This study attempts to examine the relationship between Free Trade Agreements (FTAs) and Carbon Dioxide (CO2) emissions in Pakistan. To achieve this objective, the study analysed various FTAs signed by Pakistan, including the Pakistan-China Free Trade Agreement (PCFTA), Malaysia Pakistan Closer Economic Partnership Agreement (MPCEPA), Pakistan-Sri Lanka Free Trade Agreement (PSLFTA) and South Asian Free Trade Area (SAFTA). Panel unit root, panel co-integration, and Fully Modified OLS (FMOLS) estimators were employed to investigate the existence of long-run relationship between Gross Domestic Product (GDP), Trade Openness (TO) and Energy Consumption (EC) on CO2 emissions in Pakistan from 1980-2014. 

The results show that GDP per capita have a significant positive effect on CO2 emissions, which implies that an increase in GDP per capita increases CO2 emissions and show a scale effect. The GDP per capital square showed negative effect on CO2 emissions and proved the existence of Environmental Kuznets Curve (EKC) hypothesis in the study model. The results also indicate the existence of long run positive relationship of energy consumption on carbon emission and negative relationship between TO and FTA. Indeed, the panel FTA dummy coefficient is representative of the FTA’s net effect (sum of composition, technical, and scale effects) on the environment and the results found that after the implementation of FTA, post-liberalisation emission levels turned out to be lower than pre-liberalisation emissions. 

This research is helpful in evaluating the environmental impacts of FTAs on Pakistan so that the country’s negotiators can pay more attention to environmental issues associated with the FTA clauses. This can help policymakers limit the negative impacts on the environment by adopting appropriate policy instruments and promote Pakistan’s trade in the international market.