ISLAMABAD: Pakistan’s federal government on Tuesday proposed the introduction of a PKR 2.5 per litre carbon levy on petroleum products and furnace oil, as part of the Budget for the fiscal year 2025–26.
The levy is a key step towards promoting cleaner energy sources and meeting Pakistan’s climate goals under its agreement with the International Monetary Fund (IMF).
Announcing the measure in the National Assembly, Finance Minister Muhammad Aurangzeb said the carbon levy will apply to both petrol and diesel and is aimed at reducing carbon emissions and encouraging a transition to electric vehicles (EVs).
Furthermore, the government also proposed a separate charge on petrol and diesel vehicles, based on engine capacity, to disincentivise the use of fossil fuel-powered transport.
This step is intended to accelerate the implementation of the national Electric Vehicle Policy, which targets 30% of new passenger car sales and 50% of two- and three-wheelers to be electric by 2030.
The funds will be used to incentivise EV adoption, improve climate resilience, and reduce dependence on imported fuels—thereby helping stabilise the country’s balance of payments.
The carbon levy proposal was initially submitted by the Petroleum Division to the Cabinet Committee for Disposal of Legislative Cases (CCLC) in May.
It aligns with the broader climate and fiscal commitments agreed with the IMF, aimed at both reducing emissions and strengthening public finances.
With the total federal budget outlay set at PKR 17.573 trillion, the government is focused on reforms that promote long-term economic and environmental sustainability.
