Race to Decarbonize: How Pakistan’s Industry Can Survive Soaring Energy Costs

The World Bank Group, in collaboration with the National Energy Efficiency & Conservation Authority (NEECA), the International Finance Corporation (IFC), and the Center for Industrial and Building Energy Assessments (CIBEA), has issued a comprehensive knowledge note on Industrial Energy Efficiency and Decarbonization (EE&D) in Pakistan, mapping out a pathway to cut costs, boost competitiveness, and achieve climate goals. The study reveals that Pakistan’s industrial sector, responsible for over 37 percent of the country’s energy use, operates with an energy intensity of 4.2 megajoules per US dollar of GDP, more than double that of Bangladesh and Sri Lanka. Escalating electricity and gas tariffs, combined with a heavy reliance on coal, have driven up production costs and made Pakistan’s industrial carbon intensity 38 percent higher than North America’s and 50 percent higher than the European Union’s. The country’s Nationally Determined Contributions (NDCs) aim to reduce industrial emissions by 5.33 million tonnes of CO₂ equivalent by 2030, focusing on high-consumption sectors such as textiles, fertilizers, cement, steel, and pulp and paper.

Unlocking Immediate Efficiency Gains

The report identifies a set of immediate EE&D opportunities that can deliver rapid, measurable benefits in cost savings, emissions reduction, and energy security. Replacing outdated electric motors, boilers, and compressors with high-efficiency models could produce major gains, as could retrofitting variable frequency drives on motor-driven systems and recovering waste heat through vapor absorption chillers. Switching to sustainable biomass or distributed renewable energy and electrifying processes where feasible would further accelerate decarbonization. Replacing 300,000 inefficient motors alone could save 3.3 terawatt-hours of electricity annually and cut 2.3 million tonnes of CO₂, with payback periods as short as 1.4 years. Boiler upgrades, especially to efficient biomass-fired systems, could cut emissions by up to 90 percent while yielding billions in annual savings. Compressor upgrades and control drive retrofits can lower specific energy consumption by 20 to 50 percent, and waste heat-driven absorption chillers can slash cooling-related electricity demand by as much as 80 percent.

Persistent Barriers to Change

Despite the strong economic case, multiple barriers slow progress. A lack of accurate information leads many firms to believe energy efficiency will raise costs and erode competitiveness, perceptions that worsen when framed as “decarbonization.” In reality, technologies like high-efficiency boilers, motors, and compressors often achieve payback within three years, even with commercial financing. Policy gaps further limit momentum, with no minimum energy performance standards (MEPS) for key industrial equipment, limited enforcement of audits, and the absence of clear CO₂ reduction targets. Financial constraints are severe, particularly for small and medium-sized enterprises (SMEs), which face high borrowing costs, limited credit access, and banks lacking technical expertise in evaluating EE&D projects. The Energy Conservation Fund exists but remains undercapitalized, and its potential to support pilot projects that could draw donor co-financing remains untapped. Technical feasibility concerns, especially for newer technologies like Organic Rankine Cycle waste heat recovery, green hydrogen, industrial heat pumps, and circular economy models, also contribute to hesitation.

Global Inspiration and Local Adaptation

To address these barriers, the report draws on a range of international best practices. Japan’s Energy Conservation Center has strengthened national capacity with audits, guidelines, and technical training, while Bangladesh’s Textile Technology Business Center offers specialized tools and resources. China’s Energy Efficiency Financing Program has provided concessional loans, guarantees, and subsidies for industrial upgrades, and the UK’s Climate Change Levy offers tax relief in exchange for voluntary efficiency commitments. India’s National Motor Replacement Program has reduced equipment costs through bulk procurement and allowed repayment from savings. For Pakistan, the report recommends creating a national technical assistance center for EE&D linked with universities and professional bodies such as the Higher Education Commission and Pakistan Engineering Council to develop training, research, and outreach. Bulk procurement programs for motors, boilers, and related technologies could accelerate adoption and lower costs. Gradual enforcement of MEPS, starting with government procurement, along with mandatory audits for high-consumption facilities, would strengthen compliance and market transformation.

Financing and Technology Pathways

Financial reforms are central to unlocking investment. The report suggests fostering the ESCO (Energy Service Company) model with results-based financing, rationalizing tariffs and reducing import duties on efficient technology inputs, and supporting pilot demonstrations to prove solutions in local conditions and shorten payback periods. Pre-feasibility studies and targeted subsidies for emerging technologies such as green hydrogen production, sustainable bioenergy, and advanced waste heat recovery could bridge the gap between research and large-scale deployment. These steps, combined with improved investor awareness and financial literacy among businesses, could create a self-sustaining market for industrial efficiency.

Data-Driven Insights and the Road Ahead

The findings are built on a mix of primary and secondary research. Fieldwork included site visits and interviews with 49 stakeholders from industry, associations, government, finance, donor agencies, academia, and technology vendors, covering 30 industrial units across the five target sectors. While access was limited in certain industries, such as textiles and pulp and paper, the study incorporated extensive secondary data from earlier audits and reports by IFC, UNIDO, GIZ, and others. Annexes detail sector-specific EE&D pathways, ranging from bio-scouring in textiles to alternative binders in cement and methane pyrolysis in fertilizer manufacturing, and quantify the technical and economic potential of priority measures.

The World Bank and its partners frame industrial EE&D as more than just an environmental obligation; it is a strategic economic imperative. With the right mix of policy, finance, and technical capacity, Pakistan could cut industrial energy consumption significantly, delay expensive new power generation, improve air quality, and safeguard exports from looming carbon border adjustment tariffs. If executed effectively, this transformation could turn one of Pakistan’s most pressing industrial vulnerabilities into a source of competitive advantage, securing both economic resilience and climate progress.