- Nepal is the first country in Asia to sign an agreement potentially worth $55 million with the LEAF Coalition to reduce emissions from deforestation across three provinces.
- Experts and community representatives emphasize the deal’s success hinges on local people’s access, transparent funding, strong safeguards and inclusive benefit sharing.
- While communities push for 80% of the funds to go directly to forest communities, bureaucratic processes, administrative fees and gaps in coordination and capacity could limit direct access, echoing lessons from Nepal’s previous REDD+ programs.
KATHMANDU — Nepal signed an agreement with the LEAF Coalition on Jan. 23, becoming the first country in Asia to secure a deal expected to potentially deliver $55 million in carbon finance to support forest-dependent communities.
However, carbon trade experts and forest group members say that ensuring the money reaches communities remains a challenge, as this is relatively uncharted territory for Nepal. Also, the agreement’s impact will depend on how transparently the funding is utilized, how strong the safeguards are and how meaningful the inclusion of Indigenous and forest-dependent communities is in decision-making and benefits sharing.
“The achievement truly demands a transparent process for communities to access the money and participation of forest communities at the decision-making level,” Buddha Gharti Bhujel, senior vice chair and REDD focal person at the Nepal Federation of Indigenous Nationalities (NEFIN), told Mongabay.
As part of the agreement with LEAF — a public-private initiative involving the governments of Norway, the United Kingdom, the United States and the Republic of Korea, along with more than 30 companies — Nepal aims to reduce emissions from potential deforestation across Gandaki, Bagmati and Lumbini provinces.
“Through the agreement, we are working to ensure forest-dependent communities are paid for their significant roles in forest protection ensured for the period of 2022-2026,” said Nabaraj Pudasaini, joint secretary and chief of the REDD Implementation Center (REDD IC), the agency leading Nepal’s jurisdictional REDD+ program.
Forest cover now accounts for more than 44% of Nepal’s land area. Pudasaini said his office is planning consultations with Indigenous and local communities to finalize safeguards, grievance mechanisms and a benefit-sharing plan. The office plans to finalize all of the aforementioned details in the coming months.
Carbon finance mechanisms link payments to verified emissions reductions from forest conservation. Nepal, which aims to reach net-zero emissions by 2045, views carbon markets as an important tool for financing forest protection while supporting local livelihoods. The federal government recently issued a new guideline to regulate carbon trade defining the process and priorities.
Under the LEAF Coalition framework, with credits issued under Architecture for REDD+ Transactions, pathway 1 provide results-based finance without transferring credit ownership, and the host country keeps the emissions reductions in its nationally determined contribution (NDCs). Pathway 3 transfers ownership, but the host country still counts the reductions in its NDCs because there is no corresponding adjustment, and pathway 4 transfers ownership with a corresponding adjustment so only the buyer counts the reductions toward climate targets or NDCs.
Pudasaini told Mongabay that the parties recently decided to sell 25% of carbon credits under Pathway 1, 50% under pathway 3 and 25% under pathway 4 respectively. “Only under pathways 1 and 3, Nepal can count reductions to meet its NDC targets,” he said. “We have also come up with 11 major activities/interventions the money will fund to ensure forest protection under Emission Reductions Purchase Agreement (ERPA).”
Nepal previously received $9.4 million from the Forest Carbon Partnership Facility for reducing approximately 1.9 million tons of CO₂ under its REDD+ Emission Reductions Program in 13 districts of the Terai Arc Landscape, a major biodiversity region.
While the government seeks to scale up carbon finance, analysts say lessons from earlier programs highlight governance and capacity gaps that could affect implementation.
Dil Raj Khanal, a lawyer involved in drafting the benefit-sharing plan, said communities across the three provinces differ widely in geography, institutional structures and knowledge of carbon markets. “Without building community capacity and securing Indigenous and local tenure rights, the agreement will struggle to meet its goals,” he said.
Bhujel said NEFIN plans to tackle these issues through consultations on benefit-sharing mechanisms and fund access. The government has identified nine customary institutions across the three provinces, but he noted that many more exist.
“In remote areas, many communities lack technical knowledge about accessing funds, so the process must be simplified,” he said.
style=”font-size: 16px;”>Parbata Gautam, secretary-general of the Federation of Community Forestry Users Nepal, said the federation, in collaboration with NEFIN, has completed initial consultations and capacity-building programs in 100 local units.
“Our major concern is making funds accessible to diverse forest communities,” Gautam said, adding that further consultations will determine how communities apply for funding.
Pudasaini said the financing structure broadly follows Nepal’s earlier REDD+ model, although Emergent, a US non-profit and coordinator of the LEAF Coalition mobilizes finance under the LEAF framework. Emissions reductions will be validated through the TREES standard developed by Architecture for REDD+ Transactions.
While 80% of the funds going to communities through the Forest Development Fund (FDF), the government’s designated entity for forest carbon transactions, is yet to be decided, Khanal noted that routing funds through the national treasury system could slow distribution. In addition to 20% allocated for administrative costs, he said the FDF may deduct another 10% in operational costs.
“The funds in earlier programs have sometimes remained unspent, raising transparency concerns,” Khanal said.
Ek Rana, a REDD+ expert, told Mongabay that roughly 70% or less of the total funding may ultimately reach beneficiaries, without clarity on how much would go directly to communities.
The concerns are not limited to Nepal. Research on REDD+ initiatives across Asia points to persistent coordination gaps among institutions and limited transparency in benefit-sharing systems.
Rana, a co-author of the study, said the new agreement gives an opportunity to better reward communities for protecting forests but warned that both planning and implementation bottlenecks remain.
“Despite the potential to offset more carbon, Nepal underachieved in its first REDD+ project,” Rana said. “Those lessons need to inform this phase.
Banner image: A sacred forest protected by Indigenous Magar community in Siluwa Village of Palpa District in Nepal. Image by Sonam Lama Hyolmo/Mongabay.
Citation:
Aryal, K., Maraseni, T., Rana, E., Subedi, B. P., Laudari, H. K., Ghimire, P. L., … Timilsina, R. (2024). Carbon emission reduction initiatives: Lessons from the REDD+ process of the Asia and Pacific region. Land Use Policy, 146, 107321. doi:10.1016/j.landusepol.2024.107321
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