The decarbonization diagnosis: collecting the evidence needed to move Sri Lankan industries to a greener, more secure future

In 2022, Sri Lanka experienced the most severe economic crisis in its history and severe shortages of imported fossil fuels, on which the country relies, soon followed. The country’s industrial sector, like many others, was deeply impacted. At the same time, Sri Lanka is experiencing the worst effects of climate change with increased floods and other extreme weather events, threatening crops, lives and livelihoods. The need to build the energy security required for Sri Lanka’s economy to thrive and to reduce harmful carbon emissions has never been greater.

To get there, the Sri Lankan government has pledged that 70 percent of the country’s energy will come from renewable sources by 2030. As part of this, Sri Lankan industries must reduce their fossil fuel use so that industrial emissions fall by 7 percent.

In 2023, the Ministry of Industries, UNIDO and Global Efficiency Intelligence undertook an intensive, year-long process to diagnose the issues that are making it hard for industry to decarbonize.

“This is not just about decarbonization; it’s about energy efficiency, energy security, avoiding the next crisis, being independent,” explains Ali Hasanbeigi, The CEO and research director at Global Efficiency Intelligence, who led the research. “A lot of things the diagnostic report is suggesting will directly benefit business and the country, so that businesses won’t face what they faced two years ago.”

Challenges, trends and opportunities

The ground-breaking report focuses on four key manufacturing sectors: textiles and apparel, food and beverages, rubber and cement.

Leading Sri Lankan figures from these industries plus government policymakers and advisors, financiers, energy associations and service companies were surveyed and interviewed, with participants encouraged to share their perceptions and experiences on the current challenges, trends and opportunities, and the gaps and needs that must be addressed to make progress.

An initial stumbling block was the lack of data in key areas such as electricity and fuel use, something government ministries and other national agencies worked hard with UNIDO to rectify. These efforts have led to an unprecedented amount of data on Sri Lankan industrial energy use now being available.

“We identified a series of challenges, from the lack of key information and data to having a proper coherent policy and framework to support decarbonization so that everybody is moving towards one goal,” says Dr. Hasanbeigi. “There is also a lack of a financing mechanism to help finance decarbonization solutions and energy efficient measures. [And there is a need to] develop certain infrastructure, which UNIDO is helping to support through the MRV [monitoring, reporting and verification] system and data collection management work it is already doing, and also by building capacity in the country.

“Sri Lanka is coming out of its recent crisis, and this could be the opportunity to recreate its energy system in a better way. Instead of going back to the old ways of doing things, Sri Lanka can create a new way with clean electricity and clean energy, using local, sustainable energy sources rather than imported [fossil fuels].”

Inspiration from international best practices

One of the most valuable things about the diagnostic report is that it adapts international best practices to the Sri Lankan context, offering up a range of policy recommendations and actions based on evidence of what has been successful in other developing and developed countries.

These include a proposal for a programme modelled on an effective policy in China and several other countries, in which the top 100 energy-intensive enterprises in the country agree decarbonization targets and commitments with the government over a five-year period and get a package of support to achieve these aims in return.

“China started its Top 1000 enterprises programme in 2006, and in 2011 it became the top 10,000 enterprises. This has been one of the most successful policies in the world in terms of industrial decarbonization,” says Dr. Hasanbeigi.

Other proposals include the development of energy standards, innovative funding mechanisms and financial incentives. Skills and capacity building programmes are emphasized to grow an army of Sri Lankan decarbonization and energy efficiency experts. Establishing a robust data collection framework is also recommended to track progress, while sector-specific net-zero roadmaps and awareness campaigns are proposed for key industries.

The diagnostic report was presented to key policy and industry stakeholders at the end of March 2024. Their feedback is being used to develop industrial decarbonization roadmaps for several key industrial sectors in Sri Lanka. Dr. Hasanbeigi is hopeful this process will establish a path forward that will help the country meet its climate goals and develop a more sustainable and competitive industry sector.

“Even now, there are energy shortages and electricity shortages in Sri Lanka,” he says. “A lot of things we are talking about will reduce the energy shortage and improve energy security… It’s not just about doing something for the greater good of the world; what we are recommending will directly benefit the Sri Lankan people if properly implemented.”