Transforming Steel in Pakistan: Cleaner Technologies and Policy Shifts for a Greener Path

The World Bank Group, in collaboration with leading institutions including the Pakistan Credit Rating Agency (PACRA), the Pakistan Business Council, the International Institute for Sustainable Development (IISD), and the Ministry of Climate Change’s Global Change Impact Studies Centre (GCISC), has released an illuminating knowledge note on energy efficiency and decarbonization opportunities within Pakistan’s steel sector. As a cornerstone of the country's industrial base, the steel industry contributes 2 percent to Pakistan’s GDP and employs over 200,000 people. With a production volume of 8.4 million tonnes in FY2024, it is also one of the most energy-intensive sectors, consuming nearly 2.9 gigajoules per tonne of steel. The industry is heavily reliant on electricity; over 80 percent of its energy needs are met through grid power, making it a significant driver of emissions. Steel plants account for 6 percent of Pakistan’s total energy usage and produce about 1.9 million tonnes of CO₂ annually, representing 2 percent of industrial emissions. Yet, there is an encouraging silver lining: all steel in Pakistan is produced through scrap-based electric induction furnaces (EIF), which are more energy-efficient and significantly less carbon-intensive than global norms. With an emissions intensity of just 0.29 tCO₂ per tonne of steel, well below the global average of 2.5, Pakistan already has a cleaner-than-usual foundation to build upon.

Tapping the Power of Proven Technologies

Despite this cleaner baseline, substantial gains can still be made by deploying existing technologies more effectively. The report outlines several ready-to-implement interventions with attractive returns. Installing automated furnace atmosphere control systems, for example, can cut emissions by 12 percent and reduce fuel consumption by up to 13 percent. These systems are relatively affordable, costing between USD 19,000 to 23,000, and offer a rapid payback within nine months. Similarly, replacing wobbler couplings in rolling mills with universal spindles can achieve up to 9 percent reduction in emissions and an 8 percent saving in power consumption. This retrofit requires a modest investment of PKR 1.4 to 4.2 million and typically pays for itself in under six months. The installation of Organic Rankine Cycle (ORC)-based waste heat recovery systems is another notable recommendation. These systems, although capital-intensive at PKR 30 to 32 million, can recover energy from flue gases and convert it into electricity, reducing both fuel consumption and emissions by around 10 percent. Variable Frequency Drives (VFDs) on air compressors and the replacement of fossil fuel-based reheating furnaces with induction heating also feature as impactful options. All of these technologies are already available in the country, and when applied systematically, can collectively cut emissions from steel plants by 5 to 12 percent and reduce energy consumption by 8 to 10 percent.

Innovation at the Horizon: Emerging Low-Carbon Technologies

Beyond the immediate horizon lies a suite of transformative technologies that could redefine the steel industry’s carbon footprint over the coming decade. Near-net shape casting stands out as a revolutionary technique capable of slashing both emissions and energy consumption by up to 60 percent. By allowing molten steel to be cast into shapes close to the final product, this method eliminates many downstream processing steps. Though currently limited to certain steel products and requiring capital costs of USD 213–235 per tonne, its long-term payoff is substantial. Hydrogen-based direct reduction of iron (H₂-DRI) is another breakthrough with potential to eliminate up to 1,100 kg of CO₂ per tonne of steel when powered by green hydrogen. However, this technology remains in the pilot phase, hindered by high hydrogen production costs and the absence of enabling infrastructure. Additional innovations include the recovery of heat from electric arc furnace off-gases, scale-free reheating systems using oxygen-enriched air, and new scrap-melting processes powered by biochar or syngas. Though most of these innovations require further validation, their energy savings range from 5 to 32 percent, and all show promise for adaptation in Pakistan’s manufacturing landscape.

Overcoming the Structural Roadblocks

Yet, unlocking these opportunities is easier said than done. The report identifies three central barriers: a lack of awareness, weak policy alignment, and limited access to financing. Many manufacturers, especially in the informal sector, lack technical knowledge about energy-saving technologies and remain unaware of the potential financial gains from decarbonization. There is no national mechanism to monitor industrial energy efficiency, making it difficult for firms to access carbon credits or climate financing. On the policy front, smuggling of substandard steel, import restrictions on quality scrap, and poor enforcement of environmental standards hamper progress. Financially, most small and medium enterprises cannot afford the upfront investment needed for cleaner technologies. Banks remain wary due to the absence of standardized risk assessment models and high collateral requirements, leaving smaller firms locked out of the capital market.

A Blueprint for Industrial Transformation

To address these challenges, the World Bank recommends a cohesive, multi-stakeholder response. Industry associations like the Pakistan Steel Re-Rolling Mills Association (PSRMA) and the Pakistan Association of Large Steel Producers should lead the charge in building technical capacity, organizing training, and showcasing successful pilot projects. Government agencies are urged to create centralized databases, offer fiscal incentives, and support productivity audits to encourage compliance and innovation. Financial institutions, including the State Bank of Pakistan, can play a transformative role by introducing specialized loan products and building internal capacity to evaluate energy efficiency investments. International climate finance bodies such as the Green Climate Fund and Energy Conservation Fund can also offer critical support. With these efforts in concert, Pakistan’s steel sector can not only bolster its competitiveness in a global economy moving toward net-zero emissions but also demonstrate regional leadership in industrial sustainability.