Climate-Vulnerable Countries Assert Carbon Market Leadership
April 17, 2026
By: Faisal Wali Jan, Section Officer, Pakistan Ministry of Finance,
CVF-V20 Climate Prosperity Fellow
In the corridors of the Ministry of Finance of Pakistan, the conversation around fiscal policy has shifted dramatically. A few years ago, “climate resilience” was often treated as an environmental concern, relegated to line ministries. Today, having managed the USD 1.4 billion Resilience and Sustainability Facility (RSF) over the last two years, I see it differently: climate risk is a macroeconomic risk, and our fiscal sustainability is intrinsically linked to how well we prepare for the climate reality.
For Pakistan, the RSF isn’t just about the liquidity it provides; it is a structural mechanism. It forces us to reconcile the immediate pressures of our balance of payments with the long-term necessity of structural reform. As we look at the program through to its conclusion in August 2027, the challenge for us, the technical teams on the ground, is translating high-level conditionalities of the International Monetary Fund (IMF) into tangible, locally owned policy actions.
The Government has undertaken the most lethargic task involving the energy sector of Pakistan. For many years, Pakistan’s energy sector has been burdened by a subsidy system that did not work as intended. Although it was introduced to protect low-income households, a large share of the benefit ended up going to those who did not really need it. This put pressure on public finances and also encouraged inefficient use of energy.
Under the IMF’s RSF, our approach is not just about increasing tariffs. It is about fixing the system in a gradual and thoughtful way, improving how subsidies are targeted, strengthening financial discipline in the power sector, and making the system sustainable without abandoning those who genuinely need support. By January 2027, we plan to move away from the old, across-the-board tariff differential subsidy and replace it with a more focused mechanism, using the Benazir Income Support Programme (BISP) database so that assistance reaches the right households. The technical heavy lifting here, identifying consumers and finalizing eligibility criteria, is grueling, but it is the only path to ensuring the power sector’s long-term viability and public ownership of reforms.
The Government of Pakistan has also recognized the significance of fiscal policy in driving behavioral change, and the completion of tasks under the RSF on carbon levy and electric vehicle (EV) adoption serves as an outline for this. Furthermore, to internalize the cost of carbon emissions within our federal budget, we have imposed a supplementary carbon levy of PKR 5 per liter on fuel products, and simultaneously rolling out a revenue-neutral scheme for EV adoption.
Finance ministries are infamously rigid. Integrating climate considerations into the Public Sector Development Programme (PSDP) has been an exercise in cultural change. It isn’t just about “tagging” expenditures; it is about changing the appraisal process.
Under our current RSF mandates, all projects now undergo a mandatory climate screening. Hence, the departments that previously focused only on cost-benefit ratios have now started accounting for the climate risk exposure. We are currently institutionalizing this by creating a quarterly climate budget execution report. For the first time, we can clearly see the difference between what we set aside for climate-resilient infrastructure and what was actually spent. That visibility allows us to course-correct in real time instead of discovering gaps after the fact.
The government cannot shoulder the burden of climate adaptation on its own. Bringing in private capital is no longer optional; it is essential. This is where the work with the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) becomes vital.
The government has operationalized the Pakistan Green Taxonomy. The intent is clear: we want to create a common language for “green” versus “brown” investments in Pakistan. The SECP is working on a phased disclosure requirement for listed companies, moving from voluntary compliance to mandatory reporting by 2029. We are currently working with our regulators to ensure these guidelines align with international best practices, such as the BCBS principles, without placing an undue compliance burden on our emerging corporate sector.
While mitigation often gets the spotlight, adaptation is our survival. Water scarcity is the most significant threat to our agrarian economy. We are operationalizing the “e-Abiana” (water cess) system, a digital irrigation service charge collection mechanism, across all the provinces of Pakistan.
Digitizing revenue collection in irrigation is not just an IT project; it is a governance reform. By improving the collection of irrigation fees, the Government of Pakistan intends to create a mechanism for increased revenue and better maintenance of water infrastructure. This is the definition of the resilience-building we aimed for when we signed the RSF agreement.
Looking toward August 2027, the RSF has provided us with more than just financial space; it has provided a roadmap for institutional maturity. The next phase of our work involves disaster risk financing, ensuring that when the next extreme weather event strikes, we have the pre-arranged instruments to stabilize the economy without exhausting our reserves.
Managing the RSF facility at the Ministry of Finance has made one thing very clear to me: Climate resilience does not move in a straight line. It touches institutions, policies, markets, and communities all at once. It is about consistent, sometimes incremental, adjustments to our tax codes, our budget circulars, and our banking regulations. As a CVF-V20 Fellow, I see this not just as fulfilling IMF conditionality, but as building the very foundations of Pakistan’s economic sovereignty in a warming world.
Pakistan is transitioning from a position of vulnerability to one of structural preparedness, and this transformation must be sustained.
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