The federal government has invited all ministries to submit their budget proposals for the upcoming fiscal year 2026-27 with a clear emphasis on climate mitigation and resilience, as Pakistan faces increasing pressure from international markets over carbon emissions. The move comes amid warnings from the European Union, one of Pakistan’s largest export destinations, that imports from countries failing to meet specified carbon thresholds could face restrictions.
The issue was discussed during a panel session titled “Decentralising Climate Action: Unlocking Local Governments’ Role in Climate Finance” held at the Institute of Business Administration’s City Campus in Karachi. Speaking at the event, Director of IBA’s Centre for Business and Economic Research, Professor Lubna Naz, highlighted that the European Union issued a policy statement in January 2026 binding Pakistan’s export-oriented sectors to comply with carbon emission limits. These limits reportedly include a threshold of 50 tonnes of carbon emissions per importer per year for sectors such as iron and steel, cement, fertilisers, aluminium, electricity, and hydrogen.
She further cautioned that similar requirements are expected to be extended to Pakistan’s textile sector between 2027 and 2030. Given that textiles form the backbone of Pakistan’s exports, any failure to meet emission benchmarks could significantly impact export sustainability. Professor Naz questioned the government’s preparedness and accreditation mechanisms to protect export competitiveness in the face of tightening environmental regulations.
Advisor to the Finance Minister, Khurram Schehzad, said that for the first time the Ministry of Finance has formally asked all federal ministries to present climate-focused plans as part of their FY2026-27 budget submissions. According to him, ministries have been instructed to propose disaster-neutral and green projects, supported by detailed estimates of expenditures, expected revenues, and financing sources.
Schehzad noted that Pakistan remains among the most climate-vulnerable countries despite contributing only 0.8 percent to global greenhouse gas emissions. However, he added that the country’s emissions are rising at an estimated rate of 2 percent annually, making climate action increasingly urgent. He identified agriculture, industry, energy, and transport as the major sources of carbon emissions.
Referring to the devastating floods of 2022, Schehzad said the disaster marked a turning point in government thinking on climate risk. The floods displaced nearly one-third of the population and caused economic losses estimated at $30 billion, equivalent to around 8 percent of GDP and the value of Pakistan’s annual exports. He said the government has since moved from planning to implementation of climate-related initiatives.
He rejected the notion that Pakistan lacks access to climate financing or reliable data, pointing to international commitments including $20 billion pledged by the World Bank over ten years and $1.3 billion under the IMF’s Resilience and Sustainability Facility, of which $200 million has already been disbursed. Domestically, he highlighted the Rs300 billion Zarkhez-e collateral-free financing programme aimed at supporting 750,000 farmers through access to finance, technology, and climate-resilient seeds.
Schehzad also said the Ministry of Climate Change has developed a management information system to provide advanced climate data, while SUPARCO’s data infrastructure is already supplying information on land use, glacier melt, flooding, rainfall patterns, and geological activity. These datasets, he said, would guide future investment decisions in climate projects.
Despite these efforts, several speakers stressed that local governance remains a missing link. Climate Action Center Director Yasir Husain Darya pointed to weak coordination between federal, provincial, and local governments, noting that climate projects are often designed and committed at the federal level without adequate consultation or ownership at lower tiers.
Climate finance expert Ali Tauqeer Sheikh added that most national policies approved after the 18th Amendment fail to address climate risks, while recent development projects continue to rely on outdated planning templates. Transparency International Pakistan’s Kashif Ali proposed constitutional amendments to formally strengthen the role of local governments in climate action.
Nutrition expert Naveed Bhutto concluded that climate change is already affecting agricultural yields and food quality, worsening malnutrition and food insecurity, underscoring the need for integrated and inclusive climate planning across all levels of government.
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