Nepal’s Climate Finance Landscape – Brief Overview

– ASMITA RAWAT

Overview

Climate finance remains one of the cornerstones in Nepal’s battle against climate change. Given the country’s highly vulnerable landscape and geography, it facilitates both mitigation and adaptation efforts. Despite signing international commitments and formulating a robust policy framework, Nepal still grapples with effectively accessing and utilizing climate funds.

Policy and Institutional Setup

Nepal has developed a robust policy integrating climate concerns into its development agenda. Formulation of the Climate Change Budget Code, National Adaptation Plan (NAP), National Climate Change Policy (NCCP), and Climate Change Finance Framework (CCFF) clearly reflect Nepal’s commitment to mainstreaming climate adaptation and mitigation measures across sectors in the country with developmental priorities. The Climate Resilient Planning and Budgeting Guideline, developed within Nepal’s NCCP framework, integrates climate resilience into national and local development planning and budgeting. 

Domestic sources of climate finance comprise budgetary expenditures and grants from national budgets, and investments from private entities. International sources encompass multilateral and bilateral donors such as the Scaling Up Renewable Energy Program in Low-Income Countries, the Pilot Program for Climate Resilience, the UK and EU, the National Climate Change Support Programme, and the US’s fast-track financing initiative. A dedicated account exists within the Nepal Rastra Bank to manage these funds. The Ministry of Forest and Environment (MoFE) (previously the Ministry of Science, Technology and Environment) and the Ministry of Finance are key ministries that oversee Nepal’s climate finance landscape. As the United Nations Framework Convention on Climate Change (UNFCCC) focal point for Nepal, MoFE coordinates with all related local ministries and development partners to allocate resources and manage climate change responses.

Bottlenecks in Accessing Climate Finance

Navigating the climate finance landscape in Nepal is challenging primarily due to the complexity of financial mechanisms and the unclear definition of ‘climate finance.’ This obscurity in definition makes it difficult to coordinate and align contributors’ interests with national priorities, hindering the effective allocation of the available funds. One such controversy arose with Nepal’s acceptance of a USD 100 million loan under a concessional financing agreement from the World Bank to support ‘Green Resilient and Inclusive Development’. The debate centered on whether such loans should be considered true climate finance, with concerns about transparency and fairness in the allocation process. Secondly, institutional barriers, such as the absence of inter-agency relationships to deal with cross-cutting issues and inadequate means and resources, constrain the implementation of climate programs and policies. Thirdly, limited nationally accredited agencies to access international climate funding has made it difficult for Nepal to draw global climate finance. Fourthly, the deficit of climate-related datasets fails to reflect the wavering impacts of climate change, which impact the development of necessary programs and projects to mitigate the impacts.

India and France launched the International Solar Alliance (ISA) in 2015 to address key challenges related to solar energy deployment globally. ISA seeks to promote solar energy adoption, reduce dependence on fossil fuels, and mitigate climate change by facilitating cooperation among solar-resource-rich countries located between the Tropics of Cancer and Capricorn. As of 2022, ISA has garnered support from over 120 countries. One of the notable achievements of ISA is securing a billion-dollar fund from the Green Climate Fund (GCF) to support solar energy projects in member countries.

Recommendations

Nepal’s journey towards effective climate finance utilization and sustainable development requires a multifaceted approach. While the country has made significant strides in policy formulation and resource allocation, challenges persist in navigating the complex financial landscape and ensuring equity in climate finance distribution. By integrating climate concerns into national policies and fostering collaboration with diverse stakeholders, Nepal can pave the way for a resilient and sustainable future.

Some of the actions that Nepal can take to address the aforementioned challenges are as follows:

1. Develop clear national guidelines that define climate finance instruments to help align national priorities with the interests of international contributors.
2. Establish a centralized unit within the government responsible for coordinating climate finance activities. This unit should liaise with all relevant ministries, international donors, and local stakeholders.
3. Seek technical assistance to strengthen institutional frameworks and processes for managing climate finance.
4. Support private sector and national agencies in gaining accreditation from major international climate funds (e.g., Green Climate Fund, Adaptation Fund).
5. Establish national platforms for sharing climate data among stakeholders, ensuring transparency and accessibility for project planning and implementation.