AS Pakistan struggles with skyrocketing electricity tariffs linked to dollar-based agreements with thermal power plants, adopting a novel approach may offer some relief. Imitating Turkiye’s climate tax on carbon-emitting industries, Pakistan may consider imposing a similar levy on thermal plants, which could help offset costs that are currently passed on to consumers.

The primary driver of Pakistan’s high electricity rates is the power purchase agreements (PPAs) with thermal power plants, which mandate dollar-pegged payments. With the Pakistani rupee depreciating, these agreements have made electricity increasingly unaffordable for many households and businesses.

Despite intense public pressure, the government faces legal impediments in renegotiating the agreements from scratch.

However, there is a potential solution, like Turkiye’s recent climate tax law targeting industries with high greenhouse gas emissions.

Pakistan may impose a climate tax on thermal power plants, which are major culprits on this count. Given the contractual stipulations requiring foreign companies to comply with local Pakistani laws and taxes, this climate tax could legally compel these plants to absorb some of these costs, potentially reducing the burden on consumers.

Undoubtedly, while implementing a climate tax would require legislative support and careful planning, it offers a way for Pakistan to mitigate the impact of foreign currency-linked tariffs without breaching existing contracts.

If adopted and implemented effectively, this approach could not only make elec-tricity more affordable, but also push Pakistan towards a greener energy future.

Irfan Mehmood
Mianwali

Published in Dawn, December 3rd, 2024