Energy: The lifeblood of economy

Dr. Muhammad Shahbaz


The writer is research fellow at University of Cambrdige, UK and Professor at Biejing Institue of Technlogy China.

Energy economics has drawn substantial attention from academicians in recent times. This issue is important because energy drives the wheels of economic growth since it is a key factor of production, along with capital, and labor.

In addition, the higher GDP per capita, the more energy demand which is a relation that is intuitively appealing. Energy is the lifeblood of the economy as without blood there is no life so without energy there is no economy. From the steam engine, railway, chemical, automotive industry to computer science energy is needed everywhere, even if renewable energies will not be able to solve the problem overnight for all business parties. It will also be difficult for private households in the low- and middle-income segment, who can hardly afford such energy costs with rising prices. It is often said that energy is the lifeblood of modern societies. We worry about supply, demand, security, risk, public acceptance, costs, and even war. The indispensable role of energy, a global commodity, in shaping the world economy has also been widely acknowledged. Energy enhances the productivity of other non-energy factors of production and also contributes towards improvement in the living standard of the people, apart from playing its ultimate role in dictating the development process within an economy. It is a prime task for a growing economy like Pakistan to tap all possible options that are optimal for its energy sector’s development and to do so; the economic policies have to be focused explicitly on accurate identification of the appropriate reform strategies to maximize the benefits from energy sector development. The development of power and energy sector will not only elevate the economy to a higher status but also upsurge productivity and efficiency that will boost the overall economic achievement of Pakistan.

Energy forms the lifeblood of the world economy as it is an essential input to producing almost all of the goods and services of the modern global economy. It contributes to economic growth directly as it creates jobs and value associated with extracting, transforming, and distributing of energy. Following the energy crisis of the 1970s, the focus of energy planning and management shifted to availability, abundance and diversification of energy resources. Soon it was realized that cost-effective and long-lasting alternative resources were required and had to be economically reasonable. In the modern day, energy intake has emerged as an important variable for judging the quality of life and well-being globally. Nevertheless, energy use in many contexts is having serious and damaging effects on environment in the form of emissions, primarily greenhouse gases.

To cater for the ever-rising demand for energy driven by the world’s increasingly unsustainable population growth, fossil fuel consumption is growing daily and especially in the developing countries. Energy planning must now consider the environmental goals and appreciate economic growth as it has to be sustainable or carried out in a different way. Governments and policymakers must achieve energy sustainability, economic growth and environmental protection; they must adapt systems thinking and comprehend the nexus between energy, environment and economy.

Pakistan’s economy is forecast to slow to 3.5% in fiscal year (FY) 2023 (ending 30 June 2023) amid devastating floods, policy tightening, and critical efforts to tackle sizable fiscal and external imbalances, even as growth in FY2022 is expected to have reached 6.0%, the Asian Development Bank said in a report.

The South Asian nation announced a new energy conservation plan this month as its fragile economy continues to struggle with multiple challenges. The government has ordered all markets to close by 8.30 pm and restaurants by 10 pm, according to a tweet by its ruling party. These measures will help the country save 62 billion Pakistani rupees ($274 million). Prime Minister Shehbaz Sharif has also ordered all federal departments to reduce their energy consumption by 30%. The country is in the midst of a severe energy crisis and is heavily dependent on imported fuel. The announcement comes at a time when Pakistan’s foreign exchange reserves have dwindled to alarmingly low levels. In December, Pakistan’s total liquid foreign exchange reserves stood at $11.7 billion, which is half the amount it held at the start of last year, according to the central bank. The country’s finances are also suffering because of differences with The International Monetary Fund over a review process, which has delayed the release of a $1.1 billion bailout tranche.

Modern energy is the lifeblood of the modern economy, central to almost every economic activity, from manufacturing to transport, schooling to communication, thus, integral to any country’s development. It is also one of the main topics on the table at COP24, where policymakers, stakeholders, and climate experts will meet to discuss policy relating to climate change. Other climate-related measures will be insufficient if this central component of an inclusive economic system isn’t fore-grounded. Governments looking to reduce poverty and combat exclusion will seek to understand how best to create wealth from the economy and implement a robust efficient energy system that promotes economic growth. In order to develop an inclusive economic policy, it’s vital that energy planning is integrated with other sectors that drive economic growth, such as industrial or agricultural policy recognizing the fundamentals of energy demand.

Energy has been widely demanded, due to increasing population pressure and changing consumptions pattern globally. Domestic and commercial activities have become more dependent on the energy sector in the 21st century. Reliable and affordable energy is the dream of developing countries for their economic growth and development because of its correlation to the subject matter. The rapid growth of the industries developed agriculture; modern trade and dynamic transportation facilities are mostly dependent on the energy sector. A decent supply of energy at a cheap rate for sustainable growth and development is the need of the hour in Pakistan. It is analyzed that the energy crisis began in the country in 1990, after Iraq and Kuwait war.

Pakistan mostly depends on energy imports because energy resources of hydro powers, natural gas and oil fields are untapped due to a lack of sufficient investment and several other unavoidable circumstances. An integrated energy plan seeks to achieve an efficient balance between energy demand and supply in an effort to avoid constraints on economic growth. Many governments tend to focus on supply side solutions that is, energy supply and distribution, and the finances related to supplying it. The demand side of the energy equation is equally important. The development potential of energy relies heavily on energy solutions appropriate to the needs of the end user. For example, electricity used for lighting in the home will have different economic impacts than electricity used for irrigation, aluminum smelting, or the telecoms sector. Similarly, solar panels could be a useful intervention to provide household lighting, but impractical in providing base load energy for mining operations. A successful modern economy is a function of, inter alia, a considered blend of demand sector fundamentals and mix of supply choices, delivering fit-for-purpose energy services that are accessible, affordable, and sustainable.

We understand today that humanity’s use of fossil fuels is severely damaging our environment. Fossil fuel causes local pollution where they are produced and used, and their ongoing use is causing lasting harm to the climate of our entire planet. Nonetheless, meaningfully changing our ways has been very difficult. But suddenly, the COVID-19 pandemic brought trade, travel, and consumer spending to a near-standstill. Pakistan has observed a significant increase in energy demand over the past couple of decades due to its rising population, massive urbanization, industrial development and modernization. This has resulted into increased atmospheric pollution and especially the many types of pollutants. Some of the leading factors responsible for bad air quality are inefficient energy systems and subsystems across various sectors of the economy, ill-planned industrial development, adherence to obsolete vehicles, non-observance of environmental quality standards, and poor atmospheric quality data. Similarly, the realities of urbanization, industrial activities, and construction have not only contaminated urban air quality but also made rural conditions worse. Air quality of various Pakistani cities has been thoroughly investigated and Lahore is now the country’s most polluted city. Respiratory diseases linked to air pollution are causing 1250 deaths in the city every year.

Pakistan’s acute energy crisis is posing a serious predicament for its feeble economy and volatile national security environment. Resolving Pakistan’s energy crisis will thus require political will, additional funding, and new power-generation sources. As the country lacks significant internal sources of revenue, opportunities exist for international donors to finance its energy recovery. Pakistan should consolidate its many energy-related institutions into a single ministry. This will bring some urgently needed order and efficiency to its dysfunctional energy sector. A short-term fix that could bring immediate relief is to request a new loan from the International Monetary Fund (IMF). However, because the IMF would probably impose politically delicate conditions, Islamabad is unlikely to make such a request until after this spring’s elections. Tax reform is imperative and should be designed to provide Islamabad with more revenue to address the energy crisis. Pakistan can initially better diversify its energy mix by importing clean coal, which is often cheaper than imported oil and gas. Pakistan will not be able to implement the reforms needed to resolve its energy crisis unless Pakistanis elect leaders this spring who genuinely desire to serve the interests of their country.

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