Introduction of Carbon Compliance Market in Pakistan: A Case from Cement Industry

Abstract

Pakistan faces an existential crisis because of climate change although its greenhouse gas emissions remain below 1% of worldwide emissions. The nation of Pakistan maintains its position as one of the world most vulnerable countries when it comes to climate change because it experiences extreme heatwaves, floods, water shortages, food shortages and major economic damage. The 2022-2025 flood and heatwave events resulted in damage that surpassed $30 billion while they interrupted economic development paths and revealed fundamental problems with climate resistance systems and funding systems. The country emission levels keep increasing because Pakistan relies on fossil fuels and has not adopted enough renewable energy systems and its industrial sector operates with high carbon emissions. The difference between Pakistan climate promises and its ability to execute these plans keeps expanding. The research fills an essential policy void because it creates a homegrown carbon pricing system which proves emissions reductions through measurable data and generates environmentally friendly climate funding. The Paris Agreement Article 6 enables Pakistan to create carbon market rules, but the current system operates through voluntary measures which do not provide adequate support for industrial sectors to achieve deep carbon reduction targets. The research solves this problem by creating a sector-based Emissions Trading System which tests the cement industry because it produces high emissions, drives economic growth and connects to both energy and construction markets. The research shows that Pakistan cement industry generates more emissions than worldwide standards because it uses excessive clinker in production and depends on coal as its main fuel source while using few alternative fuels. The current business operations will result in extreme sectoral emissions which will rise more than 300% during the next fifty years thus violating Pakistan NDC and SDG-13 targets. The research proposes a two-stage ETS system which draws from Chinese and German models to solve this problem through capacity development, performance assessment, banking system management and price stabilization mechanisms. Research conducted with company data proves that the ETS system achieves maximum emission reduction at minimum cost while protecting industrial operations and producing funds for climate resilience initiatives. The research results confirm that a compliance-based ETS system provides an effective method to establish a low-carbon climate-resilient Pakistani economy at a large scale