ISLAMABAD: Revenue collected from Pakistan’s carbon levy on petroleum products is not earmarked for dedicated environmental initiatives, a finance ministry official told a parliamentary panel on Thursday, saying that they are instead absorbed into general government funds.

A carbon levy is fee that the government imposes on greenhouse gas emissions. It aims to reduce emissions and encourage a shift to a low-carbon economy. Pakistan charges carbon levy at Rs5 per liter on petrol and high-speed diesel. Pakistan introduced the carbon levy as part of reforms under the IMF’s Resilience and Sustainability Facility (RSF), which aims to bolster climate resilience, phase out fossil fuel subsidies, and support transport decarbonization.

During a meeting of the Senate Standing Committee on Climate Change and Environmental Coordination, lawmakers pressed officials over how revenues tied to international climate commitments are being spent.

In response, a finance ministry official told the committee that individual revenue streams are not earmarked for specific expenditures under national accounting rules, with proceeds instead flowing directly into the Federal Consolidated Fund (FCF), the total resources of the government consisting of internal and external receipts.

“There is not a single revenue stream that is ring-fenced [earmarked] for a specific [purpose],” the official said. “This all goes into the FCF.”

The committee’s chairperson, Senator Sherry Rehman, praising the official’s “honesty” for admitting what she said was denied to her during a Senate session. She criticized the policy, arguing that funds raised under the guise of environmental protection should directly support green initiatives.

“When an item is called a carbon levy, it is to be ring-fenced and then disbursed in consultation with the Climate Ministry,” Rehman said. “If it is not ring-fenced and not going to climate, it should not be called a climate or carbon levy.”

Rehman urged the finance ministry to ensure the next federal budget explicitly channels carbon revenue into mitigation projects, addressing regional crises such as winter smog in Lahore, water scarcity in Balochistan and climate related issues in Karachi.

Federal Minister for Climate Change and Environmental Coordination, Dr. Musadik Malik, supported the panel’s stance. He noted that levies by definition should be earmarked for specific purposes.

“Levies are ring-fenced for a special purpose, and we have already communicated this and wait forward with them,” Malik said, agreeing with Rehman.

Defending broader fiscal priorities, the finance ministry official noted that Pakistan allocated Rs816 billion ($2.9 billion) toward climate adaptation and mitigation in the previous financial year. He acknowledged that these funds were not directly tied to proceeds from the petroleum levy.

Pakistan is recognized as one of the most vulnerable countries to climate change impacts, despite contributing less than 1 percent to global greenhouse gas emissions. Last year, excess water released by dams from India and torrential rains triggered flash floods in Pakistan.

Over 1,000 people were killed while millions were displaced across the country, particularly in the eastern Punjab province.

Pakistan also suffered catastrophic floods in 2022, when unusually heavy rains during the monsoon season triggered flash floods that killed over 1,700 people and caused damages worth an estimated $33 billion.