The carbon levy on fuel proposed to finance green initiatives

• A new carbon levy of Rs2.5 for FY26 and RS5 for FY27 is recommended.
• The contribution will fund climate action programs and green energy.
• Levy is imposed according to the IMF Diktat for climate resistance.

Pakistan is expected to introduce a new carbon levy to gasoline, high -speed diesel and furnace oil, a move aimed at limiting excessive consumption of mineral fuel and creating critical capital for mitigating climate change and green energy programs.

The proposed levy, which will initially remain in RS2.5 per liter, is expected to enter into force for the financial year 2025-26, increasing to RS5 per liter in the financial year 2026-27.

In May, the Petroleum Directorate (PD) formally submitted a summary to the Council of Ministers for the disposal of legislative cases (CCLC), proposing the RS2.50 per liter of carbon at these fuel products by the end of June for the upcoming budget (FY26).

This carbon levy will then increase to RS5 per liter for the same fuel products the FY27.

This contribution is introduced as part of the Pakistan agreement with the International Monetary Fund (IMF), which has provided $ 1.3 billion under the RSF Unit (RSF).

This installation is specifically designed to help the nation face the pressing challenges of climate change. To legally implement this new charge, the necessary amendments will be made to the oil law.

Officials familiar with plans said the original carbon levy of Rs2.50 on three fuel products is expected to produce between RS6-7 billions per month. Once increased to RS5, these monthly revenue is expected to increase significantly, reaching RS12-14 billions.

Basically, the revenue created could also be channeled to a significant reduction in CO2 emissions. This includes the creation of effective incentives for the adoption and use of electric vehicles (EVS), contributing to the national target of 30% penetration into new passenger sales and 50% for two and three voys by 2030.

In addition, by gradually shifting from imported fuel products, this initiative also aims to reduce the risk of payments for the country.