Report highlights Pakistan’s road to net-zero

KARACHI: Pakistan is embarking on a timely journey to transform its climate ambitions into tangible action, underpinned by the creation of a trusted voluntary carbon market (VCM).

A new report, ‘Net-Zero Waves: The Path to Building a Trusted Voluntary Carbon Market in Pakistan’, jointly authored by Ahya, a climate-focused consultancy, KPMG and Haidermota & Co, explores the intricacies of establishing a credible carbon trading ecosystem in the country.

The report positions Pakistan as a potential hub for climate finance, with the VCM projected to attract up to $6 billion in foreign direct investment. But beyond the numbers lies a more profound narrative: a country leveraging its natural resources, from mangroves to wind energy, to combat climate change while fostering economic development.

Central to this vision is the Delta Blue Carbon Project, one of the world’s largest mangrove restoration initiatives. Already generating millions of carbon credits, the project exemplifies how Pakistan could harness its blue economy to “sequester carbon and protect fragile ecosystems”. The report underscores the importance of replicating such success stories to build investor confidence and scale the carbon market.

Per the report, Pakistan has a total of 27 projects in various stages of registration for the voluntary markets which is projected to increase following the official launch of the Ministry of Climate Change Policy Guidelines for Carbon Markets. These guidelines, aligned with international frameworks such as the Paris Agreement, outline pathways for accrediting projects, ensuring transparency and fostering global linkages. Recommendations include establishing a national carbon registry and a dedicated Pakistan carbon credit mechanism (PCCM) to improve accountability and transparency.

The PCCM would serve as a comprehensive database for tracking emissions reductions and carbon credit transactions. By adopting standards comparable to Verra and Gold Standard, the PCCM would ensure global alignment. Key sectors such as forestry, renewable energy, and sustainable agriculture would benefit from standardized certification and trading protocols.

However, the road ahead is fraught with challenges, cautioned the report. Structural inefficiencies, a lack of streamlined governance and the nascent state of technological infrastructure risk undermine the VCM’s credibility. The report calls for robust monitoring, reporting and verification systems, coupled with AI-driven platforms to manage emissions data efficiently.

The country’s ambition to reduce emissions by 50 per cent by 2030 hinges on significant international financial support. Without such backing, the country risks falling short of its commitments, despite promising initiatives like renewable energy projects and methane reduction programmes.

The report also highlights the global implications of the country’s carbon market. As countries increasingly adopt voluntary carbon markets to complement regulatory mechanisms, Pakistan has the opportunity to position itself as a leader in the Global South. By focusing on high-integrity credits and leveraging its rich biodiversity, the nation could attract enterprises seeking to offset emissions while contributing to sustainable development.

The report outlines recommendations to support the country’s participation in international carbon markets, stressing the need for transparency, technology transfer and equitable practices.

One key proposal is to integrate nature-based solutions, such as sustainable land use and forestry projects, into the internationally transferred mitigation outcomes (ITMOs) framework. This approach would not only enhance biodiversity but also strengthen local resilience while contributing to emissions reductions.

The report also suggests a 12 per cent corresponding adjustment fee and a 1.0 per cent administrative cost on gross revenues. These measures aim to align the country’s policies with international standards while ensuring sustainable development. Additional instruments, such as environmental impact fees, could further enhance governance.

Developing international links and expanding private-sector incentives are also highlighted. Tax benefits, green bonds and equitable benefit-sharing mechanisms are proposed to encourage private investment while addressing social and environmental equity concerns.

Explicit safeguards for inclusive project designs, gender-specific participation and grievance redressal mechanisms have been recommended to align the policy with broader goals of justice and inclusion. The policy advocates for clear definitions of project eligibility, prioritising high-impact sectors like renewable energy and sustainable agriculture.

Institutional capacity-building and knowledge gap reduction are identified as critical for effective carbon market implementation. Training programs and partnerships with international bodies are recommended to enhance technical and administrative skills across sectors.

The report also emphasises risk management and the permanence of emission reductions. Comprehensive guidelines for monitoring and mitigating project-related risks are suggested to ensure long-term success.

Finally, tax considerations for carbon credits require clarification. While income derived from the sale of carbon credits is exempt under Clause 65 of the Income Tax Ordinance, ambiguities remain around VAT applicability, expense deductibility, and other tax implications. A clear framework is essential to provide certainty for market participants, according to the report.