Pakistan’s carbon market came to life last month after the climate change ministry issued a letter of intent (LOI) and host country approval to two firms for separate projects likely to generate millions of carbon credits over the next 10 years.
One carbon credit is the removal or offset of one tonne of carbon dioxide equivalent (CO2e), and it can be sold in the international market for up to $20. This development was announced in a press conference by the new climate minister, Musadik Malik, months after the issuance of the carbon credit guidelines by the ministry in line with Article 6 of the Paris Agreement that was operationalised at COP29 in Baku.
The LOI was issued to the Ravi Urban Development Authority (Ruda) — a controversial entity formed during the PTI government to develop a ‘sustainable’ city outside Lahore along the Ravi River. The approval was granted under Article 6.2 (cooperative approach) for Ruda’s proposal to rehabilitate the Mahmood Booti dumpsite into an urban forest and also reduce methane emissions.
The landfill spans 43 acres and has accumulated 13 million tonnes of unmanaged waste. The components of the Ruda project include landfill gas recovery for energy generation, leachate treatment, and the use of flaring technology to reduce methane emissions.
According to the LOI, the project is expected to generate over 900,000 carbon credits from 2026 to 2040, and upon their authorisation at a later point, these credits would qualify as ‘mitigation outcomes’ and be sold in the international market. As it prepares the project design document, Ruda, which launched the project in 2024, has spent $5.3m (Rs1.5 billion), while the total cost is expected to be $17.8m.
Climate experts term the recent approval of two carbon credit projects a ‘step in the right direction’
Ahad Yousaf Khan, Director of Environment and Climate Change at Ruda, said the authority became the first Pakistani firm to acquire an LOI under Article 6.2 of the Paris Agreement.
The next steps include making the project’s design document and ultimately securing carbon credits or ITMOs (internationally transferred mitigation outcomes), Ms Khan explained, adding that the process would take about a year. She told Dawn that a contract was likely to be signed with a Korean firm for technical expertise and improving the quality of carbon credits generated by the methane sequestration.
Ms Khan also mentioned that another project related to the environment and the mitigation of water pollution was also on the cards, under which wastewater treatment plants would be installed to clean the Ravi. The project will need Rs60bn to execute, and Ruda is looking for partners, she added. In a comment about controversies surrounding Ruda, the official said the authority was investing in the environment and other sustainable development goals to restore its image.
According to Dr Abid Suleri, who heads the Islamabad-based Sustainable Development Policy Institute, the debate around carbon markets is at a nascent stage and currently revolves around technical aspects and transparency (over emission reduction) concerns.
Even most of the developing countries do not want their carbon projects to be assessed through the governance and human rights lens, as a segregation of “kosher” carbon credits and “not-so-kosher” carbon credits will give developed countries and multinationals leverage to negotiate the prices in an exploitative manner, he said in a comment on the Ruda project.
Speaking about the Ruda project, Sana Rasool, who is the carbon market specialist at the climate ministry, said the LOI provided legitimacy to the project and also attracts buyers interested in purchasing carbon credits from Pakistan. She said the project design document of the project was in the making and investors could “even become part of the project at this stage”.
The Saaf Pani project
Moreover, Pakistan issued its first host country approval to a Korean firm, which has proposed ‘Punjab Clean Water and Carbon Solutions in Pakistan’ under Article 6.4 of the Paris Agreement that establishes the international carbon crediting mechanism. Under the project, the firm ATR Inc. will install 250 water treatment plants in Lahore and Faisalabad and is likely to prevent 1,500,000 tonnes of CO2e emissions in 10 years — from 2026 to 2035.
The expected investment of $20-25m comes solely from ATR, as the firm is expected to sell carbon credits generated from the project in the international market. The climate ministry also agreed that none of the credits generated by this project would be used towards Pakistan’s own climate goals (nationally determined contributions).
Yeonwoo Rosy Park, Chief Strategy Officer of Project Team ATR Inc., told Dawn that the initiative is being carried out in collaboration with the Punjab Saaf Pani Authority. “We don’t require any money from Pakistan’s communities in this project; we are working for the sustainable development of the communities,” she said, emphasising that the investment did not come in the form of loans but through private funding.
According to Ms Park, the project utilises a hybrid water treatment system combining Korean and Pakistani technologies. “It was difficult to merge the two systems — that was our biggest challenge,” she added.
The project initially began under the Clean Development Mechanism under the Kyoto Protocol in 2023. However, after the adoption of Article 6 in November 2024 under the Paris Agreement, the team realigned the project to “meet the updated UNFCCC [United Nations Framework Convention on Climate Change] requirements and successfully secured a letter of approval from the Pakistani government,” she added.
The project is expected to become operational by the end of this year, with the generated carbon credits to be sold in South Korea. The firm currently operates 14 carbon projects across Asia, including safe water initiatives in Cambodia, Indonesia, and now Pakistan. In Pakistan, it operates through its subsidiary, Carbon Solutions.
Ms Rasool told Dawn that the host country approval under Article 6.4 was the first step of the process, and basically, this agreement allowed the project developer to register their scheme on the UNFCCC registry, from where other countries could buy credits. She said if these credits were sold to another company, then corresponding adjustments would not be made, but the authorisation would be required if these credits were bought by a country or any other cooperative approach, such as the Carbon Offsetting and Reduction Scheme for International Aviation.
Khurram Lalani, a climate finance expert who heads the carbon market project development firm Resources Future, termed the approval of carbon projects a “step in the right direction” for the local carbon markets, hoping these projects would provide the much-needed framework to spur the Pakistani market. He said local firms will become adept at carbon trading once more projects like these begin to make an impact.
Published in Dawn, The Business and Finance Weekly, May 19th, 2025