The Petroleum Division has submitted a summary to the Cabinet Committee for Disposal of Legislative Cases (CCLC), proposing the introduction of a carbon levy of Rs2.50 per liter on petrol, diesel, and furnace oil by the end of June for the fiscal year 2025-26, as reported by The News. This levy is anticipated to increase to Rs5 per liter on petroleum products in the subsequent fiscal year, 2026-27.
This measure aligns with conditions stipulated by the International Monetary Fund (IMF), which has provided Pakistan with $1.3 billion under the Resilience and Sustainability Facility (RSF) to aid in addressing the impacts of climate change.
Officials familiar with the development stated that the Rs2.50 carbon levy on the three POL products would generate Rs6-7 billion per month. When increased to Rs5, the revenue is projected to surge to Rs12-14 billion per month. This revenue may also be utilized for a significant reduction of CO2 emissions by creating effective incentives for the adoption and use of electric vehicles. This will contribute to the goal of 30% penetration of new passenger EV sales and 50% for 2-3 wheelers by 2030, while simultaneously mitigating balance of payment stability risks by reducing reliance on imported fuel products.
The Petroleum Levy (PL) was previously raised by Rs10 per liter from Rs60 to Rs70, primarily to reduce the power tariff by Rs2.12 per unit for a period of three months. The government subsequently increased the PL on petrol and diesel to Rs78.02 and Rs77.01 per liter, respectively.
Consequently, end consumers of petroleum products (MS, HSD, and FO) will now pay Rs2.50-5 per liter as a carbon levy. Earlier, the ECC meeting also increased the cap or ceiling of PL up to Rs90 per liter. It currently stands at Rs78.02 on petrol and Rs77.01 on HSD.
The government has already increased the Internal Freight Equalization Margin (IFEM) by Rs1.87 per liter on petrol and diesel to accommodate refineries and Oil Marketing Companies (OMCs). These entities incurred a loss of Rs34 billion in the current financial year due to sales tax exemption on POL products.
The OMCs’ margin of Rs1.12 per liter and dealers’ margin of Rs1.12 are still awaiting a decision from the prime minister.
