Environment and Forest Rules have thwarted stakeholders' attempts to enter the market, despite the significant interest they have demonstrated in participating in the voluntary carbon market in Nepal. Except for carbon offset projects on biogas (waste handling and disposal), Nepal has not been able to take advantage of the global carbon market despite having scope for Greenhouse Gas (GHG) emission reductions and/or removals from various sectors.

The voluntary carbon market (VCM) is a decentralized market where private actors (individuals or firms/organizations)voluntarily issue, buy and sell carbon credits that represent certified removals or reductions of GHGs in the atmosphere, outside regulated or mandatory carbon pricing instruments.

The VCM aims to mitigate climate change by creating space for private actors to finance activities that remove GHG emissions from the atmosphere or reduce GHG emissions associated with industry, transportation, energy, buildings, agriculture, deforestation, or any other aspect of human life.

The VCM can mobilize foreign direct investment for climate change mitigation and sustainable development that is not provided through regulation. The VCM provides financing for climate mitigation projects that are complementary to governments’ efforts to mitigate climate change, and, in the case of jurisdictional reducing emissions from deforestation and forest degradation (REDD+) programs, to government mitigation initiatives.

The Environment Protection Act, 2019 (2076) and the Environmental Protection Rules 2020 serve as the legal framework for Nepal's present carbon trading. The majority of the laws' clauses make it difficult fornon-state parties to participate in the voluntary carbon trade (market).

Similarly, Climate Change Policy sets up Alternative Energy Promotion Center, which has initiated activities relating to Clean Development Mechanism (CDM) by establishing a Climate and Carbon Unit.

A meeting attended by over 12 different stakeholders, including representatives from NGOs, INGOs, the private sector, and hydropower companies, agreed to form an association to facilitate interaction with the government and to provide a unified voice.

They also agree to expand non-state actors' access to Voluntary Carbon Markets (VCMs). They shared their views on current carbon trade acts and regulations, as well as the formation of an association to increase lobbying on agendas 1) to increase access in VCM of non-state actors and 2) revision of current acts and regulations on carbon emission trading to include VCM and non-state actors’ access to VCM.

Mohan Das Manandhar, Chairperson of SPI-Nepal moderated the discussion, which underlined the critical need for consistent information on carbon offset projects and market access procedures to the Voluntary Carbon Market. He stated that all stakeholders must take a unified stance on voluntary carbon trading.

Manandhar stated in his introductory remarks that there is a need to begin communication with the government in order toallow non-state participation in voluntary carbon exchange.

The lack of clarity in government policy on the Voluntary Carbon Market especially carbon offset projects was highlighted during the discussion. The problem of double counting was one of the issues as a direct result of this uncertainty.

The decision was made to form an association to further the goals of increasing non-state actors' access to Voluntary Carbon Markets and assisting the government in modifying legislation and regulations related to carbon project development and carbon trade.

Purushottam Ghimire, SPI Nepal's Senior Advisor, will coordinate and engage with the government for supporting government to review and modify the rules.The meeting also decided to obtain the services of a consultant/researcher to prepare a note explaining the concerns and interventions required.

UNDP would lend its support to debates and seminars aimed at involving the government at all three levels. Once the note is finalized, it will be shared with the government, and articles will be published on VCM.

Following the completion of the consultant's note, a planning meeting to create the framework would be held. Developing recommendations and revising present legislation to define the roles of state and non-state actors.

The establishment of an association to advocate for the inclusion of VCM concepts into Nepal's laws and acts is a significant step toward increasing non-state actors' access to the VCM.

The meeting agreed that the establishment of a Voluntary Carbon Market Association in Nepal has the potential to create a more vibrant and robust market for carbon offset projects and sustainable development initiatives. By expanding non-state actors' access to voluntary carbon markets, the association can contribute significantly to Nepal's efforts in addressing climate change and promoting sustainable development.

In his remark, Purushottam Ghimire of SPI-Nepal stressed the need to revise norms and provisions. He also remarked that the regulations should be revised consistently as the standards of carbon trade is improved.

One of the key outcomes of the COP26 climate summit in Glasgow was the approval of Article 6 – the Paris Agreement’s rule book governing carbon markets.

Carbon markets incentivize climate action by enabling parties to trade carbon credits generated by the reduction or removal of GHGs from the atmosphere, such as by switching from fossil fuels to renewable energy or enhancing or conserving carbon stocks in ecosystems such as a forest.

It is estimated that trading in carbon credits could reduce the cost of implementing countries’ Nationally Determined Contributions (NDCs) by more than half – by as much as $250 billion by 2030. In other words, carbon trading could facilitate the removal of 50% more emissions (about 5 gigatons of carbon dioxide per year by 2030) at no additional cost. Over time, markets are expected to become redundant as every country gets to net zero emissions and the need to trade emissions diminishes.

The participating organizations include, Urja Developers, Practical Action, SAHAS Foundation, AjummeryBikas Foundation, Renewable World, Ridi Power Company, UNDP, Spotlight, Sustainable Environment Foundation, SPI Nepal and Clean Cooking Alliance.

With the engagement of different groups, SPI-Nepal's proposal has the potential to make voluntary carbon trading a reality

What Is VCM?

The direct regulators of the VCM are private carbon standard organizations, which are, in most cases, international NGOs. The standard organizations set requirements of GHG crediting programs that projects and Programs must fulfill to generate tradable carbon credits. Governments may regulate the VCM, by formulating social or environmental project standards (safeguards), defining carbon rights and benefit sharing ȵequirementsً or linking the VCM to Paris Agreement commitments, compliance carbon markets or other carbon pricing schemes.

Sellers generate voluntary carbon credits to finance activities that reduce the release of new GHG emissions to the atmosphere or remove emissions already in the atmosphere. Buyers use VCM carbon credits to directly offset their GHG emissions against a voluntary or compliance emission reduction target, or to contribute to broader corporate or public climate goals to reduce GHG emission overall by buying credits without offsetting.

The final users of most VCM carbon credits are private companies that voluntarily engage in climate mitigation to offset their GHG emissions or to achieve broader corporate climate goals. Governments, non-government organizations (NGOs), and individuals also buy VCM carbon credits to offset emissions from flights, events or the production of goods and services. Activities, products, or services that offset GHG emissions are often marketed as carbon-neutral.’

The meeting argue that by promoting voluntary carbon markets and climate action, Nepal's non-state actors can align their efforts with international climate goals, such as the Paris Agreement's targets. This alignment can enhance Nepal's global reputation as a responsible participant in the fight against climate change.