Economic Assessment of CPEC: The Case of a Power Project

Abstract

In this chapter, social cost benefit analysis (SCBA)—an appraisal based on the economic costs and the benefits faced by society—is applied to the early harvest component of China Pakistan Economic Corridor energy projects. The requisite steps of SCBA are explained in the context of important issues such as the social discount rate and social cost of carbon emissions. The methodology is then applied to the Sahiwal Coal Power Project, with the aim of gauging the extent to which the environmentally detrimental impact of the recently operational Sahiwal Coal Power Plant is offset by the potential benefits of overcoming the energy shortfall in Pakistan. The analysis therefore includes not only the private costs and benefits of setting up the plant, but also the related economic, environmental and social implications, duly monetized and discounted over a 30-year period; the usual life of such plants. The results indicate that the power plant generates a net economic benefit if the lower bound of the social cost of carbon is used and a net loss if the upper bound is considered. Findings from the case study indicate that carbon dioxide emissions from five imported coal-fuelled plants will increase by 18% from the base of the 2014 national carbon emissions inventory. The study also raises important policy questions about the spatial location and environmental footprint of coal power and whether the national benefits warrant any local compensation.