ISLAMABAD: Pakistan will impose a carbon levy in 2025-26, by disincentivising fossil fuel use, to be phased over two years for gasoline and diesel products, as well as fuel oil, reveals the latest staff level agreement report of International Monetary Fund (IMF).
The possible distributional impacts of this levy would be counterbalanced by annual Benazir Income Support Programme (BISP) unconditional cash transfer benefit inflation adjustments, the IMF maintained.
The report predates the decision of Indian Prime Minister Narendra Modi to hold Indus Waters Treaty in abeyance.
The 1.3 billion dollar approved Resilience and Sustainability Facility (RSF) will help to implement Pakistan’s new 2025-30 New Energy Vehicle (NEV) Policy which seeks to, in line with Nationally Determined Contributions(NDCs), ensure 30 percent of new vehicles are Electric Vehicles (EVs) by 2030.
This will include a subsidy scheme for EVs combined with a supplementary sales tax on ICE (Internal Combustion Engine) vehicles, calibrated in a revenue-neutral fashion and in line with Pakistan’s NDC targets for new EV uptake.
“Pakistan’s energy subsidies are poorly targeted, resulting in over consumption among upper income quintiles. The RSF will support transferring power subsidies from the budget and tariff structure to budget financed, targeted subsidies delivered through BISP,” the IMF report notes.
This will support the poorest forty percent of energy consumers while wealthier consumers will face higher tariffs, providing an incentive to conserve energy, the report adds.
The RSF will also support the implementation of recently adopted requirements that new electric appliances entering the market meet minimum energy performance standards (MEPS) by setting targets for each by the end of the RSF, the IMF document suggests.
The reforms will enable Pakistan to further support decarbonisation and support its transition to greener and less polluting transportation in the process delivering significant CO2 emissions reductions, the IMF says in its report.
According to the document, Pakistan’s RSF request aims to support its efforts to address key gaps in adaptation and mitigation policies, while focusing on macro-critical and/or transformative reform measures.
The RSF will help Pakistan address long-standing vulnerabilities to climate shocks; build economic resilience and prospective balance of payments stability by complementing ongoing policy efforts; and catalyse support from other multilateral and regional partners and private sector investment by strengthening Pakistan’s green investment enabling environment, says the IMF report.
Copyright Business Recorder, 2025
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