Pakistan’s Carbon Market has a Demand Problem

Pakistan’s carbon market conversation is beginning to pick pace, but it is dominantly moving in one direction: the generation and sale of carbon credits.

Pakistan displays an extremely strong potential in supplying the global carbon market with projects ranging from afforestation, mangroves, renewable energy, and even cattle markets that are turning waste into energy. These projects can attract international funding and act as a financial funnel for climate mitigation efforts. For a country like Pakistan, that is not only climate vulnerable but also faces limited financial capacity, being a strong supplier is not an insignificant feat.

However, a more prominent question emerges: who in Pakistan is ready to buy carbon credits and use them credibly?

This question highlights the need for informed buyers because the carbon market cannot solely be built on a supply. Without domestic corporate demand, Pakistan risks designing a market that largely caters to international buyers, while its own companies continue to be unclear on how carbon credits fit into their sustainable strategies, export competitiveness, and long-term business planning.

The existing local discussion limits carbon credits as something that is to be generated and sold. Pakistan’s updated Nationally Determined Contributions (NDC) pledges to reducing projected emissions by 50% by 2030, with 35% of this target is reliant on external climate finance. Hence, carbon credits are seen as revenue streams, particularly for project developers, land-linked initiatives, and renewable energy projects.

In the global markets, carbon pricing is no longer being viewed as a marginal policy tool. According to the World Bank’s State and Trends of Carbon Pricing 2025, carbon pricing revenues have remained above USD 100 billion for the second consecutive year, with 80 carbon pricing instruments, such as carbon taxes and emissions trading systems, covering 28% of global GHG emissions. Subsequently, companies in these markets are already operating in environments where carbon has computable financial cost. On the other hand, Pakistani companies operate largely outside of these boundaries. They view carbon credits as either as a distant sustainability concept or as a public relations tool, rather than as a part of emission management and buyer compliance.

This is where the imbalance becomes apparent.

A company can not be expected to buy carbon credits if it does not know which emissions it is targeting. The demand side requires just as much discipline as the seller side. The buyer needs to understand the quality of credits, measurement, reduction planning and claim management before they seal the deal.

Corporate climate action is shifting from offsetting emissions broadly to a more structured approach of measuring emissions, reducing them first, and then using high-quality credits to offset residual emissions that are hard to abate. This commercial pressure is becoming harder to ignore for Pakistani companies now.

Pakistan’s textile sector accounts for more than half of the country’s export earnings, engaging a major share of export economy within global supply chain where emissions disclosure, renewable energy use, and decarbonization targets are becoming an increasing part of international buyer expectations. Domestic companies without a viable emission visibility and credible transition plan will find it challenging to respond to customers, investors and/or lenders regarding their long-term sustainability outcomes.

However, it’s not that companies are unwilling, the issue is of capability and awareness. Domestic corporates know that climate action matter, but they don’t necessarily know where to begin. Do they first measure Scope 1 and Scope 2? How do they approach calculating Scope 3? Are Renewable Energy Certificates (RECs) pertinent? When are carbon credits applicable? Which standards matter?

The business case is therefore not just environmental, it is commercial.

If Pakistan wants to build a credible carbon market, project developers need to be supplementary to policy guidelines. A more practical approach is building the carbon supply market parallel to demand. The maturity of demand appetite will only grow when there is board- level awareness, emission measurement, sector-specific decarbonization pathways, and buyer side advisory.

Pakistan should absolutely explore its potential as a supplier of carbon credits. But the credibility lies in being a participant of the market. With only generation of credits, Pakistan can not build a market.