Key Takeaways
- The Climate Support Levy (CSL) was introduced in the Finance Bill 2025-26 and is set to increase fuel prices.
- The CSL, along with other levies, aims to raise Rs1.74 trillion in FY2026-27 from fuel and energy-related taxes.
- Critics argue that these measures may be more focused on revenue generation than achieving specific policy objectives.
Pakistan has introduced a new Climate Support Levy (CSL) as part of the Finance Bill 2025-26, effective from July 1, 2025. This levy is intended to control carbon emissions and fund environmental projects, but critics argue that it may be more about generating revenue than addressing climate change.
The CSL was introduced without prior consultation or an adjustment period for consumers and businesses. It has already collected Rs48 billion in revised estimates, with the tax now added directly to the retail price of petroleum products per litre at the pump. This month, the CSL on both petrol and high-speed diesel was increased from Rs2.50 per litre to Rs5.00 per litre.
The introduction of this levy comes amidst a backdrop of multiple levies already in place, including the Petroleum Levy and the Captive Power Plant Levy. Together with these other taxes, total fuel and energy-related levies are set to exceed Rs1.74 trillion this year, an increase of nearly 12% over FY2025-26.
The CSL was originally called the ‘carbon levy’ and implemented as part of Pakistan’s commitment to boost climate resilience under agreements with the International Monetary Fund (IMF). However, critics argue that the distinction between a climate levy and a fuel tax is irrelevant for most people. Both raise transport costs, push up food prices, and squeeze household budgets.
The burden of these levies extends beyond individual consumers. Farmers pay more to transport produce, businesses face higher logistics costs, public transport fares rise, and inflation absorbs the rest. The ripple effects spread across the entire economy, impacting various sectors including agriculture, industry, and transportation.
Additionally, the Captive Power Plant Levy was introduced to push industries off self-generation and onto the national grid. However, despite government projections of Rs105 billion in collections during FY2025-26, only Rs14 billion were recovered, representing an 87% shortfall. The levy has been retained at Rs15.7 billion for FY2026-27.
Industries are left with the choice of paying levies on captive generation or relying on grid electricity, which comes with persistent tariffs that drag on their efficiency and competitiveness. With no meaningful incentives for industrial renewable energy, neither option supports a genuine transition to cleaner energy sources.
The government’s aim is clear: to fund climate resilience through these levies. However, the question remains whether this approach will effectively address the country's pressing environmental needs or simply exacerbate existing economic challenges.
