Faiza Tehseen

 Pakistan must introduce and implement a carbon taxation regime to generate revenues and address environmental challenges.

“In Pakistan, climate change is a fundamental threat that requires immediate attention,” stresses Abid Qaiyum Suleri, Executive Director of the Sustainable Development Policy Institute (SDPI). Talking exclusively to WealthPK, he said carbon taxation can be considered as a tool for resilience as it supports climate vulnerable nations. “There is an urgent need for a well-rounded policy approach concerning carbon taxation in Pakistan.”

“Despite their limited natural resources, countries like Denmark have successfully shifted from fossil fuels to clean energy, proving that economic growth and sustainability can go hand in hand. With its vast renewable energy potential, Pakistan can adopt a similar approach by diversifying its energy sources for efficiency and resilience,” he underscored.

Suleri said Pakistan must prioritise adaptation over mitigation. “Adaptation remains critical for Pakistan’s economic and social stability. Carbon taxation must be aligned with environmental sustainability and economic resilience.”

“In South Africa, 10% of carbon tax revenues are directed to climate resilience projects. Pakistan’s corporate sector needs to shift to green technology. Adopting green value chains can enhance demand for Pakistani products in eco-conscious markets, including Europe and North America,” he noted.

Suleri said that exporters in Pakistan are direly in need of making their production chain environment-friendly and carbon tax-paid.

He noted that the Carbon Border Adjustment Mechanism (CBAM), a tax on carbon-intensive exports to the EU, is reported to be fully operational by January 1, 2026. “Pakistani exporters failing to pay carbon taxes locally, would be subjected to levies in their destination markets.”

“Carbon taxation is essential in Pakistan — whether for reducing emissions or increasing government revenues — it must be implemented strategically. Initially, a hybrid carbon pricing model is necessary to be introduced in Pakistan. A phased approach will be ideal, starting from the minimum amount, per tonne carbon levy on high-emitting industries, including cement, steel, and textiles. The tax amount can be escalated in later stages. In this way, it is expected that within a few years, a mix of carbon taxes and emissions trading system (ETS), will be settled, aligning Pakistan with international carbon market trends,” explained the SDPI executive director. 

Meanwhile, Muhammad Akbar, an environmentalist from Gilgit-Baltistan, told WealthPK that Pakistan’s carbon emissions were steadily increasing due to rapid industrialisation, the burning of fossil fuels, and deforestation. “Air pollution in urban centres and vulnerabilities related to water stress and crop yields have reached hazardous levels. Mitigating the impact of these environmental issues requires enormous funds. Pakistan badly needs clean energy infrastructure, water conservation efforts, climate-resilient agricultural practices, and renewable energy projects. To address these vital issues, the government needs innovative funding,” he explained.

Akbar said that carbon taxation is a market-based policy instrument, designed to reduce carbon footprints by making carbon-intensive activities more expensive. “In this regard, businesses and consumers are incentivised to shift towards cleaner alternatives, including renewable or energy-efficient technologies.”

He said, “Carbon taxes can be levied on a variety of fossil fuels, including coal, oil, and natural gas. The revenue generated from these taxes can be used to fund environmental projects, encouraging sustainable energy and industrial practices, improving the air quality and health benefits, the development of renewable energy sources, reforestation efforts, climate change mitigation, and infrastructure to reduce emissions.”

The environmentalist said: “Despite the numerous benefits of carbon taxation, its implementation in Pakistan is very challenging. One of the main hurdles is the potential for economic disruption. A sudden increase in energy prices will burden low-income households and small businesses. A robust monitoring and enforcement mechanism will be required to ensure that carbon taxes are effectively levied and that the revenue is appropriately allocated to environmental projects.”

“This requires significant capacity-building within the tax administration and environmental agencies, public consultations, awareness campaigns, and stakeholder engagement. Carbon taxation presents a promising opportunity for Pakistan to generate the necessary funds to address its environmental challenges. With the right approach, carbon taxation can play a pivotal role in securing a greener and more sustainable future for Pakistan,” Akbar emphasised.

Credit: INP-WealthPk