| Abstract | Developing renewable energy system and increasing its share in the power sector is gaining importance worldwide. However renewable electricity generation technologies are expensive due to high initial investment. Therefore, penetration of these technologies requires supporting mechanisms or policy instruments. Renewable portfolio standards (RPS) and limiting CO2 emissions are two of the quantity based policy measures. An RPS policy helps promoting renewable energy directly by imposing minimum share of renewable energy in energy system. Limiting CO2 emissions, on the hand, support renewable energy indirectly by reducing use of fossil fuels in the energy system. The impacts of these policies, however, depend upon the availability of renewable energy sources and socio economic conditions of the country. The present study assesses the potential of renewable energy sources in case of Pakistan, a developing country, and examines the sectoral and economy wide effects of quantity based renewable energy promotion policies. The objective of the present study is therefore an assessment of potential of major renewable energy sources and evaluation of the energy, environment and economic impacts of quantity based renewable energy promotion policies on the power sector and the overall economy.
The assessment of long term potential of renewable energy sources is made in terms of total geographical and technical potential of solar, wind, small hydropower and biomass energy sources in Pakistan till 2050. A bottom-up integrated energy system model was developed by using the MARKAL framework to examine the impact of renewable energy promotion policies on energy supply mix, energy security, cost of electricity generation and local and global environmental emissions in the power sector of Pakistan. The economy wide implications of renewable energy promotion policies were evaluated by developing top-down recursive dynamic computable general equilibrium model (CGE) for Pakistan, which is based on social accounting matrix (SAM) for the year 2005.
The assessment of renewable energy (RE) resources potential indicates that the country is rich in terms of renewable energy resource potential. Among the different renewable energy sources, solar energy has the highest potential followed by biomass, wind and small hydro. Further, the total technical RE potential available for electricity generation is much more than the current and future electricity demand in the country. Therefore, appropriate policy implementation to exploit this potential can lead to a sustainable energy future of the country.
The effects of RPS policy on the power sector were analyzed by developing a base case scenario, (i.e., without any policy of increasing renewable energy share in the power sector) and eight counter-factual scenarios with different levels of renewable energy based electricity share in the power sector during 2020-2050. The results based on the MARKAL model of Pakistan show that increasing the share of renewable energy up to fifty percent under RPS50 in 2050, would increase energy diversification, reduce import dependency and emissions of global and local pollutants with insignificant increase in the cost of electricity generation. Below RPS50, there is continuous improvement in energy diversification, reduction in import dependency of fossil fuels and use of fossil fuels in the power sector and thereby reduction in the emissions of GHG and air pollution with marginal increase in the cost of electricity generation. Moving beyond RPS50, would increase cost of electricity generation significantly, whereas there would be only minor improvements in import dependency, energy diversification and GHG emissions.
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The economy wide implications of RPS policy were analyzed using the CGE model of Pakistan developed under the present study. The analysis indicates that increasing renewable electricity under RPS policy would result in a loss of GDP and household welfare, whereas import dependency and GHG emissions would reduce in 2050. Increasing the share of renewable energy up to fifty percent under RPS50, would cause insignificant economic cost in terms of GDP and welfare loss, whereas energy intensity of GDP would marginally increase as compared to base case in 2050. Increased share of renewable electricity beyond 50% in 2050 would cause significant negative macroeconomic impacts in terms of losses in GDP, household welfare, output and trade. The energy consumption and emissions effects of RPS targets above 50% (“RPS50”), however, show positive picture as moving beyond RPS50 the import dependency and GHG emissions would start reducing significantly due to reduction in use of fossil fuels and addition of alternative energy sources in the power sector. Nevertheless, the overall impact on the economy at RPS above 50% would be negative.
The policy of limiting economy wide CO2 emissions was examined by using the same base case scenario as in case of RPS policy and six counterfactual scenarios with introduction of different targets of economy wide CO2 emission reduction during 2020-2050. Comparison of the effects of different targets shows that reducing CO2 emission up to twenty percent under EMRT20 would improve energy security in terms of higher energy diversification, lower import dependency and lower use of fossil fuels in the power sector as compared to the Base Case in 2050 with minor increase in the cost of electricity generation. Reducing economy wide CO2 emission more than twenty percent would result in a significant rise in the cost of electricity generation due to addition of expensive renewable technologies in the power sector, whereas there would be only minor reductions in import dependency and GHG emissions. In case of economy wide CO2 reduction constraint of less than twenty percent, there are chances of improving selected indicators with minimal increase in the cost of electricity generation.
The impacts of CO2 emission reduction at economy level were examined using CGE model. The analysis shows that the reduction of CO2 emission would incur economic costs in terms of GDP and welfare losses as well as reductions in sectoral outputs and net trade, whereas the import dependency and GHG emissions would be decreasing. However, GDP and welfare loss are insignificant and there would be continuous reduction in energy import dependency and GHG emissions, if twenty of CO2 emission reduction target is imposed. Beyond twenty percent CO2 emission reduction target, the GDP and welfare losses would increase significantly along with substantial reductions in sectoral outputs and net trade. The changes in energy use and GHG emissions, on the other hand, would show positive trend in terms of reduction in energy import dependency and GHG emissions. However, the economic cost of reducing CO2 emissions by more than twenty percent in 2050 are higher than benefits in terms of reduction in import dependency and local as well as GHG emission reduction, as the country’s economic growth would start declining significantly.
The comparison of the RPS and EMRT policy has been made on the basis of penetration level of renewable electricity. Reducing economy wide CO2 emissions by twenty percent under EMRT20 penetrates almost the same level of renewable electricity as in case of RPS40. It has been observed that reducing twenty percent economy wide CO2 emissions under EMRT20 is more suitable for promoting renewable energy in the power sector of Pakistan. Under EMRT20 policy, the energy diversification in the power sector is higher whereas energy import dependency and use of fossil fuels in the power sector and GHG
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emissions from the power sector are lower as compared to the RPS policy introducing same amount of renewable electricity in the power sector under RPS40. The comparison of the economy wide effects of both policies under EMRT20 and RPS40 favors EMRT policy over RPS policy in terms of changes in GDP and household welfare as both GDP and welfare are at higher level under EMRT20. However, in terms of changes in share of renewable energy in TPES and energy import dependency at economy level, RPS40 is more suitable policy for renewable energy promotion. |