By Syeda Hadika Jamshaid, Carbon Market and NDCs Advisor, Global

Recognising the potential offered by carbon trading, the government of Pakistan will be releasing its first-ever Policy Guideline for Trading in Carbon Markets at COP29 in Baku.

Article 6 of the Paris Agreement serves as a guide to create and verify carbon credits and prevent the issue of double counting through corresponding adjustments. National governments play a critical role in making decisions on sectors or projects eligible for corresponding adjustments in order to ensure the integrity of the credits. Pakistan’s “undefined” status on this front, compounded by political instability, has impacted its participation in a rapidly expanding market. To address this, the government diligently worked with the stakeholders to provide market actors with much-needed certainty and released the policy guidelines with important decisions on sectoral coverage and modalities.

Under the stewardship of the Ministry of Climate Change and Environmental Coordination (MoCC&EC), the Pakistan Policy Guidelines for Trading in Carbon Markets is under approval, aiming to define a legal basis and provide clarity and certainty to the market actors both nationally and internationally, to unlock the potential of carbon markets, and fulfill its climate and NDC goal, while at the same time contributing to global climate change mitigation efforts. The policy guidelines set the ceiling of traded volume under Article 6 at 50% or 280.5 MtCO2e of the committed conditional emissions reduction target.

The guidelines also set the operational requirement for project authorisation and approval from MoCC&EC. As such, project proponents, for instance those developing projects under international standards such as Gold Standard or Verra, will have to furnish a project idea note to get the Letter of Intent (LoI). An LoI will be deemed expired if the project design document and registration has not been completed within two years. Subsequently, project proponents require the National Designed Authority (NDA) to issue No Objection Certificates (NOCs) for Internationally Transferred Mitigation Outcomes (ITMOs), Mitigation Outcomes (MOs) transfers, and Corresponding Adjustments. Furthermore, projects falling under government-to-government (G2G) arrangements must adhere to the guidelines and the Rules of Business, 1973.

The guidelines set an obligatory Corresponding Adjustment Fee (CAF) calculated at 12% of net revenue generated from the sale of carbon credits. A portion of this CAF will be transferred to the provinces while the remaining portion will be credited in the Pakistan Climate Change Fund, to be used for climate change initiatives across the country.

The markets are evolving into sophisticated and dynamic platforms, with significant growth prospects. In 2022, the traded value of carbon credits was recorded as high as $978 billion in total from compliance and voluntary markets. The growth in the carbon credit market is projected to continue as more nations and corporations commit to the ambitious net zero pledges. Hence, requiring national leadership to make necessary arrangements for participation.

Simultaneously, Pakistan has also commenced the development of digital monitoring, reporting, and verification (MRV) and a national inventory with support from the World Bank, further abating the issues of double counting or leakage.

In other news, MoCC&EC in its effort to boost the involvement of the private sector has signed a statement of understanding (SoU) with Verra – the world’s leading standard-setting body for the voluntary carbon market through the Verified Carbon Standard (VCS). Pakistan enjoys a huge potential to host carbon market projects and this opportunity is designed to directly benefit private actors to understand the technical and administrative requirements for VCS compliance.

Pakistan’s priority is to become a leading player in the global carbon market. With concerted efforts and a steadfast commitment to sustainability, Pakistan endeavors to carve a niche for itself in the global carbon market arena. As Pakistan seeks to secure its place in this dynamic ecosystem, the country’s recent endeavors are assured to be significant progress.

Any opinions published in this commentary reflect the views of the author and not of Carbon Pulse.

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