Pakistan is no stranger to climate catastrophes. Each monsoon seems to write its own obituary of human life and infrastructural integrity.
This year has been no exception. In a span of just a few days, torrential rains across Punjab have claimed more than 200 lives, including dozens of innocent children – crushed under collapsed roofs, drowned in rising waters, or electrocuted by exposed wires. Entire communities in Rawalpindi, Chakwal and surrounding districts now resemble war zones, with boats replacing buses and helicopters circling above like modern-day messengers of state mercy. This is not a freak accident of weather but the grim handwriting on the climate wall.
Pakistan now stands at the confluence of glacial melt, erratic monsoons, urban flooding and creaking governance, making it a sitting duck in the global climate roulette. Amid this tempest, the recently negotiated Resilience and Sustainability Facility with the IMF, the government’s decision to impose a carbon levy – expected to raise Rs14 trillion in FY26 – is a Rubicon moment. The question is no longer whether this tax is necessary but whether it will be used justly.
The carbon levy, rooted in the logic of Pigouvian taxation, wears the garb of elegance in economic theory. It seeks to make polluters pay, to internalise environmental damage and to nudge the economy toward cleaner pastures. But in the lived reality of a developing country like Pakistan – where inequality runs deep, energy poverty is widespread and institutional trust is hanging by a thread – this tax must be judged not by textbook diagrams but by whose pockets are picked and whose wounds are healed.
Without a sharp equity lens, the levy risks becoming yet another regressive fiscal hammer, striking hardest those who lit the fewest fires. Climate justice demands that we tax not the vulnerable for surviving, but the powerful for polluting. In this light, the recycling of carbon revenues is moral restitution.
To walk this path of justice, every rupee collected through the carbon levy must be ring-fenced and parked in the Pakistan Climate Fund – a statutory vehicle already envisioned but not yet meaningfully empowered. Let it be said plainly: these funds should not, under any fiscal sleight of hand, be blended into the consolidated fund or used to plug budget deficits. That would be akin to pouring clean water into a leaky cauldron.
Pakistan’s past habit of treating environmental levies as fungible slush funds has not only blunted their impact but poisoned the well of public trust. It is time to break this vicious cycle. The carbon levy represents a rare alignment of fiscal, environmental and international priorities. But it can only bear fruit if insulated from the gravitational pull of bureaucratic inertia and the all-too-familiar rent-seeking culture that haunts our budgetary corridors like a ghost of missed opportunities.
Equally important is the necessity to resist the short-sighted temptation to pour carbon revenues into the Public Sector Development Programme (PSDP), a programme whose sheer size often masks its inefficacy. The PSDP, as it stands, is a patchwork of legacy projects, political giveaways and administrative silos that serve more to keep the wheels of patronage turning than to solve real problems. It is, to borrow a phrase, a monument to misplaced priorities. Using climate revenues to inflate this machinery would be like trying to fight a wildfire by pumping water into a rusted pipeline. Worse still, it would reinforce the same developmental model that leaves Pakistan exposed to every climatic nudge.
Instead, carbon revenues must be recycled with scalpel-like precision and surgical intent, flowing towards communities that sit on the frontline of the climate crisis. Let them fund flood-resilient infrastructure in peri-urban slums and riverine belts; let them subsidise rooftop solar and clean cooking solutions for low-income households; let them build electric public transport corridors that unclog our choking cities; and let them seed nature-based solutions like urban forests and watershed restoration.
A portion of the funds must also be earmarked for ‘just transition’ programmes, retraining workers as we wean off fossil fuels, because no climate plan worth its salt throws people under the bus in the name of progress.
To translate this vision into institutional practice, Pakistan must broker a new fiscal compact among the Ministry of Finance, the Ministry of Climate Change and key development partners, such as the IMF. A jointly administered Revenue Recycling Component, backed by the Climate Change Authority and overseen by parliament, should be established to track, audit and disclose how carbon revenues are spent.
Transparency is the currency of public legitimacy. Alongside, a serious rethink of the National Finance Commission (NFC) Award is overdue. It is time we moved from a static formula based on population and inverse development to a climate-smart NFC – one that allocates resources based on climate exposure, mitigation capacity and resilience needs. Let us stop treating provinces like identical puzzle pieces and start recognising that those who bear the climate burden deserve more from the federal purse.
However, climate justice cannot be built on a foundation of policy contradictions. On the one hand, we impose a carbon levy; on the other, we slap an 18 per cent GST (even if later revised) on imported solar panels –, rippling the very transition we claim to champion. This is like feeding a patient vitamins with one hand and poison with the other. If the goal is to support domestic solar manufacturers, that can be achieved through smarter, targeted subsidies or zero-rated taxation on local panels. Blunt instruments like import GSTs hurt the very constituencies, middle-class homeowners and small businesses, that are poised to be drivers of Pakistan’s clean energy future. Carbon pricing must walk its talk, not limp with policy contradictions.
As for the IMF, it must look beyond carbon arithmetic. Yes, it has rightly supported carbon taxation under the RSF, but it must now insist on equity safeguards and transparent recycling as non-negotiables. Climate finance must not become another tool of austerity disguised in green robes. Instead, it should serve as a platform for restorative justice and fiscal innovation. Pakistan, despite its many challenges, has the opportunity to lead by example: to demonstrate how a nation from the Global South can fulfil its macroeconomic commitments while championing a rights-based transition.
The carbon levy is revealing the essence of our fiscal system. Implemented with vision, it could rewrite the state-citizen relationship from one of extraction to one of empowerment. Squandered, it will cement public cynicism, deepen inequity and squander a moment of alignment between crisis and opportunity. Pakistan’s floods have already made climate change terrifyingly real.
The carbon levy must now make climate justice palpably visible. Every rupee raised in the name of mitigation must flow back as a shield of protection, a ladder of opportunity, and a promise of dignity – especially to those who sleep tonight on soggy floors and shattered dreams. Because, at the end of the day, justice – much like water – must flow towards the lowest first.
The writer has a doctorate in energy economics and serves as a research fellow in the Sustainable Development Policy Institute (SDPI). Twitter/X: @Khalidwaleed_ Email: [email protected]
