Pakistan ‘well positioned’ to leverage $949bn global carbon market but challenges aplenty

Pakistan, the fifth most populous country in the world, faced one of its most significant natural calamities in 2022 as climate-induced floods affected one-third of its population, causing an estimated $40 billion in damages.

International donors pledged over $9 billion in the aftermath of the disastrous floods that left nearly a million people without safe and adequate housing, food, and shelter.

However, experts noted that the actual disbursement of funds has been slow, representing less than a quarter of the estimated damages, and are now stressing that Pakistan needs to change its model and pivot towards the carbon credits market.

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Carbon credits or offsets are traded after certification by a government or independent body. Carbon offsetting allows entities to compensate for their greenhouse gas emissions by supporting projects that reduce emissions elsewhere, such as forests and promoting renewable energy.

Faraz Khan, CEO of US-based SpectrEco – a technology, data, and advisory firm that simplifies and accelerates sustainability and ESG transitions for companies – emphasised the need for Pakistan to transition from the grant and aid model to a value proposition investment pitch.

“Investment is one thing, and grant/aid is another. We really need to move from the grant and aid model to a value proposition investment model, whether it is climate-related, renewable energy, or any other sector.

“After some tough years, Pakistan is gearing up to create a conducive environment for FDI (Foreign Direct Investments), carbon-related investments, and climate-related investments.”

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Dr Khalid Waleed, who has a PhD in Energy Economics and over a decade of experience in Pakistan’s energy sector, believes Pakistan has a strategic advantage to tap into the global carbon market, estimated at nearly a trillion dollars.

“China, Saudi Arabia and the UAE have substantial carbon footprints. Pakistan’s strategic positioning means it has access to huge carbon credit markets as well,” Dr Khalid told Business Recorder.

He added that Pakistan could generate between $2 billion and $5 billion from carbon markets by 2030 if it properly manages and develops the nascent market.

Pakistan currently operates in the voluntary carbon market, but Dr Khalid noted that eventually, all carbon markets would become compliance markets.

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He explained that the value of a carbon credit increases with its impact, with projects like mangrove restoration having higher values. Carbon credits are traded at prices ranging from $1 to $50, with organisations like Verra and Gold Standard verifying and rating them.

Verra and Gold Standard play a crucial role in ensuring the integrity and credibility of carbon offset projects, driving investment in sustainable development and combating climate change.

Sindh province in Pakistan is already working on two major carbon credit projects, Delta Blue Carbon (DBC) 1 and 2, expecting to create $12 billion in carbon credits by 2075. DBC 1 began in the Indus Delta in 2015, while DBC 2 was inaugurated last year, according to a report.

The Sindh Forest Department is expected to complete mangrove restoration and plantation on 450,000 hectares by 2030 under these projects, with a combined carbon offsetting estimated at 240 million metric tons of carbon dioxide equivalent (MtCO2e).

Dr Khalid mentioned that Pakistan is also working on seven wind projects, along with solar, agricultural, and clean energy supply projects, expected to generate carbon credits.

He noted that carbon markets in Pakistan would grow after 2030 when the European Union imposes the Carbon Border Adjustment Mechanism (CBAM) for imports from all sectors.

Yasir Hussain of the Climate Action Center emphasised the importance of ensuring that revenues from carbon credits benefit affected communities and called for transparency in carbon markets.

Dr Khalid stressed the need for transparency and smooth operation of carbon markets in Pakistan, proposing the establishment of an independent regulatory body to oversee them. He also suggested devolving the Ministry of Climate Change to provinces for a more effective operation.

“Forests are a provincial subject, and there should be clarity,” Dr Khalid concluded.

Pakistan appears well-positioned to leverage the global carbon market, but success will depend on effective management, transparency, and ensuring that the benefits reach communities affected by climate change.

The potential of the carbon market to transform Pakistan’s economy and address climate challenges cannot be overstated. By tapping into this market, Pakistan has an opportunity to not only mitigate its carbon footprint but also generate substantial revenue for sustainable development projects.

However, challenges remain, including the need for robust regulatory frameworks, transparent governance, and the establishment of mechanisms to ensure that carbon market revenues benefit local communities and support climate resilience.

With the right strategies and policies in place, Pakistan can harness the potential of the global carbon market to build a more sustainable and resilient future for its people.