The Sustainable Development Policy Institute (SDPI) in collaboration with the Embassy of Denmark hosted a high-stakes pre-budget dialogue on carbon taxation, emphasizing the urgent need for a well-rounded policy approach.
Speaking at the forum Danish Ambassador Jacob Linulf emphasized the urgent need for climate action in Pakistan, citing climate change as a fundamental threat that requires immediate attention. He highlighted the critical role of organizations like the Sustainable Development Policy Institute (SDPI) in guiding the government and private sector toward sustainable solutions, said a press release.
Ambassador Linulf reaffirmed Denmark’s commitment to supporting Pakistan’s transition to renewable energy. He noted that despite Denmark’s limited natural resources, it successfully shifted from fossil fuels to clean energy, proving that economic growth and sustainability can go hand in hand. He stressed that Pakistan, with its vast renewable energy potential, can adopt a similar approach by diversifying its energy sources for efficiency and resilience.
The envoy underscored the role of energy efficiency in maintaining industrial competitiveness. He advocated for smart carbon taxation and modern technology adoption to phase out outdated fossil fuel-based systems. He further emphasized that firm and long-term government policies are essential for fostering innovation, attracting investment, and positioning Pakistan as a global supplier of green technologies.
Ambassador Linulf highlighted the importance of individual and corporate responsibility in the green transition. He urged businesses to embrace energy efficiency by insulating buildings and optimizing production processes. Given that Pakistan exports a significant volume of textiles to Europe and North America, he stressed that adopting green value chains would enhance demand for Pakistani products in eco-conscious markets.
Justice Mansoor Ali Shah, Senior Puisne Judge of the Supreme Court of Pakistan during the pre-budget seminar on carbon taxation underlined that Carbon taxation should be a tool for resilience that enable climate adaptation and resilience in the vulnerable nations.
Justice Shah among the other experts at the session highlighted the complexities of carbon taxation, stressing that it should serve as more than just a revenue-generating tool-rather, it must align with environmental sustainability and economic resilience.
He argued, citing South Africa’s model, which directs 10% of carbon tax revenues to climate resilience projects. He called on global financial institutions to recognize adaptation credits and restructure carbon markets to support vulnerable nations.
Justice Mansoor Ali Shah offered a legal perspective, stressing that Pakistan, as a low-emission but climate-vulnerable nation, must prioritize adaptation over mitigation. He pointed out that while global financial flows are still skewed towards carbon reduction, adaptation remains critical for Pakistan’s economic and social stability.
He added that Pakistan must design a differentiated carbon tax regime that aligns with its economic realities, ensures climate justice, and supports industries in making a sustainable transition.
In his keynote, Dr. Abid Qaiyum Suleri, SDPI’s Executive Director, noted Denmark’s long-standing support in helping Pakistan navigate the complexities of carbon taxation and carbon markets. He highlighted the Carbon Border Adjustment Mechanism (CBAM)-a tax on carbon-intensive exports to the European Union (EU)-which will become fully operational by January 1, 2026. While Pakistan’s current export mix might shield it from immediate impacts, Dr. Suleri warned that exporters failing to pay carbon taxes locally would be subjected to levies in their destination markets.
Dr. Sajid Amin Javed, SDPI’s Deputy Executive Director, opened the discussion by framing climate change as a macroeconomic risk that must be integrated into Pakistan’s broader policy framework. He underscored the inefficacy of short-term tax policies, citing past failures in areas like tobacco taxation. With carbon levies emerging as a likely International Monetary Fund (IMF) condition, he called for immediate deliberation on the subject.
Senior Economist, Afia Malik underlined that Pakistan’s revenue shortfall was forcing a downward revision of tax collection targets from Rs12.9 trillion to Rs12.3 trillion, where carbon taxation has emerged as a potential fiscal tool. The experts floated ideas such as levying carbon-based vehicle registration fees or introducing a carbon levy on fuel, while economist Afia Malik cautioned that such measures could disproportionately burden low-income groups, leading to inflationary pressures.
Atif Tanveer from Mari Petroleum warned that imposing a carbon tax on the heavily regulated oil and gas sector could stifle economic activity. Meanwhile, Saad Ahmed flagged the energy sector’s circular debt crisis, urging the government to prioritize sustainable transport solutions over blanket taxation.
Sobiah Becker, an advisor to the Pak-German Climate Energy Partnership (PGCEP), advocated for a hybrid carbon pricing model. She proposed a phased approach, starting with a Rs1,500 per ton carbon levy on high-emitting industries like cement, steel, and textiles, escalating to Rs2,500 per ton in later stages. By 2030, a mix of carbon taxes and emissions trading systems (ETS) could be in place, aligning Pakistan with global carbon market trends.
Ali Kemal, Chief SDGs, Planning Ministry said Carbon taxation is essential-whether for reducing emissions or increasing government revenue-it must be implemented strategically. He noted that a carbon-neutral product market was emerging, and Pakistan should adapt to stay competitive.
Kemal recommended that revenue from carbon taxation should be recycled into cash transfers and social protection programs, ensuring equitable distribution with proper compliance monitoring to ensure policy effectiveness as resistance to carbon taxation was expected, and implementation should be gradual and well-structured to manage challenges effectively.