Project Brief:

The research project titled “CBAM Policy Development, Adaptation, and Compliance: A Case Study of the Textile Sector in Punjab” conducts a thorough examination of the preparedness of Pakistan’s textile industry, specifically the APTMA-affiliated mills in Punjab, to comply with the European Union’s Carbon Border Adjustment Mechanism (EU-CBAM). The textile sector contributes approximately 67% of the country’s export earnings and heavily depends on fossil fuel-based energy sources (ADB, 2021). Therefore, it faces significant risks associated with exposure to carbon tariffs under the evolving EU trade regulations. To assess and respond to this emerging compliance landscape, the study employs a mixed-methods approach that integrates quantitative field surveys with qualitative tools such as Key Informant Interviews (KIIs) and Focus Group Discussions (FGDs). This comprehensive methodology aims to evaluate the economic implications of aligning with CBAM, the risks associated with non-compliance, and the feasibility of potential transition pathways. At the heart of the study is the development of a context-specific CBAM Readiness Index (CRI), which will serve as a diagnostic tool to measure firm-level preparedness. The research will conduct a detailed situational analysis of the textile sector, providing insights into regulatory and operational gaps while offering actionable policy recommendations aligned with Pakistan’s Updated Nationally Determined Contributions (NDCs). Ultimately, the project seeks to bridge the gap between international carbon governance requirements and domestic industrial practices, facilitating the sustainable integration of the textile sector into global value chains and ensuring continued access to the EU market.

Public Policy Relevance:

This research is directly aligned with Pakistan’s climate policy commitments, economic stabilization needs, and trade competitiveness agenda, addressing one of the most urgent challenges the country faces: balancing export growth with environmental compliance under evolving global trade norms, specifically the EU’s Carbon Border Adjustment Mechanism (CBAM).

This study contributes to the operationalization of targets, set under Pakistan’s Updated Nationally Determined Contributions (NDCs), by empirically measuring CBAM-aligned progress within Pakistan’s most export-oriented industrial sector—textiles—across Punjab’s core manufacturing clusters. This research helps bridge implementation gap for the National Adaptation Plan (NAP) 2023 by constructing a CBAM Readiness Index tailored to the textile sector and generating city-level evidence on compliance capacity, thus offering a practical instrument for aligning industrial performance metrics with national policy goals.

From a trade policy perspective, the Strategic Trade Policy Framework 2020–2025 and the Textile Policy 2021–2025 both emphasize export diversification, sustainability, and value addition. However, neither currently embeds CBAM-related measures such as embedded emissions accounting, green certification compliance, or tariff risk mitigation. Our study directly supports these frameworks by quantifying the cost of inaction (in terms of export loss, carbon tariffs, and FDI withdrawal) and identifying market-based adaptation strategies including ESG investment, supply chain diversification, and clean technology adoption.

The research also complements Pakistan’s emerging climate finance ecosystem. The National Climate Finance Strategy (2022) and recent Green Eurobond issuances (e.g., Water and Power Development Authority’s $500M green bond) show increasing demand for verified emissions data and third-party accountability frameworks. Our CBAM Readiness Index and firm-level emissions diagnostics can provide foundational data to accelerate the textile sector’s eligibility for such instruments. Additionally, insights from KIIs with federal stakeholders will inform the design of fiscal incentives, green subsidy programs, and public-private partnerships under government-led decarbonization platforms.

The policy relevance of this study is amplified by its methodological design: it delivers an empirically grounded, locally informed, and internationally benchmarked readiness assessment—something currently missing in both Pakistan’s climate reporting and trade governance systems.

Team Details:

Principal Investigator
Mashhood Urfi
Manager, Research & Development
Carbo-X (Private) Limited, Lahore

Co-PI
Yasir Zada Khan
Economist/Proprietor
Iqtisadi Strategic Solutions, Lahore

Co-PI
Nameer Urfi
Managing Director
Carbo-X (Private) Limited, Lahore