Pakistan is currently confronting substantial environmental and economic challenges stemming from carbon emissions and climate change. As a developing nation, it is particularly susceptible to the adverse effects of global warming, which include extreme weather phenomena, water scarcity, and a decline in agricultural productivity.
Pakistan is currently confronting substantial environmental and economic challenges stemming from carbon emissions and climate change. As a developing nation, it is particularly susceptible to the adverse effects of global warming, which include extreme weather phenomena, water scarcity, and a decline in agricultural productivity.
Although Pakistan has pledged to reduce its greenhouse gas (GHG) emissions in accordance with the Paris Agreement, progress in achieving these targets has been impeded by the absence of a well-structured carbon market. Pakistan's carbon dioxide emissions have shown fluctuations over recent years.
In 2020, emissions were approximately 184,111 kilotons, marking a slight increase from 2019. However, 2018 saw higher emissions at 186,865.60 kilotons, indicating a 5.97 per cent decline from 2017. These variations highlight the challenges in maintaining a consistent downward trend in emissions.
At present, Pakistan lacks a fully operational and organised carbon trading market. Businesses and industries that aspire to lower their carbon footprints encounter difficulties in navigating unclear regulatory frameworks and identifying incentives for trading carbon credits. In the absence of a robust market, companies possess limited financial motivation to adopt environmentally friendly technologies or invest in emission reduction initiatives.
It is imperative to establish data-driven mechanisms that facilitate the trading of carbon credits, thereby attracting both domestic and international investments in sustainable projects. A well-functioning carbon market would empower businesses to trade emission credits, thereby permitting greater flexibility in fulfilling regulatory requirements. However, the lack of a structured framework has led to lost opportunities for industries that seek to capitalise on their green initiatives.
One of the foremost challenges in carbon markets globally, and particularly within Pakistan, is the assurance of carbon credit credibility. Conventional methods for verifying emissions reductions are often labour-intensive, time-consuming, and susceptible to inaccuracies or fraudulent activities. The absence of real-time monitoring and verification mechanisms has resulted in uncertainty concerning credit valuation.
Integrating AI-based verification models, remote sensing technologies and blockchain solutions could ensure that carbon credits in Pakistan are legitimate, traceable, and verifiable, thereby fostering trust among investors and regulatory bodies. Blockchain technology, specifically, provides an immutable ledger that documents all transactions and guarantees transparency in the trading of carbon credits. AI-driven verification methodologies will minimise the necessity for costly manual inspections and expedite the certification process.
These innovative approaches will be pivotal in attracting global climate finance and investment to Pakistan's nascent carbon market. Pakistan’s industries face significant challenges due to their limited access to reliable data regarding carbon pricing, which hampers their ability to accurately assess the financial advantages of reducing emissions. The lack of predictive analytics tools contributes to price volatility, ultimately deterring firms from engaging in carbon trading activities. It is proposed to utilise big data analytics and artificial intelligence-driven forecasting models to furnish precise market intelligence, thereby empowering businesses and policymakers to make well-informed decisions.
The establishment of stable pricing mechanisms is anticipated to motivate a greater number of companies to invest in carbon reduction initiatives, as they will have assurance regarding a fair return on investment. Data-driven insights will enable businesses to develop more effective strategies and take full advantage of carbon trading opportunities, thereby integrating emission reduction efforts into their long-term business frameworks.
Developed nations and international organisations provide substantial funding for carbon reduction initiatives; however, Pakistan faces challenges in attracting these investments due to inadequate reliable data, non-transparent processes and the absence of a structured market
A substantial segment of Pakistan’s private sector remains oblivious to the opportunities presented by the carbon market or perceives participation as overly complex due to bureaucratic obstacles. Small and medium-sized enterprises (SMEs), in particular, encounter challenges in accessing the global carbon market owing to elevated entry barriers and compliance costs. By creating user-friendly digital platforms that streamline trading, smart contracts, and regulatory compliance will enhance accessibility to carbon trading for a broader array of stakeholders, including smaller enterprises and emerging green businesses. Education and awareness initiatives will also play a critical role in promoting participation among companies in the carbon market.
The regulatory framework for carbon markets in Pakistan remains in a formative stage, characterised by deficiencies in policies on emissions trading, carbon pricing and incentive structures. Government agencies frequently lack the necessary data and analytical tools to formulate effective policies and enforce regulations with efficiency. A robust regulatory framework that offers clarity concerning emissions trading, certification standards, and financial incentives is essential for stimulating participation in the carbon market.
Examining successful carbon markets offers valuable insights for Pakistan. For example, Sweden implemented a carbon tax in 1991, which has since risen to approximately $139 per ton of carbon dioxide. Despite this substantial tax, Sweden's economy experienced a growth of 60 per cent, while carbon emissions decreased by 25 per cent. This situation illustrates that economic development and emission reductions can coexist effectively.
Similarly, the European Union's Emissions Trading System (EU ETS) has played a pivotal role in lowering emissions across member states. Since its establishment in 2005, the emissions covered by the EU ETS have diminished by nearly 40 per cent, thereby highlighting the effectiveness of a well-structured carbon market.
China has recognised the significance of carbon markets and initiated its national emissions trading scheme in 2021, initially focusing on the power sector. In March 2025, China announced its intention to expand the carbon trading market to encompass the steel, cement and aluminium industries, thereby integrating approximately 1,500 additional firms into the scheme. This expansion seeks to address over 60 per cent of China's emissions, reflecting a commitment to utilising market mechanisms for emission reductions.
Developed nations and international organisations provide substantial funding for carbon reduction initiatives; however, Pakistan faces challenges in attracting these investments due to inadequate reliable data, non-transparent processes and the absence of a structured market. By adhering to international best practices and adopting globally recognised standards, Pakistan can position itself as a viable destination for climate finance.
Pakistan is at a pivotal moment in its response to climate change. While the country has made significant commitments under the Paris Agreement, the lack of an efficient carbon market has hindered progress in reducing greenhouse gas emissions. Through the utilisation of artificial intelligence, blockchain technology and big data analytics, Pakistan has the potential to establish a credible and flourishing carbon market that attracts both domestic and international investments.
The development of a well-structured carbon market will not only contribute to reducing Pakistan’s carbon footprint but will also generate new economic opportunities for businesses and investors. With appropriate regulatory support and technological advancements, Pakistan can emerge as a regional leader in sustainable development, thus ensuring a greener and more resilient future for its populace.
The writer is a trade facilitation expert, working with the federal government of Pakistan.
