Around the globe, billions of people are experiencing the negative impacts of a changing climate, with intense forest fire seasons, prolonged droughts, and recurring floods and extreme weather events. Countries around the world are stepping up to mitigate these effects by setting ambitious emissions reduction targets. One tool to accelerate climate action and increase the flow of capital towards climate-positive investments is a voluntary carbon market (VCM).
What is a VCM? It’s a market system that allows companies and individuals to purchase carbon credits to offset their greenhouse gas emissions voluntarily, rather than through regulatory requirements. These credits fund projects that reduce or capture emissions, such as reforestation or renewable energy initiatives. As of 2022, the global VCM is estimated to have mobilized over $1.2 billion in investments, making it an important driver of finance towards projects that mitigate emissions in efforts to curb climate change.
In early 2023, USAID/Pakistan set a goal to help facilitate the growth of the country’s own VCM. Specifically, USAID wanted to help the Government of Pakistan establish a legal framework for the VCM and increase the capacity of the country’s Ministry of Climate Change (MoCC) and private sector project developers to implement it.
However, before USAID could take concrete action, it needed to clearly understand where the market stood. With support from partner Climate Focus through the INVEST initiative, USAID conducted a needs assessment to determine whether viable and strategic donor-supported interventions could accelerate Pakistan’s VCM.
Assessing Pakistan’s VCM
According to Pakistan’s Nationally Determined Contribution—a plan to reduce greenhouse gas emissions and adapt to climate change as part of its commitment to the Paris Agreement—the country requires around $101 billion for mitigation in the energy sector alone by 2030 and $14 billion for adaptation measures by 2050. Carbon markets can help channel private sector finance into mitigation and adaptation activities in Pakistan, easing the load on tight public budgets.
Upon examining Pakistan’s VCM, the Climate Focus team found that it was a relatively nascent market with room to put governing frameworks in place. While there was a lot of interest across government, donors, non-governmental organizations, and private sector players, the organization’s research and interviews with stakeholders confirmed that provincial and private sector actors will benefit from clear policies and guidance from the federal government.
By mapping actors and current activities in Pakistan’s VCM and engaging stakeholders on their ongoing work, roles, and priorities, Climate Focus helped USAID identify opportunities in the market to accelerate Pakistan’s VCM toward scaling. Opportunities included coordination and policy efforts between federal and provincial governments, updating greenhouse gas emissions data standards, creating a national carbon credit registry or database, and building knowledge surrounding the VCM among key private sector players.
Climate Focus recommended that USAID support the country’s MoCC in developing a carbon market strategy and regulatory framework, as well as build capacity for private sector carbon project development. Starting in January 2024, USAID has acted upon these recommendations and pursued the two critical workstreams.
A lot of effort has gone into setting up this work and it’s garnered significant interest. We used USAID’s networks in Pakistan to raise awareness about carbon markets and established USAID’s presence as a key player.
Making Replication Possible
Conducting a needs assessment is a foundational step that helps ensure USAID and other actors take careful, targeted action to maximize impact for any new development intervention. To support other Missions interested in assessing a VCM in their country, INVEST and Climate Focus developed detailed guidance in a new Guide for Conducting Voluntary Carbon Market Needs Assessment. This guide draws from and builds on previous needs assessment processes and outlines key steps, activities, and considerations to determine viable and strategically important donor-supported interventions that can accelerate a VCM.
The guide is organized into four sections that outline the phases of a VCM assessment. Each section delves into the aims, activities, and outputs under each phase. Lessons drawn from experience are incorporated throughout, highlighting important considerations as each phase is planned and implemented.
The VCM has complex structures and can be challenging to navigate, but USAID can utilize needs assessments to help partner governments and other stakeholders understand their assets and leverage existing structures and opportunities on the ground. Ultimately, they can build or bolster a VCM with integrity that benefits local communities and mobilizes finance for climate impact.
Carolanne Chanik
Carolanne Chanik is an Activity Manager and Communications Advisor with USAID INVEST. She manages portfolios in Pakistan and Haiti.
