In April, Pakistan signed its first-ever bilateral carbon market agreement with Norway under Article 6 of the Paris Agreement, a deal described as a "historic milestone" by the climate minister. However, two months later, the federal budget was announced with no new allocations for the measurement and verification systems essential for carbon markets. No investment was made in climate finance education and training, and no ring-fenced fund was established to ensure communities benefit from carbon income. The Climate Change Division received Rs2.78 billion, with no new development projects approved for the next year.
Budget Contradictions
Pakistan aims to collect Rs2.026 trillion from climate- and green-linked revenues and levies in 2026–27, including taxes on petroleum, high-emission vehicles, and green instruments. However, for every Rs100 collected through these climate-related taxes, only Rs10.6 is used for climate action; the remaining Rs89.4 goes to the general treasury. This is not climate policy but a revenue-generating mechanism. The carbon levy on petrol and diesel is set to double this year, yet systems to protect citizens from climate disasters remain unfunded.
Carbon Market Requirements
To create a verified carbon credit, Pakistan must demonstrate that it has actually reduced carbon dioxide, that the reduction would not have occurred without the project, and that the reduction is permanent. This requires measurement infrastructure, independent verification bodies, trained professionals, and transparent governance frameworks—none of which exist at the required scale. The value of Pakistan's renewable natural capital, including forests, agricultural land, mangroves, glacial river systems, and renewable energy potential, is estimated at $474 billion. However, Pakistan cannot currently prove and sell these assets.
International Context
Countries like Costa Rica, Rwanda, and Kenya developed carbon market infrastructure early and are now profiting. Pakistan remains at the policy-planning stage without institutional capacity to execute. The Norway agreement will stay symbolic until budgets reflect implementation costs. Pakistan's CO2 emissions account for less than 1% of global emissions, yet the 2022 floods caused $30 billion in losses, submerged a third of the country, and derailed development. While Pakistan makes a moral case at international forums, climate finance will flow to countries demonstrating institutional seriousness, not just vulnerability.
Investment Needs
By 2035, Pakistan will require $565.7 billion in climate investment to meet its commitments. Treating climate as a revenue source rather than a priority worsens the situation. A serious follow-through on the Norway deal demands protected allocation of climate levy shares for measurement and verification infrastructure, investment in training professionals (scientists, lawyers, economists) to turn environmental resources into bankable projects, and clear mechanisms to pay farmers, forest communities, and coastal populations for generating carbon value. The carbon market agreement is the beginning of an institutional process, not the end of a diplomatic one. A signed contract without implementation capacity is a missed opportunity.
