationalThe Energy Conservation Center in Japan (ECCJ) has since 2001 been lack of technical assistance center for energy efficiency. By reducing publishing technical guidebooks and implementation guidelines for awareness. energy demand, energy efficiency makes decarbonization energy management in factories. Contracted by the Japanese Ministry more achievable. Conversely, decarbonization ensures that of Energy, Trade and Industry, the ECCJ also provides free energy audits the remaining energy comes from clean sources, thereby for SMEs.iv Now ECCJ is focusing on decarbonization technologies maximizing emissions reductions. and policies.v While the ECCJ’s initial focus was energy management, • Promote the adoption of Energy Management Systems (EMS)13, its model highlights the importance of building a strong foundation of technical expertise before expanding into broader decarbonization along with environmental, social, and governance (ESG) initiatives. Pakistan can adapt this model, starting with a core focus on reporting as per Securities and Exchange Commission of energy efficiency and strategically expanding to decarbonization as Pakistan (SECP) guidelines. industries gain proficiency. • Development of a centralized information repository of The Textile Technology Business Center (TTBC) was established in different EE interventions. Bangladesh by the Partnership for Cleaner Textiles (PaCT) in collaboration • Implementation of a full regime of certified energy auditors with the Bangladesh Garment Manufacturers and Exporters Association and managers under which it would be mandatory to have (BGMEA). The TTBC offers access to specialized information on certified energy managers by the designated consumers. resource efficiency technologies, technology suppliers, publications, and The steps include the identification and notification of the operational tools. designated consumers and mandatory energy audits as per plan and draft rules/regulations prepared under United Nations Climate Technology Centre and Network (UN-CTCN) program for Pakistan to NEECA.iii 13 International standards based on ISO 50001:2018 should be adopted to enhance energy management practices Barriers Recommendations International examples Lack of • Support economy-wide measures to increase access to Risk mitigation measures and other reliefs: In China, a fund has been in supportive finance for SMEs, facilitating the uptake of readily available, place since 2016 to support projects in smart manufacturing, consumer financial and proven technologies. goods, and green manufacturing under the supervision of the Ministry fiscal policies of Finance and the Ministry of Industry and Information Technology. The • For new‑to‑market technologies: reduce adoption costs and program grants loans, credit guarantees, insurance, and subsidies to accelerate local production, Research and Development, relevant projects. The World Bank also established concessional loan and skill development through strategic investments such funds for energy efficiency through the China Energy Efficiency Financing as dedicated funding from universities to foster domestic (CHEEF) program, providing US$100 million each to the Exim Bank and innovation. Huaxia Bank in the first phase, expanding to include the Minsheng Bank • Rationalize tariffs to reduce the costs of key inputs for energy- in a second phase, and then incorporating additional financing for energy efficient technologies and streamline the export facilitation service companies (ESCOs), and the building sector in a third phase. A scheme to support domestic manufacturers and exporters. risk-sharing scheme, the China Utility Energy Efficiency (CHUEE) program, Also facilitate technology demonstration; this will demonstrate started in 2006, supports marketing, project development, and equipment value in the Pakistani context and reduce the payback period. financing, bringing together financial institutions, utility companies, and suppliers of EE equipment. The International Finance Corporation (IFC) and Global Environment Facility (GEF) insured 75 percent of the first loss, and 40 percent of second losses, leaving the remaining burden to commercial banks.14 The Marshall Islands exempts energy-efficient equipment from import duty (initially air conditioning units, refrigerators and freezers, fluorescent and LED lighting) if it carries an Energy Star label or equivalent.vi In the United Kingdom, an environmental tax known as the Climate Change Levy (CCL) is included in the gas and electricity tariffs of businesses. Businesses can enter into voluntary climate change agreements with the Environment Agency to reduce energy use and CO2 emissions. In return, those operators receive a discount on the CCL.vii Lack of • Gradual enforcement of Minimum Energy Performance Many countries have introduced MEPS for motors, for example. The USA regulatory Standards (MEPS) especially for boilers and motors, using was the first, setting a MEPS level equivalent to IE2 in 1997, and raising policies government procurement as a starter to prime the market. this to IE3 in 2007. China set its first electric motor MEPS at the equivalent of IE1 in 2002; and now sets it at IE2. Viet Nam also introduced MEPS at • Mandatory energy audits and specific energy consumption IE1 in 2015, with a commitment to move to IE2 when market conditions targets for bulk energy consumers and other utility customers allowed.viii with high consumption levels. 14 Ibid. Barriers Recommendations International examples Limited access To establish and scale Pakistan’s ESCO market, the government The Energising Development (EnDev) Result Based Financing (RBF) to commercial should implement sanctioned bulk procurement programs, Facility aimed to increase access to clean energy in low-income countries finance and enabling ESCOs to manage energy efficiency upgrades across by providing financial incentives to private businesses. The key objective high cost of public sectors. ESCOs would handle upfront investments, with of the Facility is to overcome market failures and barriers constraining financing government payments structured as instalments based on the private sector to deliver modern renewable energy and end-use verified energy savings, fostering a sustainable, pay-from-savings technologies and services to the poor.ix model which could be categorized as results-based financing. The Uganda Energy Credit Capitalisation Company provides grants towards removing market entry barriers, information and communication campaign costs, affordability constraint of the consumers, high operating cost to serve customers in remote areas and support price setting at a level accessible to lower-income beneficiaries including in Refugee and Host Community Districts (RHDs). Grant support is linked to verifiable outputs to help private energy companies enter the solar and clean cooking businesses and take the risk of serving consumers especially in hard-to-reach areas.x In India, the National Motor Replacement Program (NMRP) run by Energy Efficiency Services Limited (EESL) is a government initiative aimed at promoting energy efficiency in the industrial sector by replacing old, inefficient motors. The program addresses the barrier of high initial cost of equipment by offering a discount of around 20 to 25 percent on retail prices, achieved through demand aggregation and bulk procurement. In addition, a convenient financing option allows users to repay the cost of the efficient motor over a period of up to three years through regular installments derived from the resulting efficiency savings (typically 50 to 70 percent of the monetized savings are paid as installments). Establishing • Government investment in prefeasibility studies and pilot India’s Green Hydrogen Mission aims to boost green hydrogen production the implementation. and electrolyzer manufacturing. The program provides incentives equal feasibility of to at least 10 percent of the production cost in the first three years of new‑to‑market hydrogen fuel production from a manufacturing facility. The first calls for or emerging tenders for a total of 1.5 GW of electrolyzer manufacturing capacity and for technologies. 0.45 MTPA of green hydrogen and derivatives were both oversubscribed.xi What key actions can the government undertake? A portfolio of immediate and longer-term EE&D interventions for the industrial sector could achieve significant improvement in energy savings, energy intensity and GHG emissions from industrial production in Pakistan.15 To address the most urgent barriers to industrial EE&D, the government can consider the following recommendations:xii • Increase awareness around energy efficiency and emissions reduction by establishing a cross-sectoral or sector-specific, national technical assistance center for energy efficiency and decarbonization. This center should actively engage and build a collaborative network with universities across Pakistan, leveraging their research capabilities and expertise. The Higher Education Commission (HEC) and the Pakistan Engineering Council (PEC) should play crucial roles in facilitating this collaboration, ensuring the center’s programs are aligned with academic standards and professional engineering practices. By partnering with universities, the center can develop tailored training programs, conduct applied research, and disseminate cutting-edge knowledge to industry professionals • Implement an industrial equipment replacement program targeting motors, boilers, and motor- driven systems to facilitate rapid improvements in EE&D. This program should be meticulously designed to minimize transaction costs associated with firm-level investments in EE&D, thereby encouraging wider participation. Critically, the program’s implementation must adopt commercial approaches, prioritizing market-driven mechanisms and avoiding bureaucratic bottlenecks. • Improve economy‑wide access to commercial finance and mitigate the high cost of financing through continued fiscal restraint, macroeconomic stability, and reforms to strengthen the insolvency regime. Facilitate the establishment and scaling up of the market for energy service companies (ESCOs). To support new‑to‑market technologies, the government could play a key role in reducing adoption costs and accelerating local production, research and development, and skill development. • Enable local manufacturing by reducing tariffs on raw materials and key inputs for energy-efficient technologies, establishing robust export facilitation and financing mechanisms, and supporting technology demonstrations to validate solutions in the local context and reduce payback periods. • Increase outreach, investor awareness, and financial literacy to equip businesses with the information required to access the financial sector and the products offered by it. • Invest in prefeasibility studies and pilot projects to confirm the viability of emerging industrial energy efficiency and decarbonization technologies. All interventions should be carefully designed, considering administrative complexities and subject to rigorous cost-benefit analysis, to ensure effectiveness and efficiency. A targeted approach focusing on specific market failures, administrative feasibility, and rigorous evaluation is crucial. Additionally, continuous monitoring and design adjustments will ensure optimal performance. By adopting a targeted and evidence-based approach, the government can create a more efficient and effective industrial energy efficiency market, ultimately benefiting industries, consumers, and the broader economy. 15 Additional recommendations are available in the Pakistan Country Climate and Development Report (CCDR, 2022) and the Pakistan Development Update (April 2022). Industrial Energy Efficiency And Decarbonization (EE&D) 15 Annex 1: Data collection approach and sampling With the scarce availability of data in the Pakistan industrial context, the team conducted both primary and secondary data collection for this study. Two approaches were adopted for primary data collection: • Qualitative interviews with stakeholders • Onsite surveys (walkthrough audits) of industrial units The objective of the site surveys and qualitative interviews was to get a detailed overview for each subsector of their carbon emission baseline, current production, energy consumption practices and technologies employed, specific carbon emissions, policies of decarbonization in place, gaps, and barriers to decarbonization. For the collection of primary data, 49 stakeholders were identified across industrial firms (26), industrial associations (2), government departments (5), financial institutions (4), international donor organizations (2), academia (5), and technology vendors (5) respectively. Of the five selected industrial subsectors, a total of 30 industrial units, diversified across location and size, were chosen for primary data collection. The sample size of different subsectors for the primary industrial data collection is shown in Table below. Table 1A.1:  Sample Size of Different Subsectors for Primary Industrial Data Collection Total no. plants/ No. of plants Actual No. of Percentage of companies/ planned for data plants participated sample size (%) Subsector industries collection in the study (primary data only) Cement 25 (PACRA, 2021) 4 (all site visits) 3 (all site visits) 12 Fertilizers 6 (PACRA, 2021) 2 (all site visits) 2 (all site visits) 33 Steel 2016 (PACRA, 2021) 4 (all site visits) 3 (2 site visits + 15 1 remote data gathering) Textile 425 (PACRA, 2021) 15 (6 site visits 13 (6 site visits 3.1 + 9 remote data + 7 remote data gathering) gathering) Paper & Pulp 100 (5 key players 5 (4 site visits + 2 (1 site visit + 2 (PACRA, 2021)) 1 remote data 1 remote data gathering) gathering) Total 30 (20 site visits 23 (14 site visits + 10 remote data + 9 remote data gathering) gathering ) Out of the 30 units selected together with the World Bank, 20 units (six textile, four pulp/paper, four iron/steel, four cement, and two fertilizers) units were chosen for site visits, and the remaining 10 units 16 These 20 steel mills contribute to almost 80% of the overall production in steel subsector of Pakistan. 16 Pakistan Energy Efficiency - Knowledge Notes (nine textile and one paper & pulp) for remote data gathering. The selection of these industrial units within the specified subsectors was based on the geographic diversity covering all four provinces of Pakistan, the size of the industry, and the type of process involved. Out of 20 industrial visits planned, 14 site visits (six textiles, two iron/steel, three cement, two fertilizer, and one paper & pulp) were able to be completed for primary data collection. Similarly, data of nine units (seven textiles, one steel, and one paper & pulp) were able to be collected remotely. Despite the best efforts of National Energy Efficiency & Conservation Authority (NEECA), International Finance Corporation (IFC), Center for Industrial and Building Energy Assessments (CIBEA), and the study team, six companies declined to take part in the study (four paper & pulp plants and two steel plants). It is important to note that the small sample size and limited number of walk-through audits were due to challenging circumstances faced during data collection. While the sample size of textile (3.1 percent) and pulp/paper (2 percent) appear small compared to the sample size of cement, steel, and fertilizers, this has been compensated by the collection and analysis of the large volume of secondary data that is available for these sectors (see table 1A.2). Secondary data on energy efficiency and emissions were extracted from reports of exercises undertaken previously by credible organizations including the International Finance Cooperation (IFC) (IFC 2016), the National Productivity Organization (NPO), the Pakistan Industrial Trading Corporation (PITCO)17, the United Nations Industrial Development Organization (UNIDO) (UNIDO 2019), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), the International Institute for Sustainable Development (IISD) (IISD 2016), and national and international trade associations from the subsectors.xiii Table 1A.2:  Sample Size of Different Subsectors for Data Collection (Both Primary and Secondary Data)xiv No. of local plants No. of local plants Total no. of plants/ assessed during assessed in % of sample companies/ primary data secondary data size (primary + Subsector industries collection collection secondary data) Cement 25 3 3i 24% Fertilizers 6 2 1 i 50% Steel 20 3 3 i 30% Textile 425 13 119 , 12 ii i 34% Paper & Pulp 100 2 11 , 2 ii i 15% Note that during the inception period, it was determined that technology or opportunity assessment surveys would be more suitable for the scope of this study, as recommended by the World Bank Group. As a result, instrumented energy audits (ASHRAE Level II) were excluded. Instead, the study relied on a combination of walk-through audits (ASHRAE level I energy audits) and historical data (annual energy and production data measured and recorded by the firm) to assess the performance parameters and identify potential areas for improvement. The walk-through audits focused on evaluating the current state of installed technologies within the facilities and on identifying opportunities for improvement. Parameters such as rated efficiencies of equipment, presence, and 17 Sustaining Growth: Cleaner Production in Pakistan, the study was funded by IFC which is based on the results of 230 energy audits in textile, sugar, paper, and leather industries conducted by Ernest and Young and led by National Productivity Organization (NPO) and Cleaner Production Institute (CPI) in 2014. The study summarizes information on sector specific energy consumption, energy costs, recommendations for efficient energy usage, and payback periods for different energy EE&C measures. Industrial Energy Efficiency And Decarbonization (EE&D) 17 functionality of energy-saving technologies, exhaust temperatures for waste heat recovery, and the status of energy and emission management systems were assessed during these audits. Before the analysis of technical solutions, the study analyzed historical data (measured and recorded by the firms) to calculate annual performance parameters for each subsector. For instance, metrics such as energy consumption per unit of production and CO2 emissions per unit of output were calculated based on the provided data. Similar calculations were performed for each firm and subsector and these parameters were compared to global averages and best practices to identify areas where improvements could be made. 18 Pakistan Energy Efficiency - Knowledge Notes Annex 2: Details of energy efficiency and decarbonization pathways and relevant technologies Table 2A.1:  Details of Energy Efficiency and decarbonization pathways and relevant technologies Textile Steel Cement Paper and pulp Fertilizer Energy Efficient WHR (on air WHR, efficient Cogen WHR, Cogen, efficiency motors, boilers, compressors), motors, control (combined efficient motors, (Cross‑sectoral compressors, efficient motors, drives on heat & power), efficient boilers, options) and control motor‑driven efficient motors, control drives Efficient drives18 on systems. efficient boilers, on motor-driven compressors motor-driven control drives systems. systems. ,control drives on motor-driven on motor- systems. driven systems (applicable to motors and compressors). Distributed RE (Solar PV, RE (Solar PV, RE (Solar PV, RE (Solar PV, RE (Solar PV, Renewable wind turbine) wind turbine) wind turbine) wind turbine) wind turbine) Energy (RE, namely solar PV, wind) Fuel switching Biomass boiler, WDF and Biomass/ Biomass boiler, Biomass boiler, (Waste‑derived biofuel for heat Biomass‑fired waste for heat biomass, or biofuel for heat fuel/sustainable and power reheating production in a biofuel‑fired and power bioenergy) generation. furnace cement kiln. dryers. generation. Fuel switching Green hydrogen For direct Green hydrogen Green hydrogen For heat, (Green for power/steam iron reduction for power/heat for power/steam power, and hydrogen) generation. and power generation. generation. green ammonia generation. production. Electrification Electric boilers Induction Electric kiln. Electric boilers Electric boilers. (heating/ and dryers. furnace. and dryers. melting) Carbon Applicable To capture To capture Applicable To capture Capturing Use to exhaust of process/energy both process to exhaust of both process (CCU) and captive units in emissions and energy captive units in and energy Storage textile. in steel emissions in paper and pulp. emissions in (CCS) production. cement. fertilizer. Process Such as ORC for WHR Such as Such as deep Such as improvement bio‑scouring, direct iron alternative eutectic methane (Alternative sCO2 dyeing. reduction. binders and solvents. pyrolysis. process or clinkers. material) 18 Drives: Variable frequency drive (VFD) refers to AC drives only, and a variable speed drive (VSD) refers to either AC drives or DC drives. Industrial Energy Efficiency And Decarbonization (EE&D) 19 Textile Steel Cement Paper and pulp Fertilizer Circular Such as Scrap‑based Such as Such as raw Such as organic economy Recycling of steel recycling of paper‑based waste to (Recycle, reuse) fabric and production. concrete, use of paper fertilizer plastic to (Already slag, fly ash production. produce natural implemented) (Already and synthetic implemented) fiber. Innovative WHR on ORC on furnace WHR on WHR on WHR on technologies compressors, exhaust compressors, compressors, compressors, (WHR on ORC in ORC on a kiln, and new drying ORC in fertilizer. compressors, spinning. and air‑cooler techniques. ORC‑based exhaust. WHR) 20 Pakistan Energy Efficiency - Knowledge Notes Annex 3: ExistIng cross‑cutting EE&D options Figure 3A.1:  Pakistan – Estimated Technical and Economic Conservation Potential of Industrial Motor Retrofits (2023) Motor Cost per No. of Capital cost Energy Cost Emission size IE3 Motor motors required savings savings savings (kW) (USD) considered (m USD) (GWh/yr.) (m USD/yr.) (m y-CO2/yr.) 5.5 750 120,000 90 490 65 0.3 11 1,280 90,000 115 532 71 0.4 30 2,950 60,000 177 838 112 0.6 110 10,000 30,000 300 1,456 194 1.0 Total 300,000 682 3,316 442 2.3 Energy saving: Emission reduction: Greater savings Maximum energy Maximum emission potential through even saving potential of reduction potential of more efficient motors 3.3 TWh for 300,000 2.3 million tonnes of CO2-eq (IE4/IE5) but at higher electric motors for 300,000 electric motors. cost. If the current baseline of motors is assumed at IE0 (substandard) and they operate for 5,000 hours per year, then the payback period varies between 1.4 years for 5.5 kW motor and 1.6 years for 110 kW motor. The payback period will increase to 4.9 years for 5.5 kW motor and 9 years for 110 kW motor if the current efficiency baseline is assumed at IE1 and the motors operate for 4,000 hours annually. Table 3A.1:  Comparative Impact of a Boiler Replacement Program (2023)19 Energy savings GHG emissions Annual operational (Million reductions cost savings Capital cost Btu/year) (tCO2/year) (million PKR) (USD, millions) High‑efficiency natural gas 109.9 6,196 236,389 817 boilers (US$ 815 million) Biomass boilers 67.2 28,009 588,642 1,031 (US$ 2,030 million) Figure 3A.2:  Energy Saving Potential of Select Industrial Technologies. Short term Energy Efficiency options Energy savings (%) Installing Efficient Compressors 30 to 50% reduction in SEC Installing VSDs on compressors 20% to 30% savings in kWh/yr. Vaporabsorption chiller for WHR Up to 30% savings kWh/yr.* * If electric powered vapor compression system is replaced with waste heat driven absorption chiller 19 The impact assessment is based on replacing a mix of 5,000 boilers with ratings ranging from 5,000 to 20,000 kg of steam/hour. Industrial Energy Efficiency And Decarbonization (EE&D) 21 Endnotes i International Energy Agency (IEA). 2018. Energy Efficiency 2018: Analysis and Outlooks to 2040. Paris: IEA ii  Sattar, S., & Akhtar, N. 2023. Sustaining Exports – Decarbonization. Islamabad: All Pakistan Textile Mills Association (APTMA). iii  Climate Technology Centre and Network (CTCN). 2017. National Certification System for Energy Auditors: Technical Assistance Project in Pakistan. Copenhagen: CTCN. iv  Sarker, T., Taghizadeh-Hesary, F., Mortha, A., & Saha, A. 2020. The Role of Fiscal Incentives in Promoting Energy Efficiency in the Industrial Sector: Case Studies from Asia. Tokyo: Asian Development Bank Institute. v  Energy Conservation Center, Japan. (2023, December 13). EMAK12: Evolution of energy efficiency policies into demand- side energy policies. Asia Energy Efficiency and Conservation Collaboration Center. vi  Government of Pakistan. 2011. Import Duties (Renewable Energy and Energy Efficiency Equipment) Exemption Amendment Act 2011 (P.L. No. 52). Islamabad: Government of Pakistan. vii Environment Agency. (2022, March 2). Climate change agreements. GOV.UK viii Shahab, A., Zaffar, S., & Jeffcott, S. 2020. Reducing Energy Consumption and CO₂ Emissions from Electric Motors in Pakistan Through Energy Efficiency Policy. Washington, DC: CLASP. ix  Energising Development (EnDev). 2018. Results-Based Financing for Energy Access: How to Design and Implement Projects—Lessons from the Field. Eschborn: Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ). x Uganda Energy Credit Capitalisation Company (UECCC). 2024. Result Based Financing Facility. Kampala: UECCC. xi  ET EnergyWorld. 2024. Green Hydrogen in India: Unleashing a New Energy Paradigm. New Delhi: The Economic Times. ET EnergyWorld. 2024. 34 Companies Bid for Green Hydrogen Subsidies in India. New Delhi: The Economic Times. xii World Bank Group. (2022). Pakistan Country Climate and Development Report. World Bank. World Bank. (2022). Pakistan development update: Financing the real economy (April 2022). xiii Small and Medium Enterprises Development Authority. (2023, June). District profile of Naseerabad. SMEDA. xiv  United Nations Industrial Development Organization (UNIDO). (2022). Sustainable energy initiative for industries in Pakistan: Energy optimization. International Finance Corporation (IFC), National Productivity Organization (NPO), & Cleaner Production Institute (CPI). (2016). Sustaining growth: Cleaner production in Pakistan. 22 Pakistan Energy Efficiency - Knowledge Notes