Apart from the fee structure, there is also a lengthy process for getting approval for a carbon project from the government. It will start with the issuance of a supporting letter from the provincial government, where the project is located, and a request for a Letter of Intent (LoI) from the National Designated Authority, i.e., the Ministry of Climate Change, before registration of the project. After registration, the NOC and the Corresponding Adjustment Certificate will be required from the NDA. There are no clear timelines for the provincial governments and NDA to issue such LoI, NOC, and Certificate, which may prolong the registration of the projects.
One of the terms and conditions of the LoI is that the NDA retains the authority to withhold or withdraw the LoI based on national circumstances. This condition may cause ambiguity and uncertainty over the project’s sustainability and may prove a barrier for private investors. As far as the inherent risks attached with this policy are concerned, although the policy statement is well-intended towards addressing the compliance of the UN Convention on Climate Change, the implementation of the Policy is still exposed to systemic Risks inherent in the ecosystem and external environment to which the project will be exposed.
These include a lack of reporting standards to ensure transparency, disputed land rights, and a lack of digital and financial inclusion are some of the limitations. The exploitation of communities due to possible deficiencies in project financing models is also an inherent risk. This is exemplified through a case from Kenya, in which the borrowed money to finance the project was backed by the land as a guarantee. The project could not yield revenue as targeted and resulted in a loss of land ownership to the poor agriculturist.
While this policy’s guidelines express strong intentions for community involvement and equitable benefit sharing, there are several challenges. These include a widespread lack of empirical evidence on safeguard implementation, unfair benefit-sharing, and a significant absence of Free, Prior, and Informed Consent (FPIC) for indigenous communities.
A comprehensive mechanism based on the Inherent Risk assessment due to GHG emissions is also required to be devised to calculate how many carbon credits are to be created. This will immediately attract the requirement of calculating the feasibility of the project to ensure that the mitigation or control system (the project) is well within a feasible financial model. These carbon credits are to be linked to the mitigation goals specified in the NDC targets.
The implementation framework is built around aligning carbon market activities with Pakistan’s Nationally Determined Contributions in sectors like energy, agriculture, transport, and forestry.
While the document lays a foundational structure for emissions trading, several critical policy gaps threaten the effectiveness and scalability of the market. These shortcomings span legal, institutional, implementational, and financial dimensions, which could significantly undermine Pakistan’s progress in climate mitigation and its broader sustainable development goals.
Within the legal framework, the policy does attempt to align with Articles 6.2, 6.4, and 6.8 of the Paris Agreement and outlines processes for the trading of carbon credits, but it falls short in operationalising these commitments through enforcement. Currently, there are no defined penalties for noncompliance, which weakens the deterrent value of the framework and may cause stakeholders to treat obligations lightly. The procedural complexity for securing documentation such as No Objection Certificates, Letters of Intent, and Project Document designs creates significant delays and inefficiencies. These hurdles discourage participation and investment and may lead to missed opportunities.
In practice, the time duration involved between issuing the Letter of Intent and the Letter of Approval is approximately 02 years. This can even become prolonged once the workload increases. This may result in redundancy of the financial model initially conceived, and no stakeholder will keep the investment/equity dedicated to this project, while only waiting for an uncertain approval.
The Policy introduces the National Designated Authority and the Carbon Market Working Group to provide governance and oversight. But a lack of clarity in defining the roles of federal and provincial bodies may result in overlapping mandates and inefficient coordination. These issues have historically delayed infrastructure and energy projects in Pakistan and risk repeating similar outcomes in carbon market operations. Whilst the policy mentions capacity building, it does not go far enough in proposing a mechanism to delineate responsibilities, strengthen institutional capabilities, or create a coordinating authority that can act as a hub to streamline efforts across the departments.
The implementation framework is built around aligning carbon market activities with Pakistan’s Nationally Determined Contributions in sectors like energy, agriculture, transport, and forestry. Despite alignment, the policy fails to present a detailed roadmap for execution. One of the most pressing concerns is the lack of financial transparency regarding revenue generated from the Corresponding Adjustment Fee. There is little information about how these funds will be collected, allocated, or monitored, which raises serious concerns about governance and corruption.
Another challenge is the establishment of effective Measuring, Reporting, and Verification systems. While policy recognises their importance for avoiding double-counting and ensuring international compliance, it does not explain how these systems will be scaled to the provincial level or how data traceability will be ensured. The current lack of infrastructure for decentralised carbon registries limits the Policy’s ability to implement these mechanisms in a verifiable way. Without meaningful investment in both human and technological capacity, Pakistan risks developing an unreliable carbon market.
Another important gap is the absence of a comprehensive strategy for private sector engagement. Although the policy expresses an interest in encouraging private sector participation, it fails to offer concrete incentives like tax exemptions, access to green bonds, or financial grants. Without these tools, businesses have little motivation to invest in emissions reduction projects.
Despite these challenges, the policy does provide a useful starting point. To reach its full potential, it must be supported by reforms that improve enforcement, clarify institutional responsibilities, strengthen financial oversight, and incentivise private sector involvement. (To be Concluded).
The writer works at a public policy thinktank. He can be reached at [email protected]