PAKISTAN stands at a pivotal moment in its climate and economic journey. Pakistan cannot afford to be a passive observer as the world shifts towards carbon markets to finance low-carbon development. The global carbon trade isn’t just an environmental obligation but an economic opportunity that can reshape our finances, industrial landscape and international standing.
Yet, discussions here are bogged down by technical jargon and bureaucratic inertia. We need a fresh perspective on carbon trading as a financial tool driving innovation, investment and sustainable growth. Pakistan’s carbon markets became functional in early 2025 after federal guidelines were approved under Article 6 of the Paris Agreement. This is a critical step in bridging our climate finance gap. Initial buyers: Singapore, Norway, Switzerland and South Korea show international demand, but the challenge is scaling efforts to ensure carbon assets deliver real economic and environmental benefits. The key question is: are we treating carbon markets as strategic assets or just another climate commitment checkbox?
The private sector has long been sidelined in climate finance discussions, despite its potential to drive sustainability. The World Bank estimates Pakistan needs $348 billion in climate finance through 2030, while the UK’s Foreign, Commonwealth and Development Office warns of $380 billion in economic losses by 2050 due to climate disasters. These figures underscore the urgency of leveraging every financial mechanism, including carbon trading. Yet, Pakistan relies heavily on grants and concessional loans, often overlooking market-driven solutions.
Regulatory ambiguity, institutional hesitancy and disconnects between environmental policy and economic planning hinder progress. Pakistan’s renewable natural capital, valued at $474 billion, remains untapped. Forestry, renewable energy, agriculture and waste management offer immense potential for carbon credit generation. But without a robust, transparent system, these opportunities will remain theoretical. The government must ensure carbon markets are competitive and attractive to investors. This requires clear regulations, streamlined approvals and a framework that incentivizes businesses rather than treating carbon trading as bureaucratic formality.
Climate-related tax reforms could expand fiscal space for climate action. The petroleum development levy, for example, could be restructured into a carbon tax, generating $2–3 billion annually. However, such measures must avoid overburdening industries without viable alternatives. Strategic carbon pricing offers dual benefits: reducing emissions while generating revenue for climate-resilient infrastructure and green innovation. A balanced approach, combining incentives with accountability, is key to a thriving carbon market. Public-private partnerships (PPPs) are another underutilized tool. Countries like India have mobilized $10 billion for climate-resilient infrastructure through targeted PPPs, while Pakistan lags in integrating climate costs into PPP frameworks. The Asian Development Bank recommends a dedicated climate finance unit within the federal PPP authority—a proposal needing urgent action. If executed effectively, this could reduce public borrowing needs by $3 billion annually while accelerating the low-carbon transition.
Transparency is critical. Pakistan’s governance issues risk making carbon trading another opaque mechanism serving a select few. Ensuring credibility in carbon credit verification, preventing double counting and maintaining international standards are non-negotiable. Without strict oversight, Pakistan risks losing global investor confidence, undermining carbon markets’ long-term viability. An independent regulatory body, aligned with international climate finance institutions, is vital for credibility. Beyond governance, Pakistan must integrate climate action into economic strategies. Environmental policy is often treated separately from growth agendas, stifling innovation and cross-sector synergies. Carbon markets aren’t just about emissions: they impact jobs, industries, exports and resilience. If Pakistan positions itself as a leader in sustainable manufacturing and green exports, climate action becomes a competitive advantage, not a compliance burden.
Key sectors like textiles and agriculture can integrate carbon offset strategies to meet international sustainability standards, gaining preferential access to global markets. With the EU tightening regulations under its Carbon Border Adjustment Mechanism (CBAM), Pakistani exporters must engage proactively with carbon trading to avoid trade barriers. Rather than viewing such regulations as external pressures, Pakistan can leverage them to drive industrial modernization and climate-smart economic policies. Technology holds transformative potential. Blockchain-based carbon credit tracking, AI-driven emissions monitoring and satellite verification of afforestation projects could revolutionize transparency and efficiency.
Countries like Kenya are experimenting with digital carbon credits and Pakistan must not fall behind. Encouraging tech start-ups and research institutions to develop localized solutions could position Pakistan as a climate fintech leader, attracting investment and expertise. Ultimately, the success of Pakistan’s carbon markets hinges on how we perceive climate finance. Instead of viewing it as a donor-dependent, bureaucratic exercise, we must embrace it as an entrepreneurial opportunity demanding innovation, collaboration and strategic policymaking. Pakistan’s climate challenges are immense, but so are its opportunities. By treating carbon trading as a national priority, we can turn environmental vulnerabilities into economic strengths. The time to act is now requiring bold thinking, decisive leadership and an unwavering commitment to a sustainable future.
—The writer is a policy analyst and researcher with a Master’s in Public Policy from King’s College London.
(sohanisar@sdpi.org)
