Efforts accelerated to set up domestic carbon market, ETS

ISLAMABAD: Pakistan is accelerating efforts to establish a domestic carbon market and an emissions trading system (ETS) as mounting pressure from the European Union’s Carbon Border Adjustment Mechanism (CBAM) threatens to increase export costs, particularly for carbon-intensive industries, according to an Asian Development Bank (ADB) report.

The report titled “Exploring the Impact and Opportunities of Carbon Pricing in the Transport Sector in CAREC Countries”, says a domestic carbon pricing regime could help Pakistani exporters comply with the EU’s carbon border rules, reduce exposure to future tariffs and strengthen competitiveness in increasingly climate-conscious global markets while simultaneously mobilising green investment and financing low-carbon projects.

The EU’s CBAM, which is being fully integrated with the EU Emissions Trading System (ETS) by 2026, will levy carbon charges on imports of products such as steel, cement and aluminum, while Pakistan’s textile sector — the country’s largest export industry — is also expected to come within its scope by around 2030.

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According to the report, Pakistan’s electricity sector is approximately 1.44 times as carbon-intensive as the EU average, leaving domestic exporters vulnerable to future carbon-related trade costs. Introducing a local carbon price would allow exporters to meet compliance requirements through domestic carbon credits or allowances, potentially at a lower cost than paying EU border levies.

Pakistan’s engagement with international carbon markets dates back to 2006 under the Kyoto Protocol’s Clean Development Mechanism (CDM). As of 2026, the country had approved 76 CDM project activities, of which 37 have been registered by the CDM Executive Board, mainly in renewable energy and energy efficiency.

The report notes that Pakistan has significantly expanded its institutional framework for carbon markets in recent years. In 2018, the government established the National Committee on the Establishment of Carbon Markets under the Ministry of Climate Change and Environmental Coordination to assess participation in international carbon markets and design a domestic ETS supported by a monitoring, reporting, and verification (MRV) system. Pakistan has also adopted carbon market guidelines covering cooperative approaches under Article 6 of the Paris Agreement, aimed at attracting both domestic and international investment in emissions-reduction projects.

The report says implementation of the country’s carbon market framework will primarily be overseen by the Ministry of Climate Change and Environmental Coordination through the Carbon Market Working Group, while the National Carbon Registry will supervise the domestic MRV system and ensure transparency and integrity of carbon trading.

Copyright Business Recorder, 2026