Top Challenges & Opportunities in Earning Carbon Credits in Pakistan (2025)

Carbon credits are tradable permits that allow entities to emit a certain amount of carbon dioxide or equivalent greenhouse gases. Nations and corporations can either reduce emissions or buy credits to offset their carbon footprint.

There are two primary markets for earning carbon credits:

• Compliance Market – operates under a regulatory framework (cap-and-trade).
• Voluntary Market – open to individuals and businesses outside regulatory systems.

REDD+ and Climate Policy in Pakistan

Pakistan initiated REDD+ (Reducing Emissions from Deforestation and Forest Degradation) activities in 2010 to reduce carbon emissions through sustainable forest management. Financial support from the Forest Carbon Partnership Facility (FCPF) under the World Bank helped Pakistan complete REDD+ readiness.

REDD+ is deeply integrated into Pakistan’s:

• National Climate Change Policy
• Vision 2025
• National Forest Policy

Pakistan has developed a National REDD+ Strategy (NRS) and is ready to undertake carbon sequestration projects.

Pakistan’s Vulnerability and Emission Stats

Despite contributing only 0.28% to global CO₂ emissions, Pakistan is the 7th most vulnerable country to climate change.

Climate-induced events include:

• Massive floods
• Intense droughts
• Glacial Lake Outburst Floods (GLOFs)
• Erratic weather patterns

This imbalance highlights the urgent need for Pakistan to participate in global carbon markets and fund climate resilience.

Types of Carbon Markets

Compliance Market

Under Article 6 of the Paris Agreement, countries can collaborate and trade carbon credits to meet their Nationally Determined Contributions (NDCs).

Voluntary Market

In this market, any individual, business, or organization can participate. Pakistan’s engagement here is still in its infancy.

Key Challenges in Carbon Credit Earning

Lack of Technical Expertise

Pakistan lacks qualified professionals to develop internationally compliant carbon credit proposals.

Absence of Standardization

The voluntary market suffers from vague methodologies and low transparency. Many carbon offset projects lack true “additionality” — meaning they don’t achieve real emission reductions beyond the status quo.

Institutional Gaps

The Designated National Authority (DNA) under the Ministry of Climate Change and Environmental Coordination is under-resourced and lacks proactive implementation frameworks.

Tax Burden in the Voluntary Carbon Market

Pakistan recently developed Policy Guidelines for Trading in the Carbon Market. However, instead of enabling growth, these guidelines impose multiple taxes and deductions, which deter potential investors and project developers:

• 5% Deduction at Source: From total generated credits, to meet voluntary NDCs.
• 12% Corresponding Adjustment Fee (CAF): On net revenue. Half goes to the province, and half to the Pakistan Climate Change Fund.
• 1% Administrative Cost: From gross revenue, to the federal government.

Such high deductions combined with international consultancy fees make it financially unviable for local developers to participate.

The Way Forward for Pakistan

To unlock the true potential of earning carbon credits in Pakistan, the government must adopt these strategic steps:

1. Revise Carbon Market Guidelines

Remove or reduce excessive taxation that discourages participation in the voluntary market.

2. Promote Diverse Projects

Invite proposals from renewable energy, forestry, waste management, hydropower, and biogas sectors.

3. Develop National Carbon Credit Database

Maintain a transparent registry of projects under compliance and voluntary markets.

4. Capacity Building

Train public and private stakeholders in developing carbon credit proposals per Verra, Gold Standard, and CDM guidelines.

5. Public-Private Collaboration

Facilitate partnerships between Pakistani companies and international buyers for better market exposure.

6. Transparency & Communication

All listings of verified international buyers and sellers must be publicly displayed on the DNA website.

Final Thoughts

While earning carbon credits in Pakistan remains a promising solution for climate financing and sustainable development, the challenges are too critical to ignore. From institutional capacity to financial viability, several areas demand urgent reform.

If the Ministry of Climate Change takes immediate steps to simplify the tax structure, build expertise, and enable private sector participation, Pakistan could unlock millions of dollars in green financing while playing its part in global climate action.

References and External Resources

• UNFCCC Article 6 Summary
• REDD+ Explained – UN-REDD
• Verra – Verified Carbon Standard
• Pakistan’s Climate Change Policy

Internal Links

• Climate Resilience Projects in Pakistan
• Top Renewable Energy Projects in Pakistan 2025
• How REDD+ Supports Sustainable Development