When Paying the Carbon Tax is Cheaper: Policy Gaps and Fossil Lock-in Under the EU CBAM in Pakistan
DOI:
https://doi.org/10.70112/arme-2025.14.2.4320Keywords:
Carbon Border Adjustment Mechanism, Osemosys, Pakistan, Power Sector Modelling, Carbon Pricing, Energy Transition, Fossil Lock-InAbstract
The European Union’s Carbon Border Adjustment Mechanism (CBAM) presents considerable challenges for developing countries with carbon-intensive export sectors. This study assesses CBAM‘s impact on Pakistan’s power sector transition from 2022 to 2050. The Open Source Energy Modelling System (OSeMOSYS), implemented in Python, was used with a least-cost optimisation framework comprising 21 generation technologies and 16 temporal time slices. Four scenarios were evaluated: business-as-usual, domestic carbon taxation at 50% and 100% of European Union Emissions Trading System prices, and a feasibility-constrained renewable pathway. The discount rate was set at 10%, consistent with National Electric Power Regulatory Authority determinations. Domestic carbon pricing alone, even at full EU ETS parity ($110/tCO₂ in 2030, rising to $250/tCO₂ by 2050), induces no measurable shift in the generation mix. Legacy hydropower maintains roughly a 28% share, while new variable renewable energy penetration remains below 1%. This “economic lock-in” occurs because the marginal abatement cost exceeds the carbon tax. CBAM exposure increases from $35 million in 2026 to over $8 billion annually by 2034. Meaningful power sector decarbonisation requires binding renewable targets and technology-specific infrastructure policies rather than carbon pricing instruments alone.References
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