Earning carbon credits in Pakistan
Pakistan, being a Non-Annexe country party to the United Nations Framework Convention on Climate Change (UNFCCC), qualifies to earn carbon credits for various eligible activities. The carbon financing and Reducing Deforestation and Degradation (REDD+) are new and emerging areas that Pakistani experts have yet to understand and exploit.
Therefore, enabling initiatives such as the REDD+ activities were established at the international level, which Pakistan has also benefited from in terms of establishing an enabling environment and capacity building. Other initiatives include, Methane Pledge led by the USA and also joined by Pakistan, the National Adaptation and Mitigation Actions (NAMA) facility and similar other initiatives that are aimed at supporting Pakistan to understand and embark on earning carbon credits.
Pakistan, with around 5% of the total land area under forests, initiated REDD+ activities in 2010 to mitigate climate change through reduced carbon emissions from the forestry sector. Pakistan received REDD+ Readiness financial support from the Forest Carbon Partnership Facility (FCPF) of the World Bank for readiness preparations.
In Pakistan, REDD+ is an important component supporting the National Climate Change Policy, National Development Vision 2025, and the National Forest Policy. These components, and specifically the preparation of the National REDD+ Strategy (NRS). Pakistan has gone through the REDD+ readiness process and is set to undertake carbon sequestration projects.
Pakistan, with a very limited contribution of only 0.28% of the CO2 emissions, is the 7th most vulnerable country to the impacts of climate change. Floods, droughts, Glacial Lake Outburst Flood (GLOF), and other climate-triggered disasters are more common now than ever before. As carbon credits can be earned in two major ways, such as carbon credits that are bought and sold via a cap-and-trade system (Compliance market), and secondly, the Voluntary market, where carbon offsets can be traded by anyone under a voluntary market mechanism.
The voluntary market is open to any entity, and even individuals, to earn carbon credits for eligible activities. It includes all businesses and people who aim to decrease their carbon footprint.
One of the main challenges in the voluntary carbon markets is the lack of standardisation, integrity and transparency. Without clear standards for carbon credits, it can be difficult for companies or individuals to know whether they are truly reducing their emissions. The most prominent reason why carbon projects fail is that they are not additional to the business as usual, meaning that the project does not contribute to achieving additional climate benefits, compared to if the project had not existed.
This can happen when carbon credits are issued by protecting forests which were never in danger. In addition, Pakistan lacks capacity, technical experts and resources to develop the carbon credit proposal as per the international standards and requirements.
Article 6 of the Paris Agreement to the UNFCCC permits countries to collaborate voluntarily, utilising carbon markets as a means to fulfil their NDCs and raise their ambition level, while ensuring environmental integrity and promoting sustainable development. Articles 6.2, 6.4, and 6.8 provide guidelines for the creation and verification of carbon credits and safeguards against double counting. COP26 committed to establishing international standards for such markets.
One of the good news for Pakistan is that it has developed Policy Guidelines for Trading in the Carbon Market; however, most of the proponents still lack technical skills to fully harness the benefits of such opportunities. These new and emerging areas require technical support, which is not only lacking but may require a great deal of financial resources.
In addition, the voluntary carbon market is also loaded with an increased quantity of taxes on such earnings from carbon markets as envisaged in the Policy Guidelines for Trading in Carbon Market, which are given below:
5% of the credits generated by the project shall be deducted at source, in the form of credits, preferably to be adjusted towards Pakistan's voluntary NDCs.
Corresponding Adjustment Fee (CAF) calculated at 12% of net revenues generated from the sale of carbon credits. 50% of the CAF shall be directly transferred to the province where the project is based.
Remaining portion (50%) of the CAF will be credited in Pakistan Climate Change Fund, to be used for climate change initiatives across the country, in consultation with the province where the credits are generated, giving preference to initiatives within the province, barring climate induced emergencies/exceptional circumstances to be determined by the Pakistan Climate Change Council.
Administrative Costs, equating to 1% of gross revenues generated from the sale of carbon credits, will go to the Federal Government.
The utilisation of CAF will be guided by the principles of sustainability, equity, and effectiveness in reducing greenhouse gas emissions while advancing sustainable development.
In the presence of such huge taxation and fees, the Voluntary Carbon Market would not be able to claim any carbon credit. Instead of facilitating the development and submission of carbon credit proposals, the newly approved Policy Guidelines for Trading in the Carbon Market have imposed very high taxes that the proponents are not able to pay, coupled with increased cost of hiring international experts for developing the carbon credit proposals.
This will certainly block the way to earn carbon credit for Pakistan and therefore, unlike other developing and non-Annexe parties to the UNFCCC, Pakistan may not avail the benefit from the carbon trade market.
Way forward
The Designated National Authority (DNA) of the UNFCCC and Carbon Financing in Pakistan, that is the Ministry of Climate Change and Environment Coordination, shall focus on the following points, aiming at developing and submitting successful carbon credit proposals:
Review and remove all the taxes proposed in the Policy Guidelines for Trading in the Carbon Market.
An invitation calls for registration and expression of interest in earning carbon credits from forestry, solar, brown energy, biogas, wind, hydropower, and other such renewable resources.
Develop a database of voluntary and compliance market carbon credit registration in Pakistan at the individual, company, and corporate levels and facilitate them. Develop the capacity of the concerned agencies and the private sector for developing and processing carbon credit proposals.
Connect the private sector overseas buyers and sellers from Pakistan under a voluntary market and display all such listings of international carbon credit buyers on the DNA website.
Provide all the required services and expertise to the carbon credit-earning entities in Pakistan.
The writer holds Ph.D in Forestry and is a climate change, forestry and environment expert
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