16 December 2025, NIICE Commentary 12173
Diya Khadka
The World Bank’s Forest Carbon Partnership Facility (FCPF) granted Nepal a historic $9.4 million payment for cutting 1.88 million tons of CO2 in the Terai Arc Landscape as part of the REDD+ Emission Reductions Program. This marks the first payment under the program’s Emission Reductions Payment Agreement and represents a major milestone in Nepal’s fight against deforestation. The payment recognises Nepal’s success in sustainable forest management and its community forestry model. Beyond climate benefits, this achievement shows Nepal’s progress in protecting biodiversity, strengthening forest governance, and its dedication towards supporting rural communities. It also demonstrates Nepal’s growing capacity to deliver measurable climate results, enhancing the country’s position in international climate discussions.
The REDD+ (Reducing Emissions from Deforestation and Forest Degradation) framework offers incentives to developing nations that preserve and sustainably manage their forests. The framework allows nations to generate carbon credits by reducing emissions. This approach links forest protection to financial gains. The initiative in Nepal is notable for its community forestry model, which is highly esteemed worldwide. Nepal has set ambitious climate targets, such as the Net-Zero emissions strategy 2045. Meanwhile, countries like Japan, South Korea, Singapore, and the GCC nations are significantly boosting the global market for carbon credits. In this context, Nepal’s forests are viewed as strategic assets, extending beyond their traditional roles as just ecological resources.
Why this Matters for Nepal’s Foreign Policy
Nepal has the potential to establish itself as a climate leader in the Himalayan region if it receives international payments for forest protection, such as the USD 9.4 million from the FCPF. Evidence from the REDD+ pilot project in three watersheds demonstrates that community-based forest management enhanced the lives of marginalised groups, such as low-income families, and strengthened local governance in addition to increasing forest carbon stocks. Due to these quantifiable environmental and social results, Nepal can translate its environmental achievement into diplomatic influence and soft power in the global forum.
Nepal’s progress in reducing carbon emissions makes it easier to form bilateral carbon offset agreements with countries seeking emission offsets. Japan’s Joint Crediting Mechanism (JCM) provides Nepal with a chance to draw in investment and technology transfer. Collaborations like these could improve Nepal’s economic resilience, increase sustainable livelihoods, modernise forest management, and raise its diplomatic profile, while also maintaining a sustainable forest ecosystem.
Nepal can demand more ambitious climate finance from the international arena, so as to compensate for damages caused by climate change, and a fair carbon market regulation because of its observable carbon reduction results. Nepal can negotiate from a position of evidence-based strength rather than just by demonstrating delivery capacity, which increases its voice among developing nations.
Opportunities and Risks
Nepal has several prospects through REDD+ and carbon funding. Well-managed forest conservation not only generates income through carbon credits but also improves ecosystem services like biodiversity, water management, and soil protection. In addition to supporting capacity-building in forest governance, MRV (Monitoring, Reporting, Verification) systems, and institutional management, carbon financing draws private investment and long-term funding for conservation programs. If Nepal combines its measurable carbon reduction with inclusive benefit-sharing for marginalized populations, it can boost its diplomatic impact.
However, there are significant risks involved. Poor governance and unclear or ambiguous carbon rights could lead to a situation where the elites gain significant advantages, excluding the marginalized and disadvantaged groups, while market volatility could further threaten revenue sources. Therefore, to maximise Nepal’s potential and minimise the risks, effective design, transparent monitoring, and fair benefit-sharing are essential. Additionally, looking at forest resources merely as carbon credit commodities overlook their ecological and cultural importances.
Motions for Policy
Nepal should build policies to initiate steps for creating a National Carbon Trading Strategy with precise guidelines for ownership, pricing rights, and revenue sharing. Similarly, focus should be shifted toward the establishment of a National Carbon Diplomacy Taskforce to coordinate efforts between the Environment Ministry and the Ministry of Foreign Affairs.
Nepal must actively engage in negotiations with nations that are committed to climate change, such as Singapore, Japan, and EU member states. Nepal must call for equitable distribution of benefits to local communities by empowering Community Forest User Groups (CFUGs) and implementing payment transparency.
More than merely a financial milestone, the USD 9.4 million payment from the World Bank’s Forest Carbon Partnership Facility is an example of Nepal’s growing ability to deliver verifiable and quantifiable climate outcomes. These achievements are more than just environmental gains for a small nation like Nepal; they serve as political leverage that can be utilised in international diplomacy. Nepal can transform its forests into assets of foreign policy, which would help in the enhancement of credibility, soft power, and bargaining capacity in global climate forums. It would be achieved through the demonstration of tangible reductions in CO2 emissions through its community forestry and REDD+ projects. Nepal needs to strengthen its climate diplomacy skills, clarify its carbon governance laws, and reinforce institutional frameworks to make the most of this opportunity. By integrating strategic international engagement with effective domestic forest management, Nepal can ensure that carbon finance leads to sustainable development, regional cooperation, and enduring diplomatic influence.
Diya Khadka is a Research Intern at NIICE.
