limate change issues confront us daily, affecting every corner of the globe, from the developed North to the developing South. The latter faces unique obstacles as limited resources hinder effective mitigation efforts. Now is the time to catalyse these efforts economically by balancing CO₂ reduction with job creation and technological advancement.

Industries like cement, steel and chemicals, notorious for their high emissions, pose formidable challenges in this journey. Global economies are transforming themselves by replacing fossil-fuel powered industrial growth with renewable energy-based industrial development.

Pakistan’s industrial sector, a linchpin of its economy, stands on the brink of transformation. It requires a multipronged rehabilitation plan. It also requires an overhaul so that its share in the country’s GDP increases.

Industrial sustainability in terms of decarbonisation is direly needed, particularly for the exporting sector in the wake of EU’s adoption of Carbon Border Adjustment Mechanism. The Sustainable Development Policy Institute has launched an Industrial Decarbonisation Programme targeting sectors, such as cement, textiles and steel. Its main themes comprise zero-emission fuels, trade policies and greenhouse gas accountability, flagging the way for substantive change.

Private sector engagement and collaboration are key to decarbonising Pakistan’s industries in alignment with global sustainability goals. As Pakistan embarks on this ambitious journey, the introduction of the CBAM presents both a challenge and a unique opportunity.

The global best practices focus on reducing emissions in challenging sectors through innovative technologies and regulatory measures. To ensure climate reform compliance and protecting domestic industries in the EU, the regulatory mechanisms are becoming stricter over time. The CBAM, which started on October 1, 2023, aims to level the playing field by ensuring that imported goods face the same carbon costs as those produced within the EU. By 2026, this mechanism will be fully operational.

This convergence of efforts from the EU represents a critical step in balancing Pakistan’s industrial growth and climate change commitments. It underscores the need for international cooperation and a balanced approach that considers both environmental and economic imperatives.

By making a strong economic case for decarbonisation and capitalising on policies like the CBAM, countries in the Global South, particularly Pakistan, can turn the challenge of climate change into an opportunity for sustainable development and economic growth.

The CBAM specifically targets businesses outside the EU that lack equivalent carbon pricing measures. Importantly, countries participating in the EU Emissions Trading System or having linked systems, like those in the European Economic Area and Switzerland, are exempt.

Special provisions also apply to countries integrating their electricity markets with the EU, although full integration and compliance with EU decarbonisation strategies are prerequisites for exemption.

The CBAM reporting system mirrors the EU ETS framework, relying on a carbon credit system. This involves assessing the carbon content of imports, pricing emissions based on the EU ETS, and requiring importers to purchase CBAM certificates. These certificates validate the carbon pricing of imported goods, ensuring parity with EU-produced goods.

Understanding and adapting to the CBAM is crucial for Pakistan. The policy underscores the necessity for robust carbon pricing mechanisms and sustainable production practices. As Pakistani industries prepare to meet these new standards, the CBAM could serve as a catalyst for accelerated industrial decarbonisation, making Pakistani exports more competitive in the EU market.

Moreover, the CBAM is part of the broader European Green Deal, which aspires to achieve climate neutrality by 2050. Announced in December 2019, the Green Deal reinforces the EU’s commitment to environmental management through innovative policies like the CBAM and the reformed EU ETS.

Implementation of the CBAM marks a decisive moment in global carbon pricing and climate policy. For Pakistan, aligning with these new regulations offers a strategic advantage, promoting industrial innovation and sustainability. As the world gravitates towards greener economies, Pakistan’s proactive adaptation to the CBAM can pave the way for a more resilient and competitive industrial sector.

As businesses worldwide steer this evolving regulatory landscape, the importance of staying informed and compliant cannot be overstated. Some entities offer tailored solutions to help businesses transition smoothly, ensuring adherence to climate disclosure and legislation. Embracing these changes with confidence will not only bolster Pakistan’s industrial sector but also contribute to the global fight against climate change. However, achieving these goals requires targeted actions with targeted policies.

Effective decarbonisation of industries necessitates a seamless integration of research, industry practices and policy frameworks. The tripartite link is crucial for developing and implementing robust strategies that drive sustainable industrial growth and informed policymaking.

Innovations in decarbonising industrial processes, such as enhancing energy efficiency and adopting alternative fuels, can significantly reduce emissions. Additionally, there is a dire need to integrate a comprehensive decarbonisation roadmap and policy into Pakistan’s nationally determined contributions. This integration, currently lacking, would make the NDCs more realistic and achievable, ensuring a cohesive approach to meeting climate goals.

The role of think tanks, conducting comprehensive research and providing policy analysis to offer evidence-based recommendations for effective industrial decarbonisation, is instrumental in this ecosystem. Through research and consultative dialogue think tanks can translate complex research findings into actionable insights for policymakers.

Engaging in advocacy, building coalitions, providing capacity-building programmes, and running public awareness campaigns, think tanks like the SDPI can amplify their influence and foster consensus around decarbonisation policies.

Pakistan’s plan to implement a carbon pricing mechanism is a crucial step towards reducing greenhouse gas emissions and fostering sustainable industrial growth. Pakistan is exploring options, such as carbon taxes and emissions cap-and-trade systems to direct funds towards climate-compatible initiatives and incentivise a low-carbon transition. A comprehensive National Carbon Pricing Policy should include mechanisms like revenue recycling to ensure fair burden-sharing and tools like the Carbon and Energy Pricing Tool to help businesses manage regulatory risks and financial impacts.

In parallel, industrial energy transition strategies are essential for achieving decarbonisation. Implementing clean technology and liberal market-based electricity models such as the CTBCM can drive the development of emissions-reducing technologies and enhance energy efficiency.

The concept of wheeling, which allows the transmission of electricity across different grids, will facilitate the integration of renewable energy sources, reducing reliance on fossil fuels. Additionally, improving industrial energy efficiency and productivity through advanced technologies such as energy-efficient equipment and smart grids can significantly reduce emissions while boosting competitiveness.

Supporting electrification of transportation, buildings and industries, along with exploring the cost and benefits of carbon capture, utilisation and storage technologies, will further aid in cutting down carbon emissions.

Think tanks and research institutions play a significant role in this transition and in supporting effective emissions reduction strategies. Platforms such as the Pakistan Industrial Decarbonisation Programme and the SDPI can facilitate collaboration, knowledge-sharing and capacity building across the decarbonisation ecosystem.

Through these integrated approaches, Pakistan can develop a robust national carbon pricing policy and adopt innovative industrial energy transition tools, ensuring a prosperous, sustainable and low-carbon future.

The writer leads Pakistan Industrial Decarbonisation Programme at the Sustainable Development Policy Institute. She can be reached at Saleha@sdpi.org and tweets @SalehaSqureshi