Carbon trading has created new opportunities for various groups, including entrepreneurs, farmers, and indigenous and tribal communities, who are already active in Nepal's forest conservation and renewable energy development.
What you should know
With the approval of the Carbon Regulations by the Council of Ministers, the private sector has also got the opportunity to trade carbon.
Experts have been saying that Nepal can benefit greatly from this as it is one of the countries with the lowest carbon emissions in the world. The investigation officer has spoken to Dr. Maheshwar Dhakal, Joint Secretary of the Ministry of Forests and Environment, on this issue.
The regulations on carbon trading have recently been made public by the Council of Ministers. However, there has not been much debate and discussion on this issue at the public level. What is carbon trading?
In simple terms, carbon trading is the trading of air. It was formally adopted at the Third World Conference on Climate Change (COP 3) in 1997. Nepal is also a signatory to it.
Carbon trading is a system where the amount of greenhouse gas emissions reduced or eliminated is measured as carbon credits and is bought and sold. Generally, if 1 metric ton of carbon dioxide or its equivalent is proven to have been reduced or stopped, one carbon credit is awarded. In this trade, countries or companies that emit a lot of carbon can buy credits from countries, companies or communities that emit less.
That is, those who reduce carbon emissions and increase reserves receive more credits and can sell them when they want. Carbon emissions can be reduced and credits can be increased through activities such as forest conservation, renewable energy, gas collection from waste, and agricultural-forest management.
How was the new carbon regulation prepared? What provisions does it contain?
Since some provisions under the Paris Agreement were yet to be passed, Nepal did not put much effort into making the regulation in the past years. But most of the provisions were passed last year. In such a situation, Nepal was in a position to lose many opportunities due to the delay in passing the regulation.
That is why we prepared it with high priority and presented it to the Council of Ministers. Nepal has signed the Climate Change Convention, the Kyoto Protocol, and the Paris Agreement as a party. Article 6 of the Paris Agreement provides for various mechanisms for carbon trading.
Under this, a country or company can buy and sell carbon credits with another country or company. This can be done in the market (market approach) or outside the market (non-market approach). Nepal can benefit greatly from this as it is on the list of countries with very low carbon emissions globally.
Earlier, only Alternative Energy Promotion Centers were allowed to trade carbon in Nepal. But with the enactment of separate regulations, the door to trade has opened for the private sector.
This has created new opportunities for various groups, including entrepreneurs, farmers, indigenous communities, and others who are already active in forest conservation and renewable energy development in Nepal.
In which sectors is there potential for carbon trading? What are our strengths?
Nepal has 46 percent forest area, which stores a lot of carbon . There are agricultural fields, grasslands and trees . According to our Nationally Determined Commitment (NDC), we have a target to produce 28,000 MW of hydropower within the next 10 years . Similarly, we have also prioritized solar and wind energy .
There is also the area of waste management . Similarly, converting traditional industries running on coal and petrol to electricity also reduces emissions and there is a possibility of increasing carbon credits. There is a great potential for us to benefit from these areas .
Its benefits are numerous . Along with earning foreign exchange it also provides an opportunity to reduce air pollution and reduce petroleum imports .
What is the process for the private sector to trade carbon?
The private company applies to its line ministry (such as energy or agriculture) with a concept note . The concerned ministry sends the application to the Ministry of Forests . The committee here reviews.
Once approved, we give permission, which allows the private company to prepare a detailed project report. The DPR clearly states how many metric tons of carbon will be traded, how it will be stored, which international company will sell it to, and who in the community will buy it from. This is evaluated and verified by a third party and recognized by the UNFCCC.
Then trading can take place. The company that emits the most in the international market pays the company that stores the most.
Local communities and farmers can also be involved in this process—for example, a company can connect 1,000 farmers and get credits for the trees they plant, sell them on the international market, and provide co-benefits to the farmers.
How does this contribute to climate justice?
Its main goal is to reduce greenhouse gas emissions, develop a green economy based on hydropower and other renewable energy, and contribute to limiting temperature increase to within 1.5 degrees as set by the Paris Agreement. Climate justice and sustainable development are crucial to achieving all these goals.
If carbon trading is properly implemented, indigenous communities, local residents, community forest groups and farmers can co-benefit by selling carbon credits generated from their protected forests, agroforestry, clean stoves, waste management or renewable energy, which contributes to sustainable development.
