Climate change has become a harsh reality for the world, and the epicenter of its catastrophe is the developing world. Historically, developed countries in Europe and North America have contributed more to the rise in global temperatures than developing countries, but it is the latter that are paying the heaviest price. A classic example is the 2022 climate-induced flash floods in Pakistan.
Adding fuel to these climate fires is the emerging wave of new trade protectionism, with the European Union and the United States at the forefront of many of these energy disputes. As Pakistan struggles with climate-related disasters, rising trade tensions are undermining its efforts. However, these challenges posed by EU and US climate-related trade policies could also be key imperatives for Pakistan to find opportunities to move forward towards building climate resilience.
The EU has begun Phased introduction of Carbon Border Adjustment Mechanism (CBAM)which is wider European Green Deal And that Plan for 55 year oldsCBAM is “Carbon leakageThe EU has introduced an “emissions reduction mechanism” that requires companies that import goods into the EU to report their emissions. The mechanism is due to be fully implemented by 2026, and the EU’s Everything But Arms (EBA) SchemeIt provided duty-free and quota-free access for imports from these countries.
For Pakistan, the immediate concern is the competitiveness of its companies on the international stage. Without significant investment in sustainable and renewable energy, the cost of products from Pakistan’s export industries, especially those that rely on coal-fired power generation, will rise significantly over the next decade. This is in line with the EU’s Largest bloc and second most important trading partner debtOr Pakistan’s exports are slowly starting to use renewable energy as a trade barrier.
CBAM initially covered six sectors – cement, aluminum, hydrogen, steel, fertilizer and power – but will be expanded to all industries, including textiles, which account for the majority of Pakistan’s exports. As CBAM moves towards full implementation, it will be important for Pakistani exporters to understand the timelines and potential obligations. World Bank CBAM Exposure IndexPakistan’s exposure is moderate but notable, especially when compared to major exporters such as India and China.
The carbon price to be paid to the EU will depend on the carbon content of the commodity and the carbon price in its country of origin. This raises questions about the ability of Pakistani companies to measure, report and verify their emissions, and how carbon intensive their products are compared to those of their competitors. Carbon Price It could play a pivotal role in Pakistan’s domestic policies to mitigate these challenges.
Additionally, global consumer trends are shifting towards sustainability, with an emphasis on reusing and recycling textiles. EU Ecodesign Requirements It promotes the reduction of the environmental impact of manufacturing processes, requires exporters to set up sorting and recycling centers, and asks them to minimize the disposal of unsold and returned textile products. Pakistani exporters must publicly disclose the amount of product they discard and adjust production to match changes in consumer demand.
While this market diversification may mitigate some of the losses, it risks leaving Pakistan behind in the global trend towards sustainability and hindering green growth. Stiff compliance costs for EU-based producers may also impact them, creating complex dynamics that could pose significant risks to Pakistan’s sustainable economic development. Dependency Theory.
To remain competitive and resilient, Pakistan must balance its export strategy with aggressive investments in renewable energy and sustainable practices, but this can only be done with an understanding of the overall geopolitical context.
American Inflation-Reduced Accounts (IRA)The Energy Innovation Act, expected to be passed in 2022, has become the focal point of a transatlantic standoff over electric vehicles (EVs) and green technology. Aimed at promoting green technology and climate investments through tax credits and subsidies, the policy aims to make the power sector 60% carbon-free by 2032. However, its focus on strengthening US energy security and domestic manufacturing has drawn international criticism, especially from South Korea, Japan and India, which are considering retaliatory protectionist measures.
For Pakistan, the IRA could pose a major challenge to its energy transition and participation in the global green economy. Similar to the CBAM, which supports EU domestic industries, the IRA subsidies and tax credits are targeted at US domestic industries, leading to overcapacity of green technologies in Europe and the US. This overcapacity in the Global North could drive down the prices of green technologies and undermine the competitiveness of manufacturing in Pakistan and other developing countries.
Moreover, the IRA could disrupt Pakistan’s export markets. As the United States and Europe expand their production of green technologies, Pakistan may find it difficult to compete with the influx of cheaper subsidized products. This situation is of particular concern to Pakistan. Pakistan manufacturing, It may struggle to keep up with technological advances and cost reductions driven by IRA-backed efforts in the Northern Hemisphere. The EU’s unwavering commitment to green policies means it is limited in the concessions it can make to international partners, which could lead to increased trade disputes and accusations of protectionism. This may prompt Pakistan to seek alternative markets with less stringent environmental regulations, such as China, India or the Middle East.
However, these seemingly unfavorable circumstances could actually act as a catalyst for Pakistan to strengthen its climate resilience. By leveraging the pressure and incentives provided by the CBAM and IRA, Pakistan has a unique opportunity to revamp its climate policies, invest in sustainable practices, and move closer to global environmental standards. This approach will not only increase Pakistan’s export competitiveness, but also contribute to a more sustainable and resilient economic future.
To overcome these challenges and seize the opportunities presented, Pakistani policymakers need to swiftly enact and implement targeted reforms to encourage sustainable practices and gain global recognition and competitiveness.
First, it is essential to implement fiscal and capacity-building measures. To encourage investment in green technologies and processes, Pakistan needs to implement fiscal measures such as tax incentives and subsidies. These fiscal incentives can significantly lower the barriers to adopting sustainable practices. Complementing this, capacity-building efforts are essential. Training programs focused on energy efficiency, waste management and environmental management can empower industry players and equip them with the knowledge and skills needed to implement and sustain sustainable practices.
Secondly, leveraging public-private partnerships is essential to market sustainable Pakistani products and processes on an international scale. These collaborations will help Pakistani industries become more globally competitive. Stepping up negotiations Responsible contractual clauses between brands and manufacturers also encourage more sustainable practices.
Furthermore, developing a robust national waste management system and strengthening data collection, reporting and monitoring on key sustainability indicators such as water, chemical consumption and carbon emissions are important steps towards sustainability. EU Corporate Sustainability Due Diligence Directive This will further strengthen Pakistan’s export potential and enable the country to effectively address the complexities of new trade-related climate policies.
And most importantly, active engagement and diplomatic efforts are essential to negotiate favorable terms and exemptions under the CBAM regulations. The EU and the US have a key role to play in supporting Pakistan’s transition by extending financial and technical assistance to enable Pakistan to adopt more environmentally friendly technologies and practices without undermining its economic development. Additionally, it is also critical to push for reforms within international trade institutions such as the World Trade Organization (WTO) to better embed environmental sustainability into trade rules.
By promoting policies that prioritize environmental protection and economic equity and fostering partnerships that strengthen environmental protection and economic equity. Supply Chain Resilience Environmental and sustainability safeguards can help mitigate the adverse impacts of these climate policies on developing countries. Strengthening regulatory compliance and enforcement mechanisms are also essential to ensure compliance with environmental standards, protect Pakistan’s export markets, and foster long-term sustainable growth.
Ultimately, Pakistan’s response to these external pressures will determine whether the country can thrive in a rapidly changing global landscape. By embracing sustainability and innovation, Pakistan can not only protect its own economic interests, but also contribute meaningfully to global climate resilience efforts.
