As Pakistan grapples with skyrocketing electricity tariffs, largely driven by dollar-pegged capacity payments to thermal power plants, a novel solution could offer relief. Taking inspiration from Turkey’s climate tax on carbon-emitting industries, Pakistan should consider imposing a similar levy on thermal plants to help offset the financial burden on consumers.

The primary reason for Pakistan’s high electricity rates is the power purchase agreements (PPAs) with thermal power plants, which mandate payments in foreign currency. As the Pakistani rupee continues to depreciate, these agreements have made electricity unaffordable for many households and businesses. Despite public pressure, the government faces legal constraints in renegotiating these contracts from scratch.

A potential solution lies in implementing a climate tax, similar to Turkey’s recent policy targeting industries with high greenhouse gas emissions. Since foreign companies operating in Pakistan must comply with local laws and taxes, a climate tax could legally compel thermal plants to absorb some of these costs, thereby reducing the financial strain on consumers.

Such a tax would achieve two critical goals: reducing emissions and easing electricity tariffs. While implementing this measure would require legislative support and careful planning, it could provide Pakistan with a viable strategy to mitigate the impact of foreign currency-linked tariffs without breaching existing contracts. If adopted, this approach could make electricity more affordable while pushing Pakistan towards a greener energy future.

IRFAN MEHMOOD,

Mianwali.