Carbon markets: Pakistan's next economic opportunity, if we get governance right

Pakistan is among the countries most severely affected by climate change, despite being one of the world’s lowest contributors to global greenhouse gas (GHG) emissions, responsible for less than 0.8 percent of global emissions. The country’s vulnerabilities are matched by its urgent and growing need for climate finance.

Meeting its climate commitments will require more than US$565 billion by 2035, according to Pakistan’s updated Nationally Determined Contributions (NDCs). Yet over the past decade, Pakistan has mobilised only US$1.4–2.0 billion annually in climate finance, leaving a financing gap too large to be bridged through conventional sources alone.

Within the framework of the Paris Agreement, carbon markets, particularly those enabled under Article 6, offer a strategic mechanism to mobilize large-scale, results-based climate finance from both public and private sources. It establishes the legal and procedural architecture for countries to cooperate voluntarily in achieving their Nationally Determined Contributions (NDCs) through the cross-border exchange of mitigation outcomes.

For Pakistan, carbon markets are more than an environmental instrument; they represent a new economic opportunity. If supported by robust governance, transparent institutions and credible regulatory systems, carbon markets can unlock billions in climate finance, attract long-term investment, create green jobs and position Pakistan as a trusted supplier in the rapidly expanding global carbon market.

Pakistan has a progressive history of engagement with carbon trading mechanisms and comparative advantage, which lies in the diversity of its carbon assets.

The country possesses a unique combination of natural ecosystems and economic sectors capable of generating high-integrity carbon credits. For example, our extensive mangrove forests constitute one of the world’s largest arid mangrove ecosystems, storing significant amounts of carbon while protecting coastlines from erosion and storm surges.

Beyond blue carbon, Pakistan has considerable potential in afforestation and sustainable forest management, climate-smart agriculture, methane reduction in rice cultivation and livestock, renewable energy, municipal waste management, and industrial decarbonisation. This diverse portfolio positions Pakistan to develop a robust pipeline of carbon projects across both nature-based and technology-driven solutions, enhancing its competitiveness in international carbon markets.

This diversity of potential and sectors can create a pipeline of projects for international carbon markets.

The Delta Blue Carbon initiative in Sindh and the Mahmood Booti landfill site rehabilitation project in Lahore are just few examples of projects that demonstrate Pakistan’s natural and technical capacity to participate meaningfully in international carbon markets. However, possessing potential is not the same as realising it.

Since early 2025, Pakistan has made milestone progress on operationalizing Article 6.2 and 6.4 through the approval and launch of the National Carbon Market Policy at COP29 in December 2024 and the significant rise in international interest has positioned the country as a credible future supplier of high-integrity carbon credits.

However, the operational gaps have presently slowed the momentum as the notification of Carbon Market Rules remains pending approval for many months.

The absence of the rules also means that a functional national registry is affected, which can potentially delay the issuing of Letters of Intent and Authorization. Addressing these gaps is essential to maintaining investor confidence and protecting Pakistan’s credibility in international carbon markets.

In today’s carbon economy, governance has become a competitive advantage.

Around the world, countries are rapidly operationalising Article 6 by establishing regulatory institutions, notifying rules, launching carbon registries, developing monitoring, reporting and verification (MRV) systems, accrediting independent validators and entering into bilateral cooperation agreements with prospective buyer countries. These institutional foundations are essential because international buyers seek regulatory certainty.

One area that deserves particular attention is equitable benefit sharing. International practice increasingly shows that carbon market initiatives are more sustainable when local communities directly connected to projects receive meaningful economic, social, and environmental benefits. These can include livelihood opportunities, ecosystem restoration, improved local infrastructure, and enhanced climate resilience.

More importantly, inclusive benefit sharing mechanisms help build trust between project developers, institutions, and affected communities.

If approached with foresight and credible governance, Pakistan’s emerging carbon market framework could become more than a technical climate instrument. It could evolve into an important driver of resilient growth, climate investment, and sustainable development. This requires the Ministry of Climate Change & Environmental Coordination (MoCC&EC) to notify Carbon Market Rules, establish and launch National Carbon Registry, Finalize MRV, accreditation, integrity safeguard and benefit-sharing mechanisms, all of which are necessary for a high-integrity and high-value carbon markets in the country.

Copyright Business Recorder, 2026