The Government of Pakistan has officially replaced the carbon levy with a newly introduced Climate Support Levy, effective from July 1, 2025.
This decision, formalized under the Finance Act, 2025, signifies a key policy shift aimed at addressing environmental challenges while boosting non-tax revenue.
The Climate Support Levy has been implemented to support projects focused on climate resilience, including infrastructure upgrades, renewable energy transition, and emission control programs.
This updated levy replaces the previously proposed carbon levy outlined in the Finance Bill 2025 and reinforces Pakistan’s growing commitment to combat climate change through targeted fiscal tools.
According to the Finance Act 2025, the Climate Support Levy will be charged at Rs. 2.5 per liter on Motor Spirit and High-Speed Diesel for the fiscal year 2025-26. Starting from the 2026-27 financial year, this rate will be increased to Rs. 5 per liter, allowing a phased adjustment for both industries and consumers.
Similarly, Furnace Oil will also be taxed under the new levy at Rs. 2.5 per liter (equivalent to Rs. 2,665 per metric ton) in FY 2025-26. The rate is set to double to Rs. 5 per liter in FY 2026-27, and this will be levied in addition to any existing Petroleum Levy notified by the federal government.
Officials clarified that this levy is not merely a fiscal measure but a comprehensive policy initiative. It aims to redirect Pakistan’s energy consumption patterns towards cleaner, more sustainable alternatives.
The revenue generated from the levy will fund projects related to climate adaptation, disaster management, and environmental protection.
By launching the Climate Support Levy, Pakistan joins the ranks of developing nations adopting green fiscal instruments to align with international climate goals.
Experts suggest that if the collected funds are managed transparently, the move could enhance Pakistan’s credibility in global climate finance forums and strengthen its eligibility for international support under global climate accords.
The introduction of the Climate Support Levy highlights Pakistan’s proactive stance on environmental governance, paving the way for long-term ecological and economic benefits.