Climate change is the single greatest threat to a sustainable future but addressing this challenge presents a golden opportunity to promote prosperity and brighten the future for all. In economic terms, the resources are scarce but in this case, the planet itself is scarce as there is no planet B. Enormous growth in the industry since the industrial revolution is posing serious challenges to the climate in the shape of emission of greenhouse gases, floods, heat waves, energy, and food security. Given a low domestic capacity to finance climate change-related investments, Pakistan depends upon funds from the outside world to fight climate change. According to the Asian Development Bank (ADB) report of 2017, the country’s climate adaptation needs range between $07 billion to $14 billion a year, Pakistan is one of the most vulnerable countries being affected by climate change and ranks in the top ten on the list of countries that are most affected by climate change. Surprisingly, it contributes less than one per cent to global climate change. The German watch report 2021 notes that Pakistan has witnessed 173 extreme weather events from 2000 to 2019 and has lost 0.52 per cent per unit of its Gross Domestic Product (GDP) due to climate change. Moreover, the current floods fiasco of mid-2022, which the UN Chief coined as “Monsoon on steroids,” has further unleashed havoc across one-third of the country. There is a dilemma in poor countries that they have competing priorities and limited resources. There is a dilemma in poor countries that they have competing priorities and limited resources; and at the same time most vulnerable to the impact of climate change. The concept of climate finance is relatively a new term having multifarious dimensions. Pakistan has very limited fiscal space and cannot shoulder any burden required to de-carbonize. It needs to leverage a bigger pool of climate-related funds to meet its international commitment to reduction in emission of greenhouse gas (GHG). The United Nations Framework Convention on Climate Change (UNFCCC) defines Climate Finance as “the finance that aims at reducing emissions and enhancing sinks of Green House Gases and reducing the vulnerability of and maintaining and increasing the resilience of human and ecological systems to negative climate change impacts”. In a broader sense, Climate Finance encompasses all the finances at the sub-national, national and international levels directed towards supporting climate mitigation and adaptation projects and measures. Climate Finance includes local, national and international financing drawn from public, private or alternate sources of financial streams that seek to support mitigation and adaptation actions to address climate etc. The sources may be public funds included in Annual Budgets, Development Banks such as the World Bank (WB), Asian Development Bank (ADB), Carbon market or private capital. Climate finance remains the main agenda for the Conference of Parties (COP) to UNFCCC. Normally, it is just a ritual but COP 21 in Paris held on 15th December 2015 is a legally binding international treaty on climate change. It was adopted by 196 parties in Paris and entered into force on November 4, 2016. Pakistan has updated its Nationally Determined Contribution (NDC), pledging to cut its greenhouse gas (GHG) emissions by 2030 by 50 per cent below the business-as-usual (BAU) scenario. The reduction target is divided into an unconditional reduction target of 15 per cent and a conditional target of 35 per cent. As per newspaper reports, to reach the target, the country aims to shift to 60 per cent renewable energy, to set a moratorium on new coal-fired power plants, and to stop power generation from imported coal. Pakistan will shelve plans for two new coal-fired power plants in favour of hydropower and will focus on local coal gasification. The current year marks the twenty-fifth anniversary of the signing of the Kyoto Protocol in which the industrialized and developed economies agreed to and extended their binding commitments to limit and reduce their GHG emissions through their national-level measures. However, in cases where national measures cannot be sufficient for adherence to the binding commitments, the Kyoto Protocol provides other mechanisms through which these countries can fulfil their emission commitments. One of these mechanisms is the market-based International Emissions trading, which treats GHGs as tradable commodities. Since carbon dioxide (CO2) is the main GHG, and most of the trade is done in CO2, the market is hence called the “Carbon Market”. In a carbon market, one carbon unit is equal to One Ton of CO2 emission, and parties including countries and corporations, bound to reduce their emissions, purchase carbon units from parties who produce GHGs below their commitment level. Other units in the carbon market are the Removal Unit or RMU, Emission Reduction Unit (ERU) and Certified Emission Reduction (CER) Unit. An RMU is produced based on Land Use- Land Use Change and Forestry (LULUCF) by activities such as reforestation and plantations. An ERU is generated through a joint implementation project between the high and low emission parties while a CER comes into existence from a clean development project usually in a developing country such as Pakistan. Pakistan still has a long way to go in setting up its national compliance Carbon Market and Emission Trading System (ETS) which will set the stage for the trading of carbon credits in the country. Carbon trading is a market-based mechanism to reduce GHG concentration by reducing carbon dioxide emissions in the atmosphere. Under Clean Development Mechanism (CDM), carbon trading takes place through the exchange of Certified Emission Reduction (CER) units. The developed countries help developing countries in projects that reduce emissions and get CERs in return. Purchasing one unit of CER allows the developed country to emit one ton of carbon dioxide in addition to its limit. These CERs are traded internationally through carbon exchanges. (To be Continued) Hammad Mehmood is a doctoral candidate at the University of Peshawar. Saud Bin Ahsen works at a public policy think tank.