Publishing Carbon Trading Regulation, 2025, Nepal has taken a ‘big step’ in the climate financing. The newly introduced regulation has been thought to be instrumental for the country’s development trajectory, inviting not only environmental but also societal and economic benefits. This also to note that Nepal’s contribution in carbon emission is one of the lowest in the world as per capita emissions is less than 0.05 percent of the global greenhouse gas emissions, but the country remains much vulnerable to climate change.
Moreover, the National Determined Contributions (NDCs), Nepal has performed relatively well in areas such as forest conservation, with coverage now reaching 46 percent. Nepal recently received $9.4 million from the World Bank’s Forest Carbon Partnership Facility for the verified emissions reduction in the Tarai region. Similarly, for over two decades, the country has recognised the value of carbon credits, earning over $35 million through Clean Development Mechanism (CDM) projects such as biogas usage as fuel and micro-scale renewable projects promoted by the Alternative Energy Promotion Centre (AEPC).
It is also to be noted that Nepal’s massive forest area, booming hydropower sector and globally praised community forestry model, the new regulation offers an opportunity for a more structured and systematic approach to carbon finance. The decisions Nepal takes in the next few years will determine whether the country can emerge as a regional leader in high-integrity markets or simply become another cautionary tale.
The new regulation has paved way to market-based finance across sectors, including forestry, agriculture, hydropower, clean cooking, transport and waste management. With this clear approval pathway from project concept to validation, verification, registration and credit issuance, the private sector can now engage in what used to be a development partner-focused sector. Building a national digital carbon registry is a crucial step in tracking credits and preventing double-counting.
Nepal’s commitments in the global treaties, such as the Paris Agreement, are reaffirmed with this new regulation. Article 6.2 of the agreement allows for bilateral trade emission reduction agreements known as Internationally Transferred Mitigation Outcomes (ITMOs). In the COP29 summit held in Baku in 2024, Nepal signed a bilateral cooperation agreement with Sweden under the article.
The government has mandated that around 5 percent of credits should be reserved for Nepal’s own NDC commitments, and 10 percent of private sector carbon revenues generated will be allocated for the government. If a project is designed carefully, the measure could ensure carbon trading will support both national climate goals and public revenue.
The demand for carbon credits is increasing globally, with the voluntary carbon market alone projected to reach $50 billion. Cross-border mitigation transfers are expected to further increase this number. The countries that win from this wave will be those that comply with high-integrity market standards and establish clear rules. Nepal is already well-positioned to meet the expectations of global carbon buyers, given its significant natural advantages. Millions of tonnes of carbon are absorbed each year by community-led forests. Furthermore, Nepal’s electricity grid is arguably the cleanest energy source in South Asia, and the rapid shift towards electric vehicles and clean cooking—if well-documented and verified—can generate large volumes of credible emissions reductions.
In the same context, Dr. Maheshwar Dhakal, Chief Climate Change and Management Division remarked that the recently introduced carbon trade regulation provides a clear legal structure for carbon trading in Nepal. He explained that the document defines terminology, institutions, procedures, and guidance. He also stressed that the framework was deliberately designed to move beyond a forestry-focused approach. He was speaking at an interaction programme on Carbon Trade Regulation, 2082, jointly organized by SPI Nepal and Practical Action on 16 December.
Moreover, Dr. Dhakal said that the Regulation intentionally prioritizes non-state actors as the main drivers of carbon projects. While government-to-government cooperation under Article 6.2 of the Paris Agreement remains relevant, Nepal’s geography and development context are better suited to small- and medium-scale projects led by private companies, civil society organizations, and social enterprises. Banks and financial institutions are also considered part of the private sector and can engage in carbon trading, subject to their internal rules and national regulations.
Dr. Dhakal stated that foreign entities may participate in Nepal’s carbon market through joint ventures or partnerships, provided they are registered in Nepal and operate in compliance with Nepali law. This requirement is intended to strengthen domestic capacity and ensure accountability, while still allowing international expertise and investment to support project development.
Even on a conservative estimate, carbon revenues could generate at least 0.5 to 1 percent of the current GDP. However, achieving scalability is crucial across key sectors, including hydropower exports, electric mobility and waste management. As a low-income, climate-stressed economy that requires at least 10–15 percent of GDP investment in infrastructure annually, the revenue generated from carbon can significantly aid capital formation. It could help finance climate-resilient infrastructure and the energy transition without adding to public debt. (By R.P. Narayan)
