As the world races to meet climate goals, carbon credits are emerging as a powerful tool that allows businesses to monetize sustainability. In Pakistan, the potential is especially promising. A recent Business Guide published by Karandaaz outlines how carbon credit markets can create new revenue streams while helping the country meet its climate commitments. This article summarizes the key insights, processes, and opportunities for businesses to participate in carbon markets, focusing on Pakistan’s evolving regulatory and economic landscape.
You can access the Business Guide available on Karandaaz website by clicking on the button below:
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What Are Carbon Credits?
Carbon credits are tradable certificates representing the reduction or removal of one metric ton of carbon dioxide (CO₂) or its equivalent. These credits assign a financial value to emission reductions, enabling businesses that lower their emissions to sell these credits on international or domestic markets.
Projects across forestry, renewable energy, waste management, and agriculture can generate carbon credits. Besides generating income, these projects also bring co-benefits like job creation, improved environmental quality, and foreign investment.
Two Carbon Markets: Voluntary vs. Compliance
The global carbon market operates through two main systems:
- Voluntary Carbon Markets (VCMs): Used by companies that choose to offset their emissions as part of sustainability goals.
- Compliance Markets: Mandated by governments or international treaties. These markets include cap-and-trade systems where companies must hold enough credits to cover their emissions.
Understanding how these markets work is essential for Pakistani businesses looking to enter the carbon credit space.
Pakistan’s Climate Targets and the Role of Carbon Credits
Under its Nationally Determined Contribution (NDC), Pakistan aims to reduce greenhouse gas emissions by 50% by 2030. Of this, 15% is unconditional, and 35% is dependent on international support.
Priority sectors for carbon mitigation include:
- Energy
- Agriculture
- Forestry
- Industry
- Waste management
Carbon credits offer a pathway to achieve these targets by incentivizing low-carbon technologies and attracting climate finance.
New Regulatory Changes: Environmental Reporting Is Coming
Starting in 2025, the Securities and Exchange Commission of Pakistan (SECP) will require large businesses to report on their environmental performance. The disclosure will cover emissions, climate risks, and sustainability metrics, aligning Pakistan with international financial and environmental reporting standards.
This move is expected to increase transparency and push companies toward emission-reduction initiatives, including carbon credit projects.
Government Support: A Carbon Market Framework in Development
In late 2024, the Pakistani government introduced Carbon Market Policy Guidelines during COP29. The Ministry of Climate Change and Environmental Coordination is leading the development of a national framework that includes:
- A National Carbon Registry
- Guidelines for both voluntary and compliance market participation
- Incentives for private-sector investments in clean technologies
This framework is intended to support the creation, trading, and retirement of carbon credits in a credible and transparent way.
The Carbon Credit Journey: From Assessment to Revenue
Creating carbon credits involves a 10-step lifecycle:
- Assess Emissions: Identify Scope 1 (direct), Scope 2 (indirect), and Scope 3 (value chain) emissions.
- Strategic Planning: Set emission reduction goals and select eligible project methodologies.
- Project Design: Develop a Project Design Document (PDD).
- Third-Party Validation: Get the project reviewed and approved by independent auditors.
- Registration: Submit the project to a recognized carbon standard (e.g., Verra, Gold Standard).
- Implementation: Execute the project activities.
- Monitoring: Track and record emission reductions.
- Verification: Another audit to confirm the actual reductions.
- Issuance: Verified credits are issued.
- Selling and Retirement: Credits are sold and retired to ensure they’re not reused.
Costs of Participation
The cost of developing and verifying a carbon credit project can be substantial:
- Emissions assessments: $5,000–$10,000
- PDD preparation: $10,000–$20,000
- Third-party validation and verification: $10,000–$20,000
- Annual monitoring: $2,000–$5,000
- Additional government fees: 12% Corresponding Adjustment Fee + 1% administrative fee on revenues
While costs are high, returns can also be significant. Net profits depend on the volume of emissions reduced, the type of credit, and prevailing market prices.
Real-World Example: Rahima’s Textile Industry Project
Rahima Khan, a Pakistani entrepreneur in the textile sector, used internal assessments to identify energy-saving opportunities. By following carbon credit protocols, she managed to reduce emissions by 20,000 tCO₂e and earned over USD 240,000, retaining USD 209,300 after fees.
Her success illustrates how businesses in Pakistan can turn sustainable practices into revenue while enhancing brand reputation and environmental performance.
Global Inspiration, Local Application
Successful carbon credit initiatives worldwide offer models for Pakistan:
- USA: Converting agricultural waste to bio-oil
- South Korea: Waste heat recovery in steel plants
- New Zealand: Carbon trading through afforestation
- Brazil: Capturing methane from landfills
Pakistan is already moving in this direction with projects such as:
- Delta Blue Carbon: Mangrove restoration generating over 3.1 million credits
- Lahore Waste-to-Hydrogen: Methane capture aiming for 100,000 credits annually
- Wind Projects in Sindh: Clean energy generation
- NetZero Agri: Methane reduction in rice cultivation
Where the Emissions Come From
Pakistan’s major emission sources include:
- Forestry and land use (45–47%)
- Energy (38–40%)
- Industry (6%)
- Waste (4–6%)
Targeting these sectors can help unlock the greatest carbon credit potential.
Financial Potential: Billions in the Long Term
At scale, carbon credits could become a major economic driver for Pakistan:
- Potential to generate 5–10 million credits annually
- Estimated national revenue of USD 40–100 million per year at current prices
- Even higher income from high-quality, verified carbon credits
Remaining Challenges
Despite strong momentum, challenges remain:
- Lack of local expertise: Many businesses still depend on international consultants.
- Trust issues: Concerns about double counting and policy shifts affect investor confidence.
- Verification gaps: Robust monitoring and verification systems are still being developed.
To overcome these, the government and private sector must invest in capacity building, strengthen transparency, and align more closely with global best practices.
Final Thoughts
Carbon credits offer a unique win-win for Pakistan—economic gain and environmental protection. As the country builds its regulatory and technical infrastructure, there’s a clear message for businesses: now is the time to prepare. Whether you’re in agriculture, energy, textiles, or waste management, carbon markets represent a real and rapidly growing opportunity to profit from sustainability.
For businesses interested in exploring this further, the full guide provides detailed steps, examples, and resources.
