How Nepal can finance climate action

A key component of international climate negotiations is finance for adaptation measures, and like other developing countries, Nepal faces difficulties in this regard. The next climate summit (COP 28) in Dubai 30 November – 12 December will be crucial to make the country’s concerns clear.

The Conference of the Parties (COP) is an annual conference under the United Nations Framework Convention on Climate Change (UNFCCC) and brings together member nations for coordinated response to address global climate breakdown.  

Although it is a forum for nations to assess and revise climate commitments and foster international cooperation, the summits face political and economic obstacles in securing funding for low-income nations to adapt and pay for loss and damage from the climate emergency.

Earlier COPs have set emission reduction targets, non-binding national commitments as well as the need for support from wealthier countries to deal with impact of weather extremes on developing nations. Within this framework, cross-border carbon credits can act as a reward for Nepal's early commitment to emissions reduction and expanding forest cover.

Since industrialised countries are largely responsible for historical emissions, they are expected to provide financial support to developing countries to transition to cleaner fuels. Climate finance can take the form of grants, subsidised loans, technical assistance. However, there are complex discussions around climate funding, and developing nations including Nepal have expressed concerns about promises not kept, inadequacy of pledges, lack of equitable distribution and transparency, as well as redressal for loss and damage from climate impact.  

As far back as 2009, Copenhagen Climate Conference set a fund-raising target of $100 billion a year, these pledges remain largely unfulfilled, even as the rise in global average temperatures, the loss of sea ice and wilder weather are being experienced decades earlier than predicted.  

Nepal faces many distinct challenges to reduce petroleum use, adapt to climate change and pay for loss and damage. The country’s ability to invest in resilient infrastructure is limited. Expanding glacial lakes, melting permafrost, floods, landslides, glacial lake outburst floods and springs going dry pose a growing risk to lives and livelihoods.

Farmers dependent on rain-fed subsistence agriculture now have to deal with erratic monsoons and irregular rainfall. Changing precipitation patterns and glacier melt are making hydropower less reliable, and major infrastructure has been damaged and destroyed by freak floods on Himalayan rivers.

Although Nepal has expanded forest cover to 45% of its area, doubling it in the past 30 years, there is a limit to sink capacity especially in the Tarai. Poor urban planning, settlements in high-risk areas and low public awareness of vulnerabilities as well as political instability leading to governance shortcomings hinder meaningful adaptation measures.  

Building on the 2015 Paris Agreement's objectives to keep global warming to 1.5 Celsius by 2050, the COP26 Climate Summit in Glasgow produced the Glasgow Climate Pact. Strengthening of Nationally Determined Contributions (NDCs), an emphasis on adaptation, funding for developing countries, and addressing loss and damage. Member states pledged $356 million to the Adaption Fund, and $450 million was offered for local adaption. COP27 in Egypt last year was criticised for not doing enough to advance larger climate goals, but acknowledged the need for money to remedy loss and damage for climate-induced disasters.

In Dubai, Nepal must forcefully back demands for additional climate finance from industrialised nations especially for infrastructure and renewable energy projects. It should also push for a multilateral agreement to implement a loss and damage mechanism because climate-related harm already poses a serious threat.

Placing a price on carbon emissions, carbon taxes, and other pricing mechanisms are based on the ‘polluter pays’ principle. Fossil fuel taxes encourage consumers to minimise emission by raising the cost of using them. On the other hand, cap-and-trade systems place a limit on emissions and permit companies to exchange emission allowances, causing emission reductions in the areas where they are most advantageous.

These instruments work together to constitute a toolset for reducing emissions, along with financial incentives for renewable energy sources, legislative requirements, carbon offsetting, voluntary carbon markets etc.

A cross-border carbon credit framework can be a method to jointly tackle emissions between India, China, and Nepal in compliance with the COP resolutions and the principles of climate justice. Nepal has pledged to achieve net-zero emissions by 2045, which puts it ahead of China (2060) and India (2070). Nepal’s giant neighbours can be partners in assisting Nepal’s transition to clean energy.

In exchange, India and China could receive credits from Nepal's own carbon reduction efforts. This cooperative model would also support technology transfer, capacity building, and even control trans-boundary air pollution. The continued heavy reliance of China and India on coal and other fossil fuels highlights the necessity of such regional cooperation, while upholding international climate obligations.

COP28 in Dubai is expected to yield significant financial assistance for developing countries like Nepal. The summit's main objectives are transparency, responsibility, and enhanced obligations in the distribution of climate finance. In addition, Nepal and other developing countries expect to be compensated for action they have already taken on clean energy and expanding forest cover.

Combating climate change necessitates concerted effort, financial backing, and efficient laws. As one of the countries most vulnerable to the climate emergency, Nepal should take the lead in global negotiations. After all, melting ice in the Himalaya will not just affect Nepal, but impact more than 1 billion people downstream.

But most importantly, COP28 is an opportunity for Nepal’s delegation in Dubai to push for adaptation and loss and damage fund.

Govind Ghimire is Deputy CEO of NMB Bank.