This is a lifeline that strengthens climate resilience and attracts investments in renewables, forestry, clean cooking, and refuse management
Developing countries are increasingly relying on carbon markets to finance their transitions as climate change accelerates, and the financial requirements for adaptation and mitigation increase.
Pakistan and Bangladesh are among the countries that are becoming more active in the effort to access climate finance by establishing international partnerships, and establishing national frameworks.
Their shared susceptibility to climate disturbances, which encompasses agricultural disruption, cyclones, and floods, renders their success in carbon trading not merely a financial matter, but a matter of survival.
Article 6 of the Paris Agreement allows countries to trade carbon credits, which are referred to as Internationally Transferred Mitigation Outcomes (ITMOs), in order to more effectively achieve their climate objectives.
This is not merely a compliance instrument for Pakistan and Bangladesh. It is a lifeline that strengthens climate resilience and attracts investments in renewables, forestry, clean cooking, and refuse management. Both countries have now formally entered the carbon market conversation.
Pakistan launched its Carbon Market Policy Guidelines in November 2024, during COP29 in Baku, declaring its intention to be a proactive participant in voluntary and compliance carbon markets.
Bangladesh, on the other hand, has steadily been laying institutional groundwork, with its Department of Environment (DoE) acting as the Designated National Authority for approving projects under Article 6 mechanisms.
Pakistan’s expedited, policy-driven strategy
Pakistan has implemented an expedited and policy-driven strategy. The country’s carbon market implementation is being directed by the Ministry of Climate Change & Environmental Coordination (MoCC & EC), which is supported by guidelines that are consistent with international standards such as the Gold Standard and Verra.
With the assistance of the World Bank, UNEP, and Germany’s SPAR6C initiative, a national registry and robust MRV (monitoring, reporting, and verification) systems are currently in process of development.
Bangladesh’s more deliberate approach
Bangladesh’s Department of Energy has implemented MRV systems, established approval processes, and is currently investigating the possibility of establishing a national registry, despite the fact that it has not yet issued a specific carbon market policy.
It has also engaged with the World Bank’s Partnership for Market Implementation (PMI) to establish the technical and regulatory framework necessary for the authorization and monitoring of ITMOs.
The strong national intent of Bangladesh is evident in the incorporation of Article 6 mechanisms in its updated NDC. Carbon markets could be used to meet up to 70% of Bangladesh’s conditional emission reduction target by 2030.
Real-world initiatives of Pakistan
Real-world initiatives are currently being piloted in Pakistan. The Lakhodair landfill methane capture project in Lahore is a prime example of this effort. Its objective is to convert methane gas into energy and generate millions in carbon credit value.
This initiative has the potential to serve as a model for other sectors, such as renewable energy, forestry, and cement, and could become Pakistan’s inaugural Article 6 transaction.
Project-based activities in Bangladesh
Project-based activities are experiencing an increase in popularity in Bangladesh. The country has already implemented initiatives such as energy-efficient chillers and solar installations as part of Japan’s Joint Crediting Mechanism (JCM).
Bangladesh has also submitted six Former CDM (Clean Development Mechanism) projects for transition under the new Article 6.4 regulations.
A pilot transaction with the World Bank is also in progress, with an emphasis on the reduction of emissions and the promotion of renewable energy on a large scale.
Utilizing international support
Both countries are emphasizing sectors that not only mitigate emissions, but also provide co-benefits. This encompasses the electrification of transportation, waste-to-energy, and reforestation in Pakistan.
Bangladesh is currently concentrating on the restoration of mangroves, the implementation of clean culinary technologies, the reform of brick kilns, and the development of solar mini-grids. These sectors have a significant impact on both adaptation and mitigation.
Neither country is acting independently. The German government, USAID, and the World Bank are among the international donors that provide assistance to Pakistan in its endeavors.
Its market narrative and capacity are being shaped by its participation in bilateral discussions with countries such as Germany and Article 6 Implementation Partnerships.
An even more extensive coalition of international support has been activated by Bangladesh.
The country is mobilizing more than $1.4 billion for climate investment through the Bangladesh Climate and Development Platform, which is supported by the World Bank, IMF, ADB, and other organizations.
Japan has made contributions through the JCM and ADB-managed funds.
Bangladesh is also participating in global networks for the development of carbon markets and is using this to influence policies that are beneficial to both national and regional interests.
Obstacles persist, regardless of this advancement. The theme of capacity development is a recurring one.
It is imperative that both countries increase the number of professionals who are trained to supervise carbon initiatives, negotiate credit sales, and ensure that verification standards are met.
Governance presents a challenge
Bangladesh is still in the process of streamlining the responsibilities of ministries and agencies, whereas Pakistan is required to coordinate federal and provincial authorities.
Credit integrity and market access are also key factors to consider. Pakistan and Bangladesh must guarantee that their credits satisfy rigorous standards as global purchasers become increasingly selective, necessitating high-quality, verified emission reductions.
International trust could be undermined by any perception of low-quality or “junk” credits.
Lastly, the issue of equitable benefit sharing arises. It is imperative that both nations guarantee that the revenue generated from carbon credits is utilized to enhance the quality of life for communities, particularly those that are most vulnerable to the effects of climate change.
The social fabric of climate finance is not to be disregarded, whether it is achieved through community-based forestry, clean cooking initiatives, or shared proceeds for local adaptation.
Pakistan and Bangladesh have not yet engaged in direct collaboration on carbon markets. However, they are fostering a momentum that could result in broader South Asian engagement.
The significance of India’s domestic carbon market is further enhanced by its recent establishment.
Harmonized methodologies or even regional trading systems may be eventually achieved through shared learnings, particularly through forums such as the NDC Partnership and UN Regional Collaboration Centre.
Contributing credibility to climate negotiations
Additionally, both contribute credibility to climate negotiations. Their dual identities as climate-vulnerable countries and carbon market innovators enable them to advocate for more inclusive, equitable mechanisms on a global scale.
They have been vocal in their advocacy for environmental integrity and adaptation benefits in Article 6 regulations, and their domestic actions substantiate these stances.
Pakistan and Bangladesh are at the inception of a journey that has the potential to be transformative. While carbon markets are not a panacea, they have the potential to offer the financial and technological resources necessary for a fair and resilient transition if implemented effectively.
These countries are redefining the concept of climate leadership in the Global South by integrating transparency and equity into their frameworks and aligning mitigation objectives with adaptation needs.
The actions of these two South Asian countries will provide valuable lessons in market design, and provide ways to ensure that climate action benefits people as much as it does the planet, as the world places an increasing price on carbon.
