Pakistan's Coal Phase-Down Faces Political and Economic Barriers to Green Transition

A political economy analysis of Pakistan's energy sector finds that the country's coal capacity has grown from 0.15 GW in 2015 to over 7 GW by June 2023, driven largely by China-Pakistan Economic Corridor support, while solar and wind contribute only 6% of total capacity. Significant political, economic and legal barriers are impeding both coal phase-down and renewable energy scale-up.

Pakistan's coal-fired generation expansion has been financed overwhelmingly by China, which backs 90% of current coal capacity. Circular debt within the power sector, exchange rate risk, and rising fuel import prices have created fiscal constraints that limit Pakistan's ability to transition its electricity infrastructure. Despite solar and wind generation costs already being cheaper than coal in many configurations, renewable development has stalled due to non-economic factors including vested interests, governance challenges, and the dominant role of CPEC-linked fossil fuel commitments.

The analysis identifies several enabling factors for Pakistan's energy transition. The Energy Transition Mechanism, an active global initiative in Pakistan, focuses on phased closure of fossil fuel plants and provides transition financing tools grounded in just transition principles. China's evolving sustainability standards for overseas investments also present an opportunity for constructive dialogue on debt and contract restructuring to repurpose existing coal assets. Pakistan's own renewable energy targets and developing green finance frameworks provide a policy foundation for a more comprehensive transition.

Policy recommendations for the next two to five years centre on accelerating renewable deployment, restructuring power sector finances to address circular debt, and engaging international partners — particularly China — on transition pathways for CPEC-linked coal assets. Over a seven to ten year horizon, deeper structural reforms to power market governance, contract frameworks, and green finance mobilisation will be required. Pakistan's status as a core Belt and Road Initiative country makes bilateral engagement with China on coal phase-out a strategic priority for both energy security and climate commitments.

Key figure — 7 GW — Pakistan's coal generation capacity as of June 2023, up from 0.15 GW in 2015, with China backing 90% of current capacity.