INITIAL ENVIRONMENTAL EXAMINATION REPORT I. INTRODUCTION

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1 Supplementary Appendix I 1 INITIAL ENVIRONMENTAL EXAMINATION REPORT I. INTRODUCTION 1. The Asian Development Bank (ADB) initiated a technical assistance project for preparing Pakistan s Energy Efficiency Development Program (TA 7660-PAK) to promote energy efficiency in Pakistan. This Initial Environmental Investigation (IEE) was prepared to assess the environmental and social impacts of a proposed Compact Fluorescent Distribution Program that will form the first tranche of the Pakistan Energy Efficiency Investment Program. 1. Background 2. Adequate power supply is a key to achieving sustainable economic growth. Presently, out of around 162 million inhabitants only 65 70% have access to electricity and the Government is committed to provide electricity access to all the households in the minimum possible time. Demand has outstripped supply of electricity; the country is currently facing peak power shortages of approximately 4,000 4,500 MW. The present electricity demand-supply gap, coupled with consistent growth in demand (7-8% per annum), clearly indicates the critical need for enhancing the country s current power generation capability. 3. Pakistan has 19,420 Megawatts (MW) of total installed generation capacity from hydroelectric, thermal, and nuclear sources. 1 Electricity is supplied mainly by conventional thermal plants, with oil and natural gas being the primary fuel sources. Thermal power plants account for around 66% of total capacity. A further 32% of the capacity is accounted for by hydro-electric plants, with the remaining 2% supplied by nuclear power stations. 4. A preliminary energy efficiency assessment conducted in 2007 under ADB s Energy Efficiency Initiative determined that Pakistan has a large potential for energy efficiency improvements. The study identified several energy-efficiency improvement opportunities in gas distribution and power generation (supply side) and in the industrial, transportation, commercial, government, and residential sectors (demand side) that can be tapped into. Some of these opportunities can be exploited immediately without extensive analysis, policy design, or framework development. 5. International experience shows that among all these potential programs one of the most efficient is to promote Compact Fluorescent Lamps (CFLs) in the domestic sector: it can be quickly implemented; results in savings through its impact on peak demand in the evening; and generates economic benefits for energy users as well as the society at large. 6. CFLs already have a substantial share of the residential lighting market and are outselling incandescent lamps. But a program to accelerate their market penetration can have a quick and lasting impact on the power demand curve. The government is interested in just such an aggressive CFL program that has a quick payback and can have an immediate impact on alleviating the ongoing power supply shortages. 7. This IEE of the CFL Program is submitted to ADB by the Pakistan Electric Power Company (PEPCO). This IEE does not cover the required lamp waste management facility which is expected to develop in the private sector. A separate assessment will be required for the facility under the environmental regulations of the country. 1 National Transmission and Dispatch Company Power System Statistics.

2 2 Supplementary Appendix I 2. Environmental Regulatory Compliance 3. Section 12(1) of the Pakistan Environmental Protection Act 1997 (Act) requires that No proponent of a project shall commence construction or operation unless he has filed with the Federal Agency an initial environmental examination or, where the project is likely to cause an adverse environmental effect, an environmental impact assessment, and has obtained from the Federal Agency approval in respect thereof. 4. Project is defined in the Act as any activity, plan, scheme, proposal or undertaking involving any change in the environment and includes (a) construction or use of buildings or other works; (b) construction or use of roads or other transport systems; (c) construction or operation of factories or other installations; (d) mineral prospecting, mining, quarrying, stonecrushing, drilling and the like; (e) any change of land use or water use; and (f) alteration, expansion, repair, decommissioning or abandonment of existing buildings or other work roads or other transport systems, factories or other installations. 5. The Pakistan Environmental Protection Agency Review of Initial Environmental Examination and Environmental Impact Assessment Regulations, 2000 (IEE-EIA Regulations 2000) provide the necessary details on the preparation, submission, and review of the IEE and the environmental impact assessment (EIA). The regulation categorizes the projects on the basis of anticipated degree of environmental impact. Project types that are likely to have significant adverse impact are listed in Schedule II of the regulations and require an EIA. Projects that are not likely to have significant adverse impacts, are listed in Schedule I and require an IEE, provided that the project is not located in an environmentally sensitive area. 6. The proposed CFL distribution program is not included in either of the schedules in the IEE-EIA Regulations Similarly, the proposed program does not fall in the definition of project provided by the Act. However, waste disposal facility for domestic or industrial wastes, with annual capacity less than ten thousand cubic meters requires an IEE, whereas facility with higher capacity requires EIA. It is therefore concluded that the CFL distribution program, per se, does not require a regulatory approval from the environmental protection agencies. However, the lamp waste facility would require an IEE or EIA based on its design. 3. Environmental Category Under ADB Environmental Guidelines 4. Under ADB s Environmental Assessment Guidelines (2003) the CFL Distribution subproject is a Category B project and requires IEE. 5. Objectives and Scope of IEE 6. The objectives of this IEE were to: (i) (ii) Assess the proposed activities, identify and evaluate the potential impacts and determine their significance; and Propose appropriate mitigation measures that can be incorporated into the proposed activities to minimize any adverse impacts, ensure that residual impacts are acceptable and propose monitoring requirements.

3 Supplementary Appendix I 3 II. PROJECT DESCRIPTION 7. The objective of the residential energy-efficient lighting program is to a) capture the potential power and electricity savings in the domestic lighting sector by replacing incandescent bulbs (IBs) with high-performance, high-quality CFLs; b) achieve rapid and long-term savings by using existing lighting distribution channels and taking advantage of their market experience, existing storage and moving equipments, experienced staff, and integrated structure from bulk import to customer purchases; and c) flood the market with high quality CFLs. If a second phase is necessary, it will reinforce the demand for high quality CFLs and anchor a market transformation towards high quality CFLs. Indirectly, it will enhance demand for other energyefficient products. 8. The program shall replace 30 million incandescent bulbs with CFLs. If successful, the program, through two rounds of free CFL distribution, will largely eliminate the use of inefficient incandescent bulbs from the Pakistani residential market. 9. The CFLs will be provided to consumers free of charge over a two-year period. Typically, CFL give-away programs do not recover their costs. However, this program is projected to recover its costs through reduced subsidies to low-income lifeline consumers. The higher tariffs paid by more affluent consumers to support low-income consumers, plus the direct government subsidies paid to support low-income consumers, will together generate a revenue surplus because low-income consumers will be consuming less electricity. That surplus is projected to cover the costs of the CFLs and the program administration. Hence, the program, despite purchasing and giving away CFLs for free, will cover its costs. 10. PEPCO and the DISCOs will handle the distribution of the CFLs. The DISCOs have the ability, with minor adjustment to their logistics, to handle the distribution. As observed in other countries, utility-led DSM programs have the advantage of enhancing the image of the utility with respect to the consumers and can be successful if properly managed and guarded from potential fraud or diversion of the product. 11. The recommended minimum Lumens per Watt for the new CFLs shall also follow ELI standards (57 lumens per Watt). The total rated lumens for a 21 to 23 Watt CFL is expected to match or exceed the total rated lumens for a 100 Watt IB (1,254 vs 1,240). Based on the market survey, approximately 90% of the IB throughout the country found to use B22 Cap (pin type). Therefore, it is recommended in the program to procure all the CFLs with B22 Cap. 12. A lamp waste management facility (LWMF) will be required for disposal of waste lamp. It is expected that the facility will be developed in private sector on commercial basis. The lamp waste management system would need to be in place by the fourth year of the program, as the CFLs distributed under the program begin to reach the end of their operating lifetimes. However, the program could be started even earlier to help manage current CFL/FTL disposal needs, as well as to establish and test an effective recycling regime and create the necessary awareness levels. 13. The program will be implemented over a two year period starting in the last quarter of 2009.

4 4 Supplementary Appendix I III. POTENTIAL ENVIRONMENTAL AND SOCIAL IMPACTS A. Potential Environmental Impacts 14. Life Cycle Analysis: The CFL program entails the manufacture and distribution of CFLs at a large scale. As the worldwide potential of energy saving by using CFL runs into several terawatt-hours, it is pertinent to compare the life-cycle environmental cost of the CFL to that of the IB. Parsons, who conducted the analysis conclude that: 2 (i) The impact of the CFL use on the world s physical environment is less by all normal measures compared to the IB, mainly due to the decreased energy use; (ii) The impact of the mercury in CFLs which may be released on disposal, is not a major problem relative to other factors nor relative to the amount of mercury released from the burning of some coals; and, (iii) The electronics in the ballast of the CFLs has a significant impact, largely because of the material content and energy used during manufacture. 15. Manufacturing: All the CFLs that will be distributed under the program will be imported from other countries. Therefore, the impact of the manufacturing processes is beyond the scope of this project. 16. Risk of Mercury Exposure: Mercury is a potent neurotoxin found in a variety of products. It affects the brain, liver and kidneys and can cause developmental disorders in children. Young children and developing foetuses are especially at risk. Breakage of CFL can potentially release mercury vapours in the air. 17. The Occupational Safety and Health Administration (OSHA) sets a legally enforceable ceiling limit for workplace exposure at 100 micrograms per cubic meter (μg/m 3 ). Mercury concentration cannot exceed this level at any time during the work day. The National Institute for Occupational Safety and Health (NIOSH) sets its recommended exposure limit (REL) for mercury vapour at 50 μg/m 3 as a time weighted average (TWA). The American Conference of Governmental Industrial Hygienists (ACGIH) recommends a threshold limit value (TLV) of 25 μg/m 3 mercury vapour as an average exposure for a normal 8-hour workday A typical CFL contains about 3 to 4 mg of mercury. For analysis, it is assumed that on breakage the entire mercury content in a CFL is vaporized and is instantaneously distributed in a typical room of 40 m 3 volume. The initial concentration of the mercury in the air would thus be about 100 μg/m 3. Even in a tightly insulated room, the rate of air change is of the order of 0.4 to 0.5 air changes per hour. This is equivalent to complete air change every 2 to 2.5 hour. Thus the mercury concentration will drop from the initial level to less than 40 μg/m 3 in 2 hour and less than 2 μg/m 3 in 8 hours. 4 A person who stays in this room for eight hours would have the exposure level of 25 μg/m 3. In reality, the exposure levels are likely to be much lower than this because a) the rates of air changes are typically higher than 0.5, typically 1 to 2 air changes per hour; and b) not all mercury is in vapour form and is released into the air. Only about 1 mg can be released. Under these typical conditions, a person present in the room for 8-hours would be exposed to about 3 μg/m 3 in an 8-hour period. Further, the exposure limits are based on long- 2 Parsons, D The Environmental Impact of Compact Fluorescent Lamps and Incandescent Lamps for Australian Conditions. The Environmental Engineer. Vol. 7, No 2, p8. 3 Indoor Air Mercury Assuming room volume 40 m 3 ; air change rate 0.5 equal to fresh air flow rate of 5.56 litres/sec; CFL mercury content 4 mg per lamp.

5 Supplementary Appendix I 5 term exposure not exposure on a single day. Therefore, the health hazards of mercury exposure due to a single accidental breakage of CFL are not deemed significant. 19. Lamp Waste Management: A burnt-out CFL is potentially hazardous waste because of the presence of mercury. Its disposal into municipal landfill and dumping site can result in release of mercury into the soil and to water bodies. There is currently no lamp waste management facility in the country. The waste generated from fluorescent tube lights (FTL) and CFLs used in the country are dumped with other municipal waste into various waste dumping sites or are crushed without any safety consideration for disposal of glass. The 30 million CFLs to be distributed under the proposed program will contain between 100 to 120 kilograms of mercury. It is therefore pertinent to develop a lamp waste management facility with the required handling capacity. A modern LWMF is designed to recover glass, metal, mercury, and chloride salt from the waste lamp in a manner that these can be reused. 20. The proposed CFL distribution program envisages distribution of 10 million CFLs in Phase I, spread over a 4 months, and distribution of another 20 million CFLs in Phase II, spread over 6 months. The Phase II will be initiated about 8 months after the completion of Phase I. The CFLs procured for the distribution will have a specified life of 10,000 hours. Given that the average usage of CFLs in the domestic sector is about 3.69 hours per day, the CFLs are expected to last more than 9 years, on average. However, waste CFL issue is likely to start much before that because of a number of reasons. Firstly, manufacturing defects and mishandling may results in burning out and breakage of CFLs before completion of their rated life. Secondly, The CFLs may also replace FTLs, which also contain about mg of mercury and require proper handling facility. Lastly, the awareness campaign associated with the program is likely to generate a need for a waste disposal facility for the CFLs are already in use in the country. It is estimated that about 3% of the CFLs (900,000) distributed under the program will require disposal within 3 years after the start of the program. As the typical capacity of a compact LWMF is about 0.4 to 0.5 million CFLs per month, the program envisages that a facility will be developed and made operational in Year 3 of the program. 21. To make it a viable and sustainable mechanism, waste treatment would be organised on a commercial basis. There would be a payment for used CFLs and for fluorescents in general. One option would be to get trash collectors to pick up used fluorescents and bring them to a colleting point, and be paid for the waste. Private trash recyclers could manage and run the central waste collection facilities suitably located around the country. 22. Once these lamps have been accumulated at the collection points, a recycling mechanism would need to be set up to treat them. The CFL program will provide an opportunity to establish required recycling facilities in the country for all fluorescent lamps. Survey results show that there are presently 113 million light points in the domestic sector in Pakistan. Of these, currently approximately 60% utilize fluorescent lamps, including tubes and existing CFLs. It is estimated that up to four recycling facilities would be required initially, perhaps distributed across the capitals of each province in Pakistan to limit as much as possible the costs of transportation of used fluorescent lamps. B. Environmental and Social Benefits 23. Improving energy efficiency and energy conservation, in general, leads to a cleaner and better environment. Electricity production, particularly from fossil fuel, has far-reaching environmental impacts. Consequently, energy efficiency is closely related to environmental benefits. Other than the economic and financial benefits, the CFL program will decrease the

6 6 Supplementary Appendix I demand of natural resources and reduce emissions of atmospheric pollutants, resulting in reduced greenhouse gas emissions and consequently less climate change impact. An estimate of electricity savings through replacing 30 million incandescent lamps by CFLs is presented in Table The key benefits of the program are: Avoided peak generation (installed capacity) 1,757 MW; Annual energy saving 2,310 GWh; Total annual consumer electricity cost savings per light point Rs 302. Total CO 2 emission reduction over CFL life million to of CO 2 equivalent. Table 1: CFL Program Avoided Generation, Electricity Savings and CO 2 Calculations Total Peak Demand Reduction (100% Coincidence) 1,714 MW Total Peak Demand Reduction (66% Coincidence) 1,131 MW Transmission and Distribution Losses 19.5% Total Required Generation (Net of Reserve Margin) 1,405 MW Peak Generation Cost (Net of Reserve Margin) 1,150 $/kw Peak Avoided Cost 1.62 $ billion Reserve Margin 20% Avoided Peak Generation (Installed Capacity) 1,757 MW Peak Avoided Cost (Installed Capacity) 2.02 $ billion Average CFL Use per Light Point h Average Annual CFL Use per Light Point 1,347 h CFL Rated Life 10,000 h CFL Useful Life (Average) 7.4 yrs Annual Electricity Savings 2,310 GWh Total Electricity Savings Over CFL Life 17,146 GWh Total Consumer Electricity Cost Savings Over CFL Life Per Light Point 2,242 Rs Total Annual Consumer Electricity Cost Savings Per Light Point 302 Rs/yr Pakistan Grid CO 2 Emission Factor 426 tco 2 e/gwh Annual CO 2 Emission Reduction 984,273 tco 2 e Total CO 2 Emission Reduction Over CFL Life 7,304,202 tco 2 e 25. Other less tangible benefits include increased public awareness towards hazardous waste, availability of better quality lamps due to development and enforcement of product labelling, and development of commercial opportunities in waste management. Compact fluorescent lamps are available and have been selling in Pakistan for the past few years.

7 Supplementary Appendix I 7 However, like many Asian countries the consumers are often provided with are facing low quality of CFL products. The proposed program will introduce a mandatory CFL labelling and testing program, thereby improving the quality of the products available in the market. 26. Other less tangible benefits include increased public awareness towards hazardous waste, availability of better quality lamps due to development and enforcement of product labelling, and development of commercial opportunities in waste management. Compact fluorescent lamps are available and have been selling in Pakistan for the past few years. However, like many Asian countries the consumers are often provided with are facing low quality of CFL products. The proposed program will introduce a mandatory CFL labelling and testing program, thereby improving the quality of the products available in the market. 27. Improved energy efficiency will result in reduction of the instances of load shedding. At times of power shortages, the electricity distributions companies (DISCOs) switch off power supply to part of the grid to reduce the load on the distribution system. It is a common practice to keep the load-shedding hours in the rural areas longer than the urban areas. At times loadshedding in rural areas is twice as much as the urban areas. Availability of additional power through energy efficiency is likely to reduce the instances of load-shedding which is likely to benefit the rural areas and the poor segment of the society more than the affluent class. 28. The national CFL project will result in reduction of electricity bill. The reduction is likely to be much more significant for the lifeline consumers than the consumers in the upper power consumption bracket. C. Environmental Risk 29. There are several important assumptions on which the design and outcome of the national CFL project has been predicated and on which its eventual success will depend. Adequate provision and safeguards, however, have been built into the project methodology to prevent any one of these from significantly jeopardizing the project s main objectives being achieved. The key environmental risk is that the assumption that lamp waste management will provide an opportunity to private investors proves wrong. This will result in the situation where the program starts accumulating lamp waste but there are no facilities available for the disposal of the waste. To avoid this risk a sum of $6 million has been included in the program budget to develop the waste facility in the public sector should the need arises. IV. INSTITUTIONAL REQUIREMENTS AND ENVIRONMENTAL MONITORING PLAN A. Institutional Requirements 30. The Pakistan Electric Power Company (PEPCO) shall be the executing agency (EA) for the national CFL project, while nine DISCOs 5 will be the implementing agencies (IAs). In this capacity, PEPCO will be ultimately responsible for the environmental performance of the program. For purposes of this project, Project Implementation Cells (PICs) will be established at each DISCO to coordinate and manage their respective project activities and to liaise with the project consultants, EA, and the program management unit (PMU) at the Planning Commission. The role of the M&E consultants will commence with the initiation of the project communication program and continue till the end of the project. 5 LESCO, GEPCO, FESCO, HESCO, PESCO, MEPCO, QESCO, IESCO, and KESC. The program will not include TESCO, the Northern Areas, or Azad Jammu and Kashmir (AJK).

8 8 Supplementary Appendix I 31. A consultant expert in lamp waste management as well as energy efficiency standards and labeling will assist the EA with preparation of specifications, prequalification documents and tender documents. The bidding documents will specify, among others, that the CFL shall meet highest international technical and environmental standards. B. Environmental Monitoring 32. No specific environmental monitoring is proposed for the CFL distribution program. 33. The key environmental risk is that the LWMF is not functional in the fourth year of operation as envisaged in the program design. A functional lamp waste collection and management facility by the year 2015 and creation of the appropriate regulatory environment for hazardous materials handling is included as a key performance indicator for the program. V. PUBLIC CONSULTATION AND INFORMATION DISCLOSURE 34. A consultative group involving various representatives from the ministries of water and power, petroleum and natural resources, and finance; ENERCON; Energy Wing of the Planning Commission was formed. Additional meetings were held with various donor agencies, and power and gas utility companies. 35. A baseline domestic lighting survey was undertaken across Pakistan. The survey was conducted in 3,253 randomly selected households spread over 58 major districts, tehsils and town committees. 45% of these households were located in urban areas, with the remaining 55% in rural areas. The survey sample was distributed over the 9 DISCOs and electricity consumption categories using the actual electricity customer base of PEPCO in Other than the question regarding household energy consumption and appliances, information and opinion was also sought on the awareness and acceptability of the CFL. In response to a question, 89% reported having heard of CFL, mostly from radio and television advertisements. 64% reported that they regularly purchase CFL. Of these, 90% cited as reducing electricity cost as the main reason for purchasing CFL. Of those who do not use CFL, high cost was cited as the main reason of not purchasing CFL by 89% of the respondent. In response to the question, Would you be willing to purchase a CFL/energy saver that is more expensive than an incandescent bulb? 58% responded in affirmative, 26% said maybe, whereas only 16% answered negatively. In general, this indicates that awareness about the CFLs already exists widely in the consumers and they also have a general acceptance of the CFL even though the initial cost of the lamps is considerably higher than the incandescent lamps. VI. CONCLUSIONS 37. The national CFL project does not have any direct adverse environmental or social impact. The program will result in benefits in the form of avoided power generation (installed capacity), annual energy saving and reduced consumer electricity cost. It will also result in reduction in emission of greenhouse gases and other pollutants.