Over the past year, the provincial government has floated an unusually wide menu of ways to pay for climate adaptation: green sukuk, debt-for-climate swaps, payment-for-ecosystem-services schemes, climate-risk insurance, and carbon credits. The last got the most attention. In July 2025, Chief Minister Ali Amin Khan Gandapur unveiled the province’s first Forest Carbon Credit Mapping Report, projecting $4 billion in revenue over 40 years from ten forestry projects, with $100 million a year in the interim.
That figure is worth pausing on, because KP has made a version of this promise before. In 2023, the Forest Department and the Pakistan Forest Institute publicised a carbon credit project, first launched in 2014, projected to generate $140m a year. Nine years in, it was still described as being in its early stages.
Carbon markets are slow to convert mapping reports into paying contracts, and Pakistan has no track record of a forestry credit deal at this scale actually closing. That doesn’t make the new report worthless. It means a province that floated a large carbon figure once before, without result, should treat a second one as a supplement to its financing plan, not a foundation for it.
The province doesn’t lack money for adaptation; it lacks the will to tag what it already collects
Set that against numbers already sitting in KP’s own budget. Net hydel profit is budgeted at Rs111.3bn for 2024-25, and oil and gas royalties add close to another Rs90bn, roughly Rs200bn a year, collected from resources the province already owns. None of it is earmarked for climate adaptation. Compare that to the one sector-specific costing figure KP has in the public record: the Health Department’s Climate and Health Adaptation Plan estimates that the economic burden of climate-related health impacts could exceed Rs5.54 trillion by 2030 without action, and puts the cost of a resilience roadmap at roughly Rs315bn. That single-sector figure is smaller than KP’s annual hydel and royalty income.
The province isn’t starting from zero on the mechanics of this, which is what makes the gap between capacity and practice so stark. The Climate Change Financing Framework, adopted in 2018 and described by the UNDP as one of the first government-endorsed subnational climate finance strategies in the world, set out a coding structure classifying every budget line as mitigation, adaptation, mixed, or non-climate spending. A Climate Change Finance Unit runs it inside the Finance Department. A Climate Change Cell was established in 2023 under the Planning and Development Department, and in 2025, the KP Assembly passed the Climate Action Board Act, creating a body with a legal mandate to oversee climate spending and operate its own fund.
What’s missing is follow-through. A Climate Public Expenditure and Institutional Review found climate-related spending made up roughly 5.3 to 8.9 per cent of the province’s budget between 2010 and 2016, a baseline now nearly a decade old, with no recent figure showing the 2018 tagging framework has since been applied consistently. The scale of what remains untagged is evident in the current budget: of a Rs519.1bn development portfolio covering 2,765 schemes, only 5pc is explicitly green-sector, compared with 44pc for infrastructure. The new Disaster Risk Management Fund is capitalised at just Rs12bn, a fraction of the hydel and royalty income collected in a single year.
External finance is more politically comfortable than reallocating that income. KP already works with a Green Climate Fund project in Buner and Shangla, a UNDP glacial-flood programme spanning 15 districts, and with Asian Development Bank and World Bank financing for provincial infrastructure and health. These are real, disbursing programmes, but each is bounded and time-limited, not a substitute for a standing domestic mechanism, and none forces KP to resolve who gets an earmarked budget line and who doesn’t.
Foreign finance arrives with its own conditions and doesn’t ask anyone locally to give something up. Reallocating hydel profit or royalty income does. That is precisely why it doesn’t happen without a deliberate push, and precisely why it’s worth pushing for.
None of this argues against diversifying KP’s financing base in the long term. Payment-for-ecosystem-services schemes suit the province unusually well, since 90 to 93pc of its forest area is already under community rather than state management, a genuine advantage few provinces can claim. But sequencing matters. A province that hasn’t finished applying a budget-tagging system it adopted seven years ago has little basis for treating an unproven carbon market, or a sukuk Pakistan has only just piloted nationally, as a near-term financing pillar.
The order should run the other way. Finish tagging the budget against the framework that already exists. Ring-fence a defined share of hydel profit and resource royalties for climate resilience spending, with public reporting on how much is collected and spent. Only once that domestic mechanism is running and audited should a sukuk prospectus or a carbon credit sale count as more than a welcome supplement.
KP’s problem was never that the money doesn’t exist. It’s that a province collecting close to Rs200bn a year from resources under its own feet has spent more energy chasing revenue that doesn’t yet exist than earmarking the revenue that does.
The writer is a doctoral researcher in Land Resources and a Research Associate at the SDPI. Email: ebadaturrehman@sdpi.org.
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