As the world shifts towards carbon markets as a mechanism for financing low-carbon development, Pakistan cannot afford to remain a passive observer.
As the world shifts towards carbon markets as a mechanism for financing low-carbon development, Pakistan cannot afford to remain a passive observer.
The global carbon trade is not just an environmental obligation but an economic opportunity that can reshape our national finances, industrial landscape, and global standing. Yet, the discussion surrounding carbon markets in Pakistan remains trapped in technical jargon and bureaucratic inertia. We need a fresh perspective; one that views carbon trading not as a policy footnote but as a transformative financial instrument that can drive innovation, foreign investment, and sustainable economic growth.
Pakistan’s carbon markets became functional in early 2025, following the approval of federal guidelines under Article 6 of the Paris Agreement. This is a crucial step in bridging our climate finance gap, yet the potential remains vastly underutilised. The initial buyers of Pakistan’s carbon credits: Singapore, Norway, Switzerland, and South Korea demonstrate international demand, but the real challenge lies in scaling up these efforts and ensuring that our carbon assets yield tangible economic and environmental dividends. The question we must ask is whether we are treating carbon markets as a strategic national asset or merely another checkbox in our climate commitments.
The private sector in Pakistan has long been sidelined in climate finance discussions, despite having the potential to spearhead the transition towards sustainability. The World Bank’s Country Climate Development Report estimates that Pakistan requires $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-induced disasters.
These figures highlight the urgency of leveraging every available financial mechanism, including carbon trading. Yet, Pakistan continues to rely on conventional funding sources, such as grants, concessional loans, and technical support, while overlooking the power of market-driven solutions. The reluctance to fully embrace carbon markets stems from a lack of regulatory clarity, institutional hesitancy, and a persistent disconnect between environmental policy and economic planning.
Our approach to carbon trading must be ambitious. Pakistan’s renewable natural capital, valued at $474 billion, remains largely untapped. Forestry, renewable energy, agriculture, and waste management sectors offer immense potential for carbon credit generation, but without a robust and transparent operational system, these opportunities will remain theoretical. The government must ensure that carbon markets are not just functional on paper but also competitive, efficient, and attractive to investors. This requires regulatory enhancement, streamlined approval processes, and a market framework that incentivises businesses to participate rather than viewing carbon trading as a bureaucratic burden.
The implementation of climate-related tax provisions could play a significant role in expanding Pakistan’s fiscal space for climate action. The petroleum development levy, for instance, could be restructured into a carbon tax, potentially generating $2 billion to $3 billion annually. However, such measures must be designed carefully to avoid burdening industries without providing viable alternatives. Carbon pricing, if structured strategically, offers a dual advantage -- reducing emissions while generating revenue for reinvestment in climate-resilient infrastructure and green innovation. Policymakers and business leaders must recognise that taxation alone is not the solution; instead, a balanced approach that combines incentives with accountability is essential for fostering a thriving carbon market.
Encouraging tech startups and research institutions to develop localised solutions for carbon credit verification could position Pakistan as a leader in climate fintech, attracting both investment and expertise
Public-private partnerships (PPPs) are another critical but underutilised tool in Pakistan’s climate finance arsenal. Countries like India have mobilised $10 billion for climate-resilient infrastructure through targeted PPP policies, while Pakistan lags in integrating climate costs into its PPP frameworks. The Asian Development Bank (ADB) has recommended establishing a dedicated climate finance unit within the federal PPP authority -- an idea that warrants immediate action. If executed effectively, this could reduce Pakistan’s public borrowing needs by $3 billion annually while accelerating the transition to a low-carbon economy.
The conversation around carbon markets must also address the elephant in the room: ‘transparency’. Pakistan has struggled with governance issues in multiple sectors, and carbon trading cannot afford to become another opaque mechanism that benefits a select few. Ensuring credibility in carbon credit verification, preventing double counting, and maintaining international standards are non-negotiable. Without stringent oversight, Pakistan risks losing the confidence of global investors, which would diminish the long-term viability of its carbon markets. We need an independent regulatory body that collaborates with international climate finance institutions to guarantee that our carbon credits meet global benchmarks.
Beyond governance and finance, there is an urgent need to rethink how we frame climate action within Pakistan. Too often, environmental policy is treated as a separate domain, disconnected from economic growth strategies. This fragmented approach stifles innovation and prevents the kind of cross-sectoral synergies needed to unlock Pakistan’s full climate finance potential. The reality is that carbon markets are not just about emissions but encompass jobs, industry, exports, and economic resilience. If Pakistan positions itself as a leader in sustainable manufacturing and green exports, it can turn climate action into a competitive advantage rather than a compliance obligation.
The textile and agriculture sectors, for instance, can integrate carbon offset strategies into their supply chains to meet international sustainability standards, thereby gaining preferential access to global markets. With the European Union tightening regulations under its Carbon Border Adjustment Mechanism (CBAM), Pakistani exporters must proactively engage with carbon trading to avoid potential trade barriers. Rather than viewing such regulations as external pressures, Pakistan can use them as a catalyst for industrial modernisation and climate-smart economic policies.
One of the most overlooked aspects of Pakistan’s climate finance discourse is the role of technology. Blockchain-based carbon credit tracking, AI-driven emissions monitoring, and satellite verification of afforestation projects could revolutionise the transparency and efficiency of carbon markets. Countries like Kenya are already experimenting with digital carbon credits, and Pakistan must not fall behind in leveraging technology to enhance market credibility and accessibility. Encouraging tech startups and research institutions to develop localised solutions for carbon credit verification could position Pakistan as a leader in climate fintech, attracting both investment and expertise.
Ultimately, the success of Pakistan’s carbon markets hinges on a paradigm shift in how we perceive climate finance. Instead of viewing it as a donor-dependent, bureaucratic exercise, we must embrace it as an entrepreneurial opportunity that demands innovation, collaboration, and strategic policymaking. Pakistan’s climate challenges are immense, but so are its opportunities.
By treating carbon trading as a national priority rather than an afterthought, we can transform our environmental vulnerabilities into economic strengths. The time to act is now, and the path forward requires bold thinking, decisive leadership, and an unwavering commitment to a sustainable future.
The writer is a policy analyst and researcher with a Master’s degree in public policy from King’s College London.
