From waste to wealth: Part - II

The metropolitan municipal solid waste (MSW) generation, of which 75 per cent is organic, remains largely untapped. Organic MSW with higher calorific value given our national consumption of fatty oils and foods holds significant potential for conversion into biofuels, while non-recyclable fractions can be processed into biodiesel and SAF through technologies like hydro-processed esters and fatty acids (HEFA). Feedstocks such as used cooking oil (UCO), soap stock, and poultry feather acid oil can enable Pakistan to produce around 680,000 MT of SAF annually.

This production could reduce carbon emissions by 70-80 per cent compared to conventional jet fuels. Beyond meeting domestic SAF requirements, Pakistan’s annual production capacity positions it to export significant quantities to regions with high demand, such as Europe and North America.

Formalised waste collection systems, particularly in urban centres such as Karachi where an estimated 22,000 MT per day is generated, are crucial and offer another climate-linked investment opportunity on a PPP basis as there are use cases in other countries. Engaging informal waste pickers in structured recycling programmes can further enhance feedstock availability and encourage financial inclusion by incentivising them through rewards participation programmes as the estimated earnings for waste pickers in Karachi is over Rs100,000 per month.

Results-based financing (RBF) can be used to reward waste processors for achieving recycling and energy production targets. Effective waste management systems in urban areas reduce environmental pollution, enhance resource recovery, and foster sustainable cities which are central to SDG11.

Thus far there has only been one SAF project in Pakistan where two multilateral development banks have supported with patient capital the climate-linked project. New projects can attract funding by local investors and authorities linking up with the Global Environment Facility (GEF) which has provided grants and technical support for SAF R&D and pilot projects in developing countries including in India to support decarbonisation of the aviation sector.

Another avenue Pakistani lenders and investors should explore is the Climate Investment Funds (CIF) which channels concessional finance to private investors in emerging markets primarily through its Clean Technology Fund to scale SAF production.

Although the federal government introduced a biodiesel programme in 2008 targeting a 5.0 per cent biodiesel blend in diesel fuel by 2015 and a 10 per cent blend by 2025, it is not being promoted even after the Alternative and Renewable Energy (ARE) Policy of 2011 was developed to promote biofuels as part of the country's renewable energy.

The ministries of energy and finance ought to design a specific framework which promotes and incentivises producers and investors as well as mandates via provincial departments the collection and recycling of organic and agricultural waste. Tax incentives for biofuel and SAF producers and SAF blending targets for the aviation industry will stimulate investment in this sector, as well as capital relief on risk-weighted assets deployed by domestic lenders to provide transition and climate-friendly development financing to biofuel facilities and refineries.

To unlock this potential via the SIFC, which champions the successful ‘whole of government’ approach, opportunities must be created for sovereign wealth funds and institutional investors to invest and build infrastructure for WtB on a public-private partnership basis too. In May 2024 for instance, the UAE’s Mubadala Capital announced a $13.5 billion investment into Brazil through Acelen Renovaveis to produce up to 1 billion litres of biofuels/SAF annually with the US giant Honeywell which shall implement renewable fuels technology and begin moduled production by the end of 2026.

The investment would be through a mix of equity and debt tranched into five modules, and each will consist of a new biorefinery with associated infrastructure and planted areas to grow the input crop with an output processing capacity of 20,000 barrels of fuel per day. Why should the UAE not invest so close to home with low freight charges when it has its SAF targets set to produce 700 million litres of SAF annually by 2030, accounting for at least 1.0 per cent of the total fuel supplied at its airports by 2031 where up to $9 billion of investment is required in SAF facilities and supporting value chains to meet these targets.

A similar case can be made for the Saudis since the Public Investment Fund (PIF) has announced a target to achieve net-zero greenhouse gas emissions by 2050 and should be invited to assess alongside ARAMCO the potential to set up biofuels refineries in Pakistan using agricultural and municipal waste.

Pakistan must not miss out on this climate-linked development finance opportunity. By adopting a multi-stakeholder partnership approach that aligns with SDG17 the private sector should lead, fueled primarily by viability gap funding (VCF) from state-owned banks and development finance institutions whose prime responsibility is to create economic growth avenues, and the government which facilitates the PPP model, Pakistan should enhance energy security while driving inclusive and export-oriented economic growth.

(If you are interested in the dynamics and opportunities of the biofuel and waste management sectors, please contact the writer for a detailed white paper on ‘Creating a Sustainable Circular Economy in Waste Management’).

Concluded

The writer is a seasoned banker with 30 years of international expertise in global markets and developmentfinance. He can be reached at:1adnanpasha@gmail.com