What Budget 2026–27 reveals about CPEC 2.0’s Green Corridor

Not enough is being done 

Pakistan’s federal budget for 2026–27 arrived with its customary ambiguity: technically sophisticated in its accounting, structurally cautious in its commitments. For those tracking the intersection of climate finance and CPEC 2.0’s green agenda, the document is instructive not for what it promises but for what the arithmetic exposes.

The fiscal reality is severe. With total federal expenditure at Rs 18.77 trillion and interest payments alone budgeted at Rs 8.054 trillion, nearly 69 paisa of every rupee of net federal revenue is consumed before a single development project is funded. The federal Public Sector Development Programme (PSDP) stands at Rs 1 trillion, unchanged in nominal terms from the previous year and therefore a real decline. Defence at Rs 3.011 trillion and legacy infrastructure at Rs 365 billion for transport alone further crowd the fiscal corridor. Against this backdrop, CPEC 2.0— the only clearly new initiative in a Rs 3.675 trillion combined development outlay— has been allocated Rs 1 billion. One billion rupees. For a corridor that is supposed to anchor Pakistan’s green industrialisation over the next five years.

The budget’s climate story is more sophisticated on the revenue side than it is on the expenditure side. In FY2026–27, the government expects to collect approximately Rs 2.026 trillion through climate- and green-linked revenues and levies. The composition is telling: Rs 1.676 trillion from the Petroleum Levy, Rs 70.8 billion from the Gas Development Surcharge, Rs 140.5 billion from oil and gas royalties, Rs 50 billion from the newly introduced Climate Support Levy, and Rs 22.5 billion from the EV Adoption Levy.

The introduction of a standalone Climate Support Levy and an EV Adoption Levy represents real institutional progress— these instruments signal that climate considerations are entering Pakistan’s fiscal vocabulary. But vocabulary without investment is fiscal theatre. Direct climate-tagged allocations, excluding subsidies, amount to only Rs 214 billion. For every Rs 100 collected through climate- and green-linked fiscal measures, only Rs 10.60 is allocated toward climate-tagged action, while Rs 89.40 enters the general treasury. Using Pakistan’s current population of approximately 247 million, each citizen contributes roughly Rs 8,200 annually through climate-linked levies, but receives back only Rs 867 in direct climate spending per year.

The directional trend is more alarming than the snapshot. Adaptation allocations have declined 17.5 percent to Rs 70.5 billion, while mitigation allocations have fallen sharply to Rs 124.1 billion from Rs 603 billion in FY2025–26. Disaster management, by contrast, has risen 132 percent to Rs 116.2 billion. The pattern is unmistakable: Pakistan is budgeting for the cost of climate failure rather than investing in the prevention of it. The Economic Survey FY2025–26 confirms the stakes— the 2025 floods caused Rs 822 billion in damages, claimed over 1,039 lives, and displaced more than four million people. Yet adaptation spending is falling.

CPEC 2.0’s Green Corridor is China’s articulation within the 5Cs framework— a strategic vision centred on clean energy, green manufacturing, electric mobility, climate-resilient infrastructure, and low-carbon industrial cooperation. Pakistan’s counterpart commitment sits within Uraan Pakistan’s 5Es framework, specifically across two pillars: Energy and Infrastructure (renewable transition, circular debt resolution, mega-dams, modern transport corridors) and Environment, Climate and Sustainability (50 per cent reduction in greenhouse gas emissions, increased water storage, natural resource protection). CPEC 2.0 is designed to be the operational fusion of both frameworks. The budget is the first domestic fiscal test of whether that fusion is real.

Pakistan argues internationally that global climate finance is insufficient. The question that Budget 2026–2027 raises domestically is harder to deflect: if Rs 2.026 trillion in climate- and green-linked revenues are being collected annually, and if CPEC 2.0’s Green Corridor is genuinely a national priority, why does the corridor receive Rs 1 billion while the Petroleum Levy alone collects Rs 1.676 trillion? The answer is not that money does not exist. The answer is that the fiscal system has not been designed to convert climate revenue into climate resilience.

It does not pass that test. The PSDP allocates Rs 50 billion for nine solar and wind projects, Rs 8 billion for additional renewable projects, and Rs 13.1 billion for national grid expansion. These are useful line items, but they do not constitute a Green Corridor investment strategy. CPEC 1.0 added over 8000 MW of generating capacity, raising coal’s share of Pakistan’s power mix from approximately three percent to nearly 20 percent over seven years. Reversing that legacy while simultaneously powering new SEZs, electrifying transport corridors, and meeting the 5Es’ 50 percent GHG reduction target requires a fundamentally different fiscal commitment than what this budget provides. Rs 1 billion for CPEC 2.0 as a whole, against a coal dependency built on tens of billions in prior investment, is not a transition budget. It is a holding position.

There is also a governance dimension that the budget does not resolve. Uraan Pakistan’s GHG reduction target under the 5Es and Pakistan’s NDC 3.0 commitment— a 50 per cent reduction in projected 2035 emissions, 17 percent unconditionally and 33 percent conditional on international finance— are products of different ministries operating on different baselines. Until these targets are reconciled into a unified national carbon trajectory, climate budget tagging will remain an accounting exercise rather than a policy instrument.

Three reforms would have aligned fiscal architecture with green corridor ambition. First, a defined share— at minimum 25 percent— of the Climate Support Levy and EV Adoption Levy receipts should be ring-fenced for adaptation investment and clean energy transition within CPEC 2.0 SEZs. These instruments were introduced with climate justification; they should carry climate obligations. Second, the Rs 1 billion CPEC 2.0 seed allocation must be matched with a multi-year Green Corridor Investment Pipeline, negotiated at Joint Coordination Committee level, specifying renewable capacity targets, technology transfer commitments, and carbon performance standards for SEZ operations. A corridor without a funded pipeline is a branding exercise. Third, the government should publish an annual Climate Revenue-to-Expenditure Statement— how much was collected under climate labels, how much was released, and what measurable outcomes were achieved— as a condition of the IMF’s Resilience and Sustainability Facility, which already requires at least 30 percent of infrastructure project appraisal weighting to reflect climate adaptation and mitigation criteria.

The green subsidy line also warrants scrutiny. The budget includes Rs 476 billion in green-tagged subsidies, of which Rs 423 billion is directed at transport-sector mitigation through EV promotion. But Pakistan’s thermal power still accounted for 46.3 per cent of electricity generation during July–March FY2025. An EV subsidy policy is not automatically climate-positive unless it is coupled with renewable-powered charging infrastructure, grid decarbonisation, and battery-waste regulation. Subsidising electric vehicles running on coal-fired electricity shifts the source of emissions; it does not reduce them.

Pakistan’s 2026–2027 budget is not a failure of stated intent. The government knows what the Green Corridor should look like. The revenue instruments to fund it partially exist. What is absent is the mechanism connecting climate collection to climate investment, and the political will to resist treating climate levies as general fiscal lifelines.

Pakistan argues internationally that global climate finance is insufficient. The question that Budget 2026–2027 raises domestically is harder to deflect: if Rs 2.026 trillion in climate- and green-linked revenues are being collected annually, and if CPEC 2.0’s Green Corridor is genuinely a national priority, why does the corridor receive Rs 1 billion while the Petroleum Levy alone collects Rs 1.676 trillion? The answer is not that money does not exist. The answer is that the fiscal system has not been designed to convert climate revenue into climate resilience.

CPEC 2.0’s green ambition will remain a document-level aspiration until the budget proves it can do what it says: treat climate not as a revenue category, but as a macroeconomic investment imperative. The Green Corridor needs a green budget to run on. This one is not it.