Pakistan’s carbon market ambitions and governance gaps

As global leaders convene in Brazil for COP30, carbon markets are expected to command significant attention. This year’s climate gathering is anticipated to focus on turning climate pledges into concrete action, particularly in areas such as climate finance, loss & damage mechanisms and strengthening global carbon markets under Article 6 of the Paris Agreement.

For many developing countries, including Pakistan, carbon trading is viewed as a pathway to attract climate finance and encourage low carbon development. Yet, the discussion must go beyond the promise of revenue and focus on the systems and safeguards required to make the participation of developing countries and communities in these markets credible and fair.

Pakistan’s carbon markets became functional in early 2025, following the approval of federal guidelines under Article 6. The country is at an early stage of shaping its carbon market framework. Government entities have begun working on policies related to emissions trading and cooperative approaches under Article 6 of the Paris Agreement. The country has also shown interest in nature-based mitigation activities. These directions are understandable, given the need to mobilize resources for climate action. However, the success of any market depends on the strength of the structures that support it. In other words, the key to carbon markets success in Pakistan depends how effectively governance gaps are addressed.

Recent analysis in Pakistan, including work by Transparency International Pakistan, has indicated that Pakistan holds substantial potential in carbon markets, offering both environmental and economic opportunities.

If even 10-15 percent of Pakistan’s annual greenhouse gas emissions are addressed through carbon projects, the country could generate 40-75 million tons of tradable carbon credits per year, with an estimated value ranging from USD 400 million to USD 2.25 billion.

However, this potential remains threatened by the existing governance gaps and institutional weaknesses.

First, the data relevant to emissions, land use, and mitigation outcomes remains dispersed across multiple institutions. The absence of a central reference point makes it difficult to establish common baselines or verify claims. For a market that relies on measurable climate results, this is a foundational requirement. A system that can gather and validate information from multiple sources would enhance confidence among both domestic and international stakeholders.

There is also ongoing discussion in Pakistan and elsewhere about how the benefits of carbon reduction should be defined and allocated. At present, the legal basis for ownership of carbon outcomes has not been clearly set out. This is relevant for government institutions, private developers, and communities whose land and resources may be involved in future projects. Greater clarity over these questions would help reduce disputes, provide predictability and increase investor confidence as activities expand.

The way institutions interact will also shape the development of any carbon market. Responsibilities linked to climate policy, land management, energy planning, and finance are distributed across several ministries and provincial authorities. Each has a distinct role. A more structured approach to inter-agency coordination would ensure that the system operates with consistent information and objectives. This would support smoother planning and implementation.

Technical capacity is another element that will influence readiness. Carbon markets rely on reliable measurement, reporting, and verification (MRV). This depends on trained personnel, standardized procedures, and access to usable data. Developing these capabilities typically takes time and sustained investment. Strengthening the technical foundations can help ensure that that Pakistan’s participation in carbon markets reflects real outcomes and aligns with international best practices.

As international discussions on Article 6 continue, countries that demonstrate transparency and preparedness are likely to be better positioned to secure partnerships that strengthen domestic carbon markets. Pakistan does not need to accelerate market participation at the expense of institutional development. A phased and well-governed approach can help ensure that both climate and development objectives are met.

COP30 provides timely opportunity and space for Pakistan to signal that its approach to carbon markets will rest on clarity, coordination, and verifiable outcomes. The country’s leadership in this area is already recognized through initiatives like the Delta Blue Carbon Project, launched in 2015 as one of the world’s largest blue carbon initiatives.

If foundational steps are taken thoughtfully, carbon markets can become a useful part of Pakistan’s broader climate and development strategy. The priority at this stage is to build systems that will allow participation to be effective, transparent, and aligned our Nationally Determined Contributions (NDCs).

Copyright Business Recorder, 2025