N intriguing idea has just been floated by Mr Sartaj Aziz, twotime former finance minister, to implement a carbon tax in Pakistan of the sort that more and more countries are turning towards to help curtail emissions and generate revenue for mitigation measures required for a changing climate. The senior adviser has suggested that the tax be applied on all fuel prices, perhaps at the rate of one cent per unit of fuel. The idea is intriguing because a carbon tax is growing in popularity in many countries around the world, and not just advanced economies. But for the tax to be effective it must be structured to be more than just a revenue measure. Rather, it should be designed with the aim of encouraging efficient utilisation of hydrocarbon fuels by industry, as well as generating revenues, starting perhaps with power producers since they are by far the largest contributors to the country`s total carbon emissions.

A carbon tax has been implemented in many countries Canada, Chile, Ireland and South Africa to name a few. In almost all cases, the tax aims to incentivise consumers of hydrocarbon fuels to be more efficient in its utilisation. For power producers, the tax can incentivise them to invest in the maintenance of their furnaces, as well as apply due care to manage the quality of combustion with the aim of reducing the carbon dioxide emissions. The more they curtail their emissions, the more they stand to save on the tax. Beyond this the tax can also generate revenue earmarked for a special purpose: funding mitigation measures for climate change such as paying for superior forecasting technology for anomalous rain systems, and early warning systems for floods. Such special purpose levies already exist, from telecoms who are required to contribute to a fund designed for ensuring access to mobile communications in remote areas, to special surcharges to pay for gas infrastructure. In the past, however, the government has succumbed to the temptation to divert the funds raised through these special levies towards budgetary support, a practice that must be prohibited. The challenges posed by climate change are no less urgent than the priorities these special purpose funds are designed to serve, and there is merit to the proposal to implement a carbon tax to help pay for the mitigation efforts required.

The idea deserves to be explored in greater detail.