Why CAREC Countries Must Embrace Carbon Pricing to Future-Proof Transport and Economies

The ADB report finds that carbon pricing can help CAREC countries reduce rapidly rising transport emissions while generating sustainable revenue for cleaner infrastructure, electric mobility, and public transport investments. It urges governments to combine carbon taxes, emissions trading systems, and carbon markets with broader transport reforms to attract private investment, strengthen climate resilience, and achieve national climate targets.

Transport is rapidly becoming one of the biggest barriers to climate action across Central Asia, but a new Asian Development Bank (ADB) report suggests it could also become one of the region's largest investment opportunities. The study on carbon pricing in the transport sector across Central Asia Regional Economic Cooperation (CAREC) countries argues that governments can simultaneously reduce greenhouse gas (GHG) emissions, strengthen energy security, improve urban mobility, and attract billions in climate finance by introducing well-designed carbon pricing mechanisms. Rather than treating carbon pricing simply as an environmental tax, the report presents it as a long-term economic development tool capable of financing cleaner infrastructure and accelerating sustainable growth.

Transport Emissions Are Rising Faster Than Climate Action

The report finds that transport accounts for 5% to 23% of total greenhouse gas emissions across CAREC countries, with a regional median of 9%. More importantly, transport emissions are increasing significantly faster than overall national emissions due to growing urbanization, rising vehicle ownership, expanding freight movement, and stronger economic activity.

Most CAREC governments have already identified transport as a priority sector under their Nationally Determined Contributions (NDCs) submitted under the Paris Agreement. Common priorities include expanding electric mobility, improving public transport, promoting rail freight, increasing energy efficiency, supporting cleaner fuels, and developing non-motorized transport infrastructure.

However, the report warns that without stronger financial incentives, transport emissions will continue rising, making it increasingly difficult for countries to meet their climate commitments.

Carbon Pricing Can Generate Revenue, Not Just Reduce Emissions

The report identifies carbon taxes, emissions trading systems (ETS), and carbon markets as the three most effective economic tools for lowering transport emissions.

Unlike traditional environmental regulations, carbon pricing creates a financial incentive for industries and consumers to reduce emissions while generating government revenue that can be reinvested into cleaner transport systems.

Although none of the CAREC countries currently operates a dedicated national carbon tax, several are preparing reforms. China has established both national and provincial emissions trading systems, with some pilot programs already covering parts of the transport sector. Kazakhstan operates Central Asia's only national ETS, while Azerbaijan, Mongolia, Pakistan, and Tajikistan are actively exploring carbon pricing mechanisms.

One of the report's most practical recommendations is establishing a "Climate Cent Fund" through a levy of just $0.01 per litre on gasoline and diesel. While such a small increase would have only a modest direct impact on fuel consumption because transport fuel demand changes slowly, the revenue generated could finance electric buses, railway modernization, charging infrastructure, cleaner freight systems, and public transport improvements.

According to the report, investing these revenues into transport decarbonization projects could produce emissions reductions 50 to 100 times greater than those achieved simply through reduced fuel consumption. On average, such a mechanism could help CAREC countries achieve around 75% of their unconditional transport-sector climate targets, while generating additional carbon credits that could be sold internationally.

Electric Mobility and Carbon Markets Offer Huge Investment Potential

The report identifies electric mobility as the region's biggest long-term opportunity.

Several CAREC countries have already adopted ambitious targets. Pakistan aims for 30% of new vehicle sales to be electric by 2030 while expanding charging infrastructure nationwide. Kazakhstan targets 30% electric and hybrid vehicles by 2030, and Tajikistan plans for 55% of all vehicles to be electric by 2037. China continues expanding electric vehicles alongside railway electrification, sustainable aviation fuels, and cleaner shipping.

The report also highlights growing opportunities in international carbon markets. Countries including Georgia, Kazakhstan, Mongolia, and Uzbekistan have signed bilateral agreements under Article 6 of the Paris Agreement with partners such as Japan, Switzerland, Singapore, and the Republic of Korea. Yet transport projects remain largely underrepresented despite offering some of the strongest opportunities for generating tradable carbon credits.

Electric vehicles, urban public transport, and railway projects are considered the most promising sectors because internationally approved methodologies already exist for measuring their emissions reductions. Compliance carbon markets currently report prices of around $25 to $50 per tonne of CO₂, while voluntary markets averaged around $6 per tonne in 2024, providing an additional revenue stream for future transport investments.

A Roadmap for Governments, Development Partners and Businesses

The report concludes that carbon pricing should become part of a broader transport transformation strategy rather than a standalone climate policy.

For governments, priorities include building legal and institutional frameworks, strengthening monitoring and verification systems, gradually reducing fossil-fuel subsidies, integrating transport into future emissions trading systems, and directing carbon revenues toward sustainable transport investments instead of general expenditure.

For international development partners such as ADB, the World Bank, climate funds, and bilateral agencies, the findings highlight opportunities to support project preparation, institutional capacity building, blended finance, and carbon market development that can leverage larger volumes of private capital.

The private sector also stands to benefit significantly. Businesses involved in electric vehicles, charging infrastructure, renewable energy, battery manufacturing, logistics, digital transport technologies, railway modernization, and carbon project development are likely to see expanding investment opportunities as governments strengthen climate policies. At the same time, companies dependent on conventional fossil-fuel transport face growing transition risks as carbon pricing becomes more widespread.

The report ultimately argues that carbon pricing is not simply about making pollution more expensive. For CAREC countries, it represents an opportunity to modernize transport systems, improve energy security, reduce air pollution, attract international climate finance, stimulate private investment, and build a more competitive, low-carbon economy. With transport emissions continuing to rise, early policy action could deliver both environmental gains and long-term economic dividends for the region.