The Sustainable Development Policy Institute (SDPI) is one of Pakistan’s leading independent, non-profit research institutes, specializing in sustainable development, climate policy, energy, and governance. SDPI works at the intersection of policy research, capacity building, and advocacy to inform evidence-based decision-making in Pakistan. The project is implemented under the Pakistan-Denmark Green Framework Engagement, leveraging Denmark’s position as a global frontrunner in carbon pricing, renewable energy, and climate governance.
Project Overview
A six-month knowledge exchange and capacity building initiative (May-November 2023) designed to explore and unlock pathways for the effective implementation of carbon markets in Pakistan, drawing on lessons from Denmark’s pioneering carbon tax and Emissions Trading System (EU-ETS) experience. The project combines policy research, stakeholder capacity building, and advocacy outreach to build the institutional foundations needed for a functional carbon market in Pakistan.
The Context
Pakistan contributes less than 0.1% of global greenhouse gas emissions yet ranks among the topmost climate-vulnerable countries in the world. Despite this paradox, Pakistan’s carbon market remains largely underdeveloped, no domestic carbon trading mechanism currently exists, and the country lacks the institutional capacity, regulatory frameworks, and stakeholder awareness needed to harness the significant economic and environmental potential of carbon markets.
In 2018, Pakistan established a national committee on carbon markets to identify its potential for domestic and international carbon trading. While the Ministry of Climate Change & Economic Coordination (MoCC&EC) has reported on various carbon pricing instruments, the country continues to struggle with the complexity of designing and implementing a viable structure. Meanwhile, Denmark has been a carbon pricing pioneer since 1992, operating a carbon tax and participating in the EU-ETS, with 39% of its emissions priced as of 2021.
Both countries have made ambitious emission reduction commitments, Denmark targeting a 70% reduction and Pakistan a 50% reduction by 2030, creating a compelling basis for knowledge exchange. The 2022 poly-crisis (climate change, COVID-19, and regional conflict) further underscored the urgency of integrating environmental considerations into Pakistan’s sustainable development agenda; this project responded directly to that need.
The Approach
The project is structured around three integrated activity streams, each targeting a distinct dimension of Pakistan’s carbon market development journey:
Research Study: A needs-based assessment conducted with MoCC&EC and GCISC to identify existing gaps and challenges in Pakistan’s carbon market readiness. Drawing on desk review, stakeholder consultations, and lessons from Denmark’s implementation framework, the study resulted in the development of an institutional roadmap and a policy impact matrix outlining the way forward.
Capacity Building and Consultative Dialogues: Three two-day workshops and one high-level policy dialogue were conducted to build the capacity of government officials, regulators, private sector actors, and civil society to understand and utilize carbon trading mechanisms.
Advocacy and Communications Outreach: A documentary production, along with two Twitter Spaces, and two university seminars was conducted to raise awareness among academia, policy makers, and the broader climate value chain in Pakistan about the opportunities and mechanisms of carbon markets.
Results & Impact
The project successfully generated three categories of results. First, an evidence-based research output, a comprehensive roadmap and policy impact matrix identifying institutional arrangements and regulatory pathways for carbon market implementation in Pakistan, grounded in comparative analysis of the Danish model. Second, enhanced stakeholder capacity, with government officials, regulators, private sector entities, and civil society equipped with the knowledge and tools to engage meaningfully in carbon market design and operations. Third, increased public awareness, through multi-channel advocacy outreach reaching academia, parliamentarians, and decision-makers across Pakistan’s climate policy ecosystem.
Together, these results laid the foundational groundwork for Pakistan to develop a credible domestic carbon pricing mechanism, unlock Article 6 of the Paris Agreement’s cooperative approaches, and attract international climate finance into its low-carbon development pathway. The project also strengthened the Pakistan-Denmark bilateral relationship by institutionalizing knowledge exchange on green economic policy.
SDGs
Insights & Replication Potential
A central lesson emerging from this project’s design is that carbon market development in developing countries is fundamentally a capacity and awareness challenge before it becomes a technical one. Pakistan’s national committee on carbon markets has existed since 2018, yet progress has been constrained by limited institutional knowledge, regulatory gaps, and political uncertainty rather than by a lack of economic potential. Targeted, time-bound knowledge exchange initiatives, like this one, can serve as critical catalysts to accelerate readiness.
Denmark’s three-decade-long experience with carbon pricing, from its 1992 carbon tax introduction through to EU-ETS participation, offers a rich, phased implementation model that is highly instructive for countries at earlier stages of the carbon market journey. The Danish model demonstrates that pricing emissions need not compromise economic growth, and that complementary tools (taxes, ETS, renewable energy incentives) can be sequenced strategically.
The project framework is replicable across other climate-vulnerable, low-emitting developing countries, particularly those with nascent carbon pricing ambitions under Article 6 of the Paris Agreement. The research-dialogue-advocacy structure is modular and cost-effective, making it scalable to other bilateral Green Framework Engagements or South-South knowledge exchange platforms in Asia, Africa, and Latin America.