Supreme Court Justice Mansoor Ali Shah has emphasised that carbon taxation should be a tool for climate adaptation and resilience, particularly for vulnerable nations like Pakistan. He underscored the need for a differentiated carbon tax regime aligned with Pakistan’s economic realities, ensuring climate justice while facilitating a sustainable transition for industries.
Addressing a pre-budget seminar on carbon taxation, organised by the Sustainable Development Policy Institute (SDPI) in collaboration with the Embassy of Denmark, Justice Shah highlighted the complexities of carbon taxation. He stressed that it must go beyond revenue generation and instead align with environmental sustainability and economic resilience.
Citing South Africa’s model, which allocates 10 percent of carbon tax revenues to climate resilience projects, he urged global financial institutions to recognise adaptation credits and restructure carbon markets to support climate-vulnerable nations. Justice Shah further noted that Pakistan, as a low-emission but climate-vulnerable country, must prioritise adaptation over mitigation.
Danish Ambassador Jacob Linulf, speaking at the seminar, called for urgent climate action in Pakistan, describing climate change as a fundamental threat. He reaffirmed Denmark’s commitment to supporting Pakistan’s renewable energy transition and noted that Denmark’s shift from fossil fuels to clean energy proves that economic growth and sustainability can go hand in hand. He encouraged Pakistan to capitalise on its renewable energy potential for efficiency and resilience.
The ambassador also highlighted the role of energy efficiency in maintaining industrial competitiveness. He advocated for smart carbon taxation, modern technology adoption, and strong government policies to foster innovation, attract investment, and position Pakistan as a global supplier of green technologies. Additionally, he emphasised corporate responsibility, urging businesses to adopt energy-efficient practices, especially in the textile sector, to enhance global market demand for Pakistani exports.
Dr. Abid Qaiyum Suleri, Executive Director of SDPI, noted Denmark’s continued support in helping Pakistan navigate carbon taxation and carbon markets. He pointed to the Carbon Border Adjustment Mechanism (CBAM), a tax on carbon-intensive exports to the European Union set to be fully operational by 2026. He warned that while Pakistan’s current export mix may limit immediate impacts, exporters failing to pay carbon taxes locally could face levies in destination markets.
Dr. Sajid Amin Javed, SDPI’s Deputy Executive Director, framed climate change as a macroeconomic risk that must be integrated into Pakistan’s broader policy framework. He cautioned against short-term tax policies and noted that carbon levies could become an International Monetary Fund (IMF) condition, requiring immediate deliberation.
Senior Economist Afia Malik highlighted Pakistan’s revenue shortfall, which has led to a downward revision of tax collection targets from Rs12.9 trillion to Rs12.3 trillion. She noted that carbon taxation is being considered as a fiscal tool, with proposals including levies on vehicle registration or fuel. However, she warned that such measures could disproportionately impact low-income groups and lead to inflationary pressures.
Sobiah Becker, an advisor to the Pak-German Climate Energy Partnership (PGCEP), proposed a hybrid carbon pricing model, beginning with a Rs1,500 per ton levy on high-emitting industries like cement, steel, and textiles, increasing to Rs2,500 per ton in later stages. By 2030, she suggested a combination of carbon taxes and emissions trading systems to align Pakistan with global carbon market trends.
Ali Kemal, Chief of SDGs at the Planning Ministry, emphasised that carbon taxation is inevitable—whether to reduce emissions or increase government revenue—but must be implemented strategically. He recommended that tax revenues be reinvested in social protection programs to ensure equitable distribution. Given the expected resistance to carbon taxation, he stressed the need for a gradual and well-structured implementation plan.
The seminar concluded with experts agreeing that carbon taxation should serve as a long-term policy tool for economic and environmental resilience, requiring careful design to balance fiscal needs with climate justice.