Concept Note: In the backdrop of global climate change and energy security concerns, green and sustainable development has become a top priority for developing countries. While Pakistan has been a low-carbon emitter (contributing to less than 1% of global emissions), it is ranked as the 8th most vulnerable country to climate change. In 2022, Pakistan has also been severely impacted by the poly crisis (Climate change, Inflation, aftermaths of COVID19, and the Russia Ukraine war) causing significant socio-economic loss and damage to the country. Given that Pakistan has a very limited fiscal space to finance climate mitigation and adaptation initiatives, addressing the challenge of changing climate require mobilizing necessary green finance to support the transition coupled with economic growth. Green finance refers to the allocation of capital and financial resources toward environmentally sustainable and climate-resilient projects, technologies, and socioeconomic initiatives. In this
regard, market-based solutions to provide economic incentives and to internalize climate change externalities is the actionable policy approach. Carbon markets, as a critical component of green finance, offer a structured market mechanism to incentivize emissions reductions, promote sustainable practices, and drive the transition to a more sustainable economy. Carbon markets are a trading system in which carbon credits (one credit equals one ton of CO2removed from the atmosphere) are traded either voluntarily or under a compliance of national, regional, or international regulatory requirement. The supply of carbon credits generally comes from the private entities working on low-carbon projects, or government programs that generate emission reductions. These credits are then bought by the companies/individuals that need to compensate for their high carbon footprints. In some instances, these carbon credits are even traded at higher prices. The Emission Trading System (ETS) operating under a “Cap & Trade” principle is a common example of such markets. Carbon markets are also a key enabler of global climate goals in the short- and medium-term. Article 6 of the Paris Agreement allows countries to voluntarily cooperate with each other to achieve emission reduction targets set out in their NDCs. For developing countries such as Pakistan, carbon markets are extremely critical as they can lead to economic incentives for emission reductions, mobilizing the private capital, unlocking green investments, facilitating carbon pricing strategies, complementing climate goals, creating green jobs, and supporting the green economic growth. However, despite availability of significant opportunities for utilizing the carbon markets, Pakistan has not been able to harness its potential. While Pakistan’s Ministry of Climate Change and Environmental Coordination reported on different carbon pricing instruments, carbon credits have been obtained under some projects, the country is still struggling to grapple with its complexities,
understand ramifications and develop an effectively implementable structure. Among global leaders who have efficiently addressed the climate and energy challenge, Denmark is one of the frontrunners and trend setters in sustainable development, ranking 4th in its international and national climate policy and governance. Key initiatives to address climate mitigation and adaptation include transition towards renewable energy climate resilience, climate smart agriculture, and implementation of carbon market. Denmark’s climate policy tools include a carbon tax — introduced as early as 1992. As per the statistics of OECD, 39% of Denmark emissions in 2021 were priced. While the local context of both countries differs, there is an ample opportunity for Pakistan to learn from an effective implementation of this market from Denmark. Scope and Objectives of the Inception Workshop In the backdrop of the opportunities and challenges highlighted above for effective implementation of carbon markets in Pakistan, Sustainable Development Policy Institute (SDPI) in collaboration with Embassy of Denmark in Pakistan has initiated a project on “Unlocking pathways to support implementation of carbon markets in Pakistan”. The project aims to bridge the knowledge gap and develop the capacity of the relevant stakeholders around the subject. This workshop would serve as the “Inception” meeting of the project, addressing the following key objectives:
Ø To conduct need assessment of knowledge and capacity gaps for an implementation framework of carbon markets in Pakistan.
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