One of Donald Trump’s initial actions upon his return to the White House was to issue an executive order that removed the United States from the Paris Agreement concerning climate change. This brings into question the notion of climate diplomacy and whether global cooperation can be achieved in the area of climate change.
Climate diplomacy involves the application of diplomatic strategies to enhance the goals and operations of the global climate change framework, as well as to mitigate the adverse effects that climate change risks present to peace, stability, and prosperity. Developed countries and their negotiation coalitions have historically engaged in climate diplomacy to influence international discussions in a manner that aligns with their strategic interests.
Conversely, developing nations such as Pakistan, frequently face challenges due to inadequate resources and capacity to participate effectively in climate diplomacy. As a result, their ability to impact the negotiation process has been significantly constrained.
Pakistan needs to prioritize climate change as a key element of its foreign policy. Climate Change should not be viewed solely through the lenses of environmental and economic impact; it also has significant implications for strategic considerations. Pakistan can begin by concentrating on its regional relationships to assume a proactive role in addressing climate change.
The introduction of a carbon tax policy has the potential to generate substantial revenue for Pakistan, which can subsequently be allocated to mitigate the economic damage resulting from fossil fuel combustion.
By integrating climate change into its foreign policy framework and advancing climate diplomacy, Pakistan can position itself as a conscientious and responsible leader on the global stage. The primary challenges faced by Pakistan are the lack of direct access to concessional climate finance and the challenges associated with effectively utilizing and managing the funds that are obtained.
A robust climate policy, exemplified by the implementation of carbon taxes, serves as the most effective means to penalize those who fail to engage in the global initiative. Both the United States, under the Biden administration, and the European Union have crafted their respective iterations of a mechanism known as a “carbon border adjustment mechanism.”
This mechanism requires exporters from nations that do not impose emissions taxes, or impose them at a lower rate, to pay the domestic carbon tax instead. Take the example of a company from Pakistan that is exporting a shipping container to the United Kingdom. If the manufacturers in Pakistan have not paid any carbon taxes in the home country and the carbon tax in the UK is set at £200, the border tax imposed would be £200. However, if the government in Pakistan government imposes a domestic carbon tax to match or exceed the UK’s rate, the tax resulting from the border adjustment mechanism would effectively become less or zero.
This strategy has prompted numerous countries to implement their own carbon tax systems, as it is more advantageous to collect tax revenues domestically rather than allowing them to be transferred abroad. The introduction of a carbon tax policy has the potential to generate substantial revenue for Pakistan, which can subsequently be allocated to mitigate the economic damage resulting from fossil fuel combustion. For example, the government might utilize the funds obtained from carbon taxes to lower personal income taxes, address future budget deficits, or invest in renewable energy and climate resilience initiatives.
The reality is that behind the green transformation of any economic sector lies an environmentally & socially responsible financing partner. Similarly, Green and Sustainable banking partners are the key to putting Pakistan on the track to a sustainable future.
The banking industry can significantly contribute to combating climate change by promoting the growth of environmentally and socially sustainable economic sectors through Environmental, Social, and Governance (ESG) strategies. By engaging in Green Banking practices, these institutions can facilitate the transition from polluting activities to environmentally friendly business operations and support the establishment of green enterprises and implementation of the carbon tax mechanism in Pakistan.
The obstacles encountered in climate diplomacy may appear overwhelming; however, this does not imply that a successful climate regime agreement is unattainable. Historical evidence shows that significant changes can occur within a relatively short timeframe. Furthermore, the accomplishments of the existing climate regime in facilitating substantial global investment shifts are frequently underestimated. Through the use of soft power, diplomacy has effectively influenced perceptions and shaped both international and national priorities, as well as the operations of governmental bodies. Global efforts are required to develop synergistic climate policies that result in an inclusive and just global green transition.
We cannot shape the future with tools of the past. To address the challenges posed by climate change, nations and non-state entities need to enhance their capabilities in problem analysis and solution development. However, it is of greater significance that they invest in the skills and capacity necessary to create sustainable agreements on a diverse array of intricate issues.
In the absence of robust diplomatic capabilities, countries are unlikely to reach the ambitious commitments and institutional frameworks required to maintain climate risk below 20C. It is time that various other global players realized that climate change can be tackled more effectively through technical solutions like carbon taxes and border adjustment mechanisms. The developed nations should understand that the best way to convince the rest of the world to cut their emissions is not to give them lectures and conferences but to lead by example.
The writers Dr Syed Asim Ali Bukhari is working as SVP/Head – ESG in The Bank of Punjab and Dr Syeda Nazish Zahra Bukhari is working as Assistant Professor in University of the Punjab.