ISLAMABAD: In a significant move to address growing challenges of climate change, the federal government on Tuesday allocated 6.9 per cent of the current budget and 8.2pc of the development budget for climate-related initiatives in the fiscal year 2025-26.

In addition, the finance minister announced during his budget speech that in order “to discourage use of fossil fuels” and create a funding source for climate adaptation and Green Energy Programmes, the government has proposed the imposition of a Rs2.5 carbon levy per litre of petrol, high-speed diesel and furnace oil, which will be increased to Rs5 per litre from the next fiscal year.

Furthermore, a petroleum levy on furnace oil will be imposed as per the government announcement.

According to the Annual Budget Statement, the allocations reflect a strategic shift towards climate-resilient planning, with climate-responsive grants making up 0.2pc and nearly half of all subsidies geared towards climate-related objectives. These interventions aimed to equip the federal government with the tools to make more targeted and impactful decisions in response to climate risks.

Rs2.5 per litre carbon levy proposed on all fuels, will be enhanced to Rs5 next year

A key feature of this year’s budget process was the implementation of the Climate Budget Tagging (CBT) tool, which enabled the classification of climate-sensitive expenditures in line with the National Climate Change Policy. The government, through a consultative process involving multiple stakeholders, successfully tagged more than 5,000 cost centres across three primary categories, along with 40 sub-categories. This data had been integrated into the Sustainable Development Prog­ramme Achievement Program­me (SAP) system for streamlined accounting and reporting.

The budget statement noted that this tagging system would streng­then the government’s ability to monitor and track climate-related spending, with regular reports expected to improve transparency and guide future policy-making.

As per the detailed breakdown, Rs85.43 billion had been allocated for adaptation measures aimed at enhancing climate resilience, Rs603bn for mitigation efforts to reduce emissions and transition to cleaner technologies, and Rs28.33bn for supporting areas, including capacity building, institutional development, and research.

The enhanced climate allocations underscored Pakistan’s commitment to integrating environmental considerations into national development planning, ensuring that economic growth aligned with the country’s climate resilience and sustainability goals.

According to the statement, the federal government had adopted a climate budget as a governance system to mainstream climate considerations into policy decision making. Green budgeting will enable the government in prioritising climate by integrating it into budgeting process to ensure implementation, monitoring, evaluation and reporting across line ministries and departments.

Separately, Rs2.76bn has been allocated in the budget; from which a major chunk of Rs2.25bn will go to upscaling the Green Pakistan Programme. Besides, Rs325 million has been allocated for strengthening the capacity of the Ministry of Climate Change.

Published in Dawn, June 11th, 2025