Climate allocations shrink in FY27 budget despite rising climate levies

ISLAMABAD: Federal budget allocations linked to climate action have been cut across most categories for the coming fiscal year, even as the government plans to raise more money through climate-related levies, according to details of the proposed FY27 budget and comments from policy experts.

The budget, presented on June 12, reduces mitigation funding to Rs124 billion from Rs603 billion in the outgoing year, while adaptation allocations have been lowered to Rs70bn from Rs85bn. The green component of subsidies has also been trimmed, with the energy sector’s allocation declining to Rs423 billion from Rs529 billion. Proposed allocations for food, industry, transport and agriculture have also been reduced.

Disaster-related spending was the main exception. Alongside a newly introduced disaster-tagging mechanism, the government has set aside Rs19bn for reconstruction, while funds for recovery and rehabilitation have risen sharply from Rs1.1bn to Rs21 billion.

Giovanni Maurice Pradipta, a policy adviser at Germanwatch, said the allocation pattern did not reflect Pakistan’s exposure to climate shocks such as floods and heatwaves. He said adaptation and resilience should receive attention at least equal to mitigation, while also stressing the need for developing countries to create fiscal room for climate action in addition to seeking multilateral solutions.

Former climate change minister Malik Amin Aslam described the budget as deeply troubling and said it failed to address adaptation needs, especially heat stress. “The funding or project stream for addressing climate adaptation issues, in particular heat stress, is totally missing. Two international reports [WB, University of Chicago] have rung the red warning bell for Pakistan, stating that one-third of global deaths due to heat stress could be in Pakistan, with nine districts becoming unlivable for humans by 2030,” said Mr Aslam.

Scientists have warned floods and extreme heat are likely to become recurring events, while a recent study projected that one in three additional heat-related deaths by 2050 would occur in Pakistan. Experts said such warnings should have been reflected in fiscal planning.

On the revenue side, the government is targeting Rs20bn from the EV adoption levy, marking a 100pc increase, and Rs50bn from the Climate Support Levy aimed at controlling emissions. However, experts questioned whether these proceeds would be earmarked for climate action.

Dr Abid Suleri, a member of Pakistan’s National Economic Advisory Council, said revenue raised through climate levies should be used specifically for climate-related purposes rather than absorbed into the broader budget. The report cited examples from a 2025 ICMA International report that said countries such as Singapore and Sweden were already investing carbon-tax proceeds in climate solutions. The federal government has used the petroleum development levy to help bridge the fiscal deficit.

Climate policy expert Ali Tauqeer Sheikh said climate revenue instruments such as a carbon tax could become exclusionary in the absence of a robust public transport network, effectively burdening citizens under the banner of climate action. He added that the budget does not provide the needed investment in public health and green transit.

Mr Aslam also questioned the lack of spending details. “The details of where this very focused funding is being spent are totally absent. Failing that, it is just another means of fleecing the public and throwing the collected funds in a black hole.”

Calls for transparency and structural reform

Dr Suleri welcomed the climate-tagging exercise but said it would only be meaningful if accompanied by transparency about where funds were being spent and what results they were producing. He said the government should issue quarterly or half-yearly reports so the public can track climate spending and outcomes.

Mr Aslam also criticised the reduced role of the climate ministry in development spending, saying that since 2021, PSDP funding for the ministry "has dropped 83pc (Rs14bn to Rs2.4bn) and even in this paltry sum, 95pc is going to only one project — Green Pakistan (10 Billion Tree Tsunami Project)"

Dr Suleri said that although climate change is framed federally, much of the practical response — including water management, urbanisation, flood control and climate-smart agriculture — lies with the provinces, meaning the next year’s climate response will depend significantly on provincial action.

Mr Sheikh said climate change should shape the government’s view of the wider economy and financial system, while criticising the lack of priority given to protecting ecosystems from slow-onset threats including droughts, glacial lake outburst floods and displacement. He said the country needed to move beyond temporary fixes toward structural reform for inclusive, climate-smart development.

“The state clings to the same exclusionary, non-reformist development model that caused the climate crisis in the first place,” he said.

According to Pradipta, Pakistan requires both greater international climate finance and stronger domestic resource mobilisation. He pointed to Indonesia’s green sukuk programme as an example of raising funds for green transition and said Pakistan could improve its own climate financing through better budget tagging, more effective subsidy allocation and blended finance mechanisms with clear public oversight. Experts also said the government could create fiscal space by renegotiating coal and gas supply agreements in light of lower electricity demand driven by household solar uptake.