Islamabad, June 10, 2025 – In a landmark move toward environmental sustainability and fiscal reform, the Government of Pakistan has officially introduced a carbon levy on petroleum products for the first time in its history.
The measure, presented in the Finance Bill 2025, aims to both raise revenue and encourage cleaner fuel consumption across the country.
Announcing the decision on the floor of the National Assembly during his budget speech, Finance Minister Muhammad Aurangzeb confirmed that a carbon levy of Rs2.50 per liter will be applied to sales of Motor Spirit (petrol) and High-Speed Diesel starting from July 1, 2025, for the fiscal year 2025–26.
According to the amendment in the Finance Bill, the levy will also apply to Furnace Oil at the same rate of Rs2.50 per liter (or Rs2,665 per metric ton). Looking ahead, the rate of the carbon levy is set to increase to Rs5 per liter across these fuel categories in the upcoming fiscal year 2026–27. This new levy will be charged in addition to the existing petroleum levy rates as notified by the federal government from time to time.
The introduction of the carbon levy is not only a revenue-generating measure but also a step aligned with global climate commitments. By placing a financial cost on carbon emissions, the government intends to signal a shift towards greener energy practices and cleaner fuel usage. The levy creates an economic disincentive for fossil fuel consumption, potentially paving the way for increased investment in renewable energy alternatives.
This move brings Pakistan closer in line with international environmental taxation standards. While the carbon levy may increase fuel prices slightly, officials believe it is a necessary step for addressing climate change and reducing the nation’s carbon footprint.
Overall, the Finance Bill 2025 positions the carbon levy as a strategic tool to combat environmental degradation while strengthening the national exchequer.