Greenbacks for greenery

Earlier this month, Nepal received Rs1.6 billion from the World Bank as part of its Forest Carbon Partnership Facility (FCPF), rewarding the country for increasing its carbon sink capacity.

Nepal is the first in South Asia to benefit from this facility, and it is specifically to recompense the country for increasing forest cover in 13 Tarai districts between 2018-2024.

“We are also trying to get another Rs13 billion from the facility while also preparing for free market-based carbon trading in the international market,” says Nabaraj Pudasaini of the REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) Implementation Centre.

Big emitters of greenhouse gases are under pressure to reduce their carbon emissions, and many have signed agreements to do so by investing in decarbonisation projects in developing countries. Countries that emit more than a specified amount of carbon would be able to buy emission rights from countries that emit less.

Nepal is internationally known for its community forestry program which has been largely credited for increasing tree cover to over 45% in less than three decades. But this achievement had not been adequately recognised or rewarded internationally before.

Forests, especially in the tropics, absorb and store large amounts of carbon while releasing oxygen in a process known as photosynthesis. Preventing deforestation and increasing canopy cover is considered a much more achievable goal than reducing emission in the scale necessary to limit global average temperature to 1.5°C above pre-industrial levels.

COP11 in Montreal in 2005 first proposed reducing carbon emissions by improving forest quality by halting degradation. By 2015, a new mechanism of financial assistance was created to help less developed countries with sustainable management of forests (called REDD+).

Under this new mechanism, countries receive aid based on their efforts to prevent forest degradation and increase carbon sink, and in 2021 the World Bank was entrusted with implementing it.

Nepal’s FCPF receipt this month was calculated on the basis of 2.4 million tons of carbon stored at a rate of $5 per ton. In the second phase, Nepal will receive more than Rs4 billion within the next year for storing an additional 7 million tons of carbon. Eighty per cent of this amount obtained from carbon trading needs to be spent on local beneficiaries and indigenous communities. 

But carbon trading is not easy, Nepal needs to prove that protected forests will not be destroyed in future.

Explains carbon trading expert Yugan Manandhar. “Forests should be handed over to the community and shown that they are managed sustainably. Proving this will be particularly challenging; forest encroachment and degradation is rife in the Tarai.”

Deliberate forest fires have also added to the challenge because they increase carbon emissions and reduce the sink capacity of forests.

The basis for the amount that Nepal received was set five years ago by calculating the carbon reserves of forests in the 13 Tarai districts. In the meantime, sustainable forest management, tree plantation, forest destruction and erosion control were prioritised to increase carbon reserves in those forests.

Nepal is signing another carbon trading agreement during the ongoing Baku climate conference. The Lowering Emissions by Accelerating Forest finance (LEAF Coalition) proposes to sell the carbon stored in the forests of Bagmati, Gandaki and Lumbini provinces.

For this, Nepal signed the letter of intent three years ago at COP26 in Glasgow. The target is to store 70 million tons of carbon in 32 million hectares of forest in the three provinces per which Nepal will receive Rs13 billion in four years at $10 per ton with provisions to increase the rate if various conditions are met.

However, the agreement in itself doesn’t guarantee the amount. According to the targets set by Nepal, forest degradation should be stopped and carbon reserves increased by protecting tree cover.

Preparations are also underway for clean air carbon trade because it has offset fossil fuel use by introducing 30,000 electric vehicles. Nepal has been selected for the first round to receive $40 million within one and a half years through the Clean Air System of the World Bank.

Given that most of Nepal’s energy mix is from biomass, replacing them with electric stoves can significantly improve health by reducing indoor pollution as well as strengthen the country’s capacity for carbon trade.

“Nepal's goal now is to sell carbon in the free market where carbon credits are bought and sold based on supply and demand in an open and transparent manner,” adds Pudasaini of the REDD Implementation Centre. “Nepal can now set its own price and bargain with interested buyer countries and organisations.”

Lately, India has been discussing setting up a carbon market. Nepal has exported Rs12.72 billion worth of electricity to India so far this fiscal year, which can be traded under Nepal’s carbon market.

“Carbon trading can create significant economic benefits for Nepal, which will help reinvest in development and environmental protection projects,” says Manandhar. “But we must prioritise sustainable management of forests, cutting older trees and allowing regrowth as well as promoting electric stoves and electric vehicles.”