EU's carbon mechanism impacts Pakistan's export industries

The European Union (EU) has introduced a new policy called the Carbon Border Adjustment Mechanism (CBAM). This policy requires importers to the EU to report carbon emissions on certain goods like steel, cement, and electricity from 2023 onward. By 2026, importers will need to buy carbon certificates for goods that exceed EU emission limits. The CBAM will eventually affect all industries, including textiles, which is important for Pakistan. Currently, only a small percentage of Pakistan's exports to the EU fall under this new rule. However, if the scope expands, as planned, it could impact textiles heavily. Exporters are feeling pressure to reduce their carbon emissions to remain competitive. Pakistan is considering a domestic carbon tax to help meet these challenges. The International Monetary Fund (IMF) has suggested this tax could raise funds while encouraging businesses to become more environmentally friendly. Implementing a carbon tax will be challenging for Pakistan. The country lacks the technical capacity to monitor emissions effectively. Clear guidelines will be necessary to manage this tax, ensuring fairness and support for low-income households. A well-designed carbon tax could reduce emissions significantly. It could also generate revenue for important projects like renewable energy and improve public health by reducing pollution. However, there are concerns about how the revenue will be used. Pakistan should develop a comprehensive strategy that aligns with its climate goals. By engaging with industry and society, the country can build support for the carbon tax. Training officials and educating businesses about climate policies will also be crucial for success. The connection between climate policy and trade is becoming more important. The EU's new rules show that countries must adapt to a greener economy. For Pakistan, this transition presents challenges but also opportunities to modernize and access new markets.