Innovative climate action: preparing an emissions trading scheme

Context

Pakistan wants to reduce the greenhouse gases produced by its energy and industrial sectors. It has therefore committed to promoting energy efficiency and renewable energy through its Nationally Determined Contributions (NDCs) under the Paris Agreement. Furthermore, the country would like to use market-based instruments for climate change mitigation to generate funding for the NDCs. These instruments assign costs to the CO2 output and create incentives to implement climate action. One example are emissions trading schemes (ETS), where an upper limit is set for the output of greenhouse gases. This upper limit is lowered over time to reduce the overall output. Companies can trade the emissions allowances on the market.

One study, which is supported by the regional collaboration centre for the United Nations Framework Convention on Climate Change (UNFCCC) in Bangkok, concludes that an ETS in Pakistan could produce significant results. However, the national and regional state institutions and the companies themselves do not as yet have the technical expertise required for Pakistan to be able to introduce an ETS. At the same time, the processes and structures that would allow the country to manage and organise the data for documenting the greenhouse gases from facilities are not in place.

Objective

The technical and organisational capacities of public institutions and companies with high CO2 output have been expanded in order to introduce an ETS.

Approach

The project supports the government in Pakistan through the following measures:

• Sharing the knowledge needed by the authorities to implement an emissions trading scheme.
• Offering support to companies to set up plans so that they can monitor their greenhouse gas emissions using standardised procedures.
• Carrying out socio-economic analyses on the effects of CO2 pricing using the ETS. The project feeds the results into political dialogue.

Last update: January 2025