+977 9801193336

Tag: Climate Finance

OP-EDs and Columns

Nepal Needs to Invest in Climate-Resilient Infrastructure

– ANUSHA Basnet

The opinion piece originally appeared in the 2022 November Issue of New Business Age Magazine. Please read the original article here.

As a developing country in the global south, Nepal is one of the most vulnerable countries to climate change. Various reports have shown that it is often the lower-income countries that are at greater risk due to climate change as they have a lower capacity to adapt to the changes. While Nepal only contributes 0.027% of global greenhouse emissions, it is positioned high on the list of countries most vulnerable to the impact of climate change.

According to a report from the Asian Development Bank (ADB), Nepal could lose up to 2.2% of its annual GDP by 2050 due to the impact of climate change. The country has already begun to see the devastating effects of climate change like decreasing agricultural output, change in crop rotation, change in rainfall patterns leading to an increase in frequency of natural disasters including droughts, floods and landslides resulting in great loss of lives and properties. As a result, the government has been acting to ensure that the negative effects of climate change are minimised. The country is part of the Paris Climate Agreement and the government has been working to meet the Sustainable Development Goals by 2030. Investing in climate-resilient infrastructures is a major step that can be taken by the government to tackle this problem. Multilateral agencies such as the World Bank and the ADB have also been providing financial backing to the country for adaptation to climate change.

Climate-resilient infrastructure includes infrastructure that has been designed and built to prepare and adapt to the changing climate conditions. With climate-resilient infrastructure, the danger of risks emanating from climate-related disasters is reduced. It is important to note that building climate-resilient infrastructures will not completely stop the impact of climate change, but it will greatly mitigate the risks posed by climate change. In terms of impact from climate change, the rise in average temperature causing heat waves, the change in rainfall patterns leading to droughts, floods, and rainfall, and the threats of glacier lake outbursts are the few major threats that Nepal currently faces. The current and future infrastructures being built in the country should take these factors into account and build infrastructure that can minimise the damage caused by these threats. It is especially important for climate resiliency to be taken into account while developing new infrastructure projects because the government has been increasing investment in the infrastructure sector with an aim to accelerate the economic growth of the country.

Major infrastructure projects such as Nagdhunga tunnel, Sikta Irrigation Project and West Seti hydropower project are all under construction or are slated to start construction soon. If climate change effects are not taken into account for these projects, then the investment made into these projects may end up going to waste. Thus, factors such as the increase in temperature, the water level at river sources, and glacial movements should all be taken into account before starting these mega projects.

Climate resilience also includes the maintenance of the existing infrastructure so that they are less vulnerable to the impacts of climate change. Floods and landslides have been causing extensive damage to different infrastructure in the country. While rebuilding these damaged infrastructure, climate resilience should be taken into account. Some things that can be done include building proper drainage systems to decrease the impact of flooding, rebuilding roads that can withstand higher temperatures, and rebuilding residential buildings with adequate ventilation to combat the effects of rising temperatures. Building infrastructures that can support the growing population of urban areas including roads, proper drainage systems, and waste management systems was a major topic of discussion at the recently held Nepal Infrastructure Summit 2022.

As rising temperatures and subsequent droughts will increase the demand for water for irrigation and drinking purposes, reservoirs should be built to address these problems. The government should also increase the monitoring of the current infrastructure systems so that required maintenance can be done on time. The government and the private sector are also eyeing green hydrogen as an alternative to petroleum products and chemical fertilisers.

Multilateral partners have been providing support to Nepal for building infrastructures that are climate resilient. Recently, Nepal and the World Bank signed a concessional financing agreement for $100 million for Green, Resilient, and Inclusive Development (GRID) with an aim to support the sustainable and productive use of natural capital and resilience of urban and rural areas. Two further instalments of funds are slated to be available through this agreement. Asian Development Bank has also provided financial support to the government for tackling climate change. Last month, the bank provided $70 million in loans to improve livelihood and climate resilience of 30,000 horticulture farmers across five provinces. During his visit to Nepal in March 2022, ADB’s Director General for South Asia Kenichi Yokoyama mentioned that the bank would maintain financial support amounting to $500- 600 million per year for the next three years for supporting the government’s aim of achieving sustainable growth.

Although the government has taken steps to create climate-resilient infrastructure in the country much is yet to be done especially in regards to management of the climate resiliency of the existing infrastructure. In addition to focusing on the climate-resiliency of newer infrastructure projects, the government needs to create solution-oriented policies that can minimise the negative impact of climate change on existing infrastructure. Further, instead of just taking loans from the development partners, the government needs to find other sources of funding as the burden of paying the debt is ultimately passed on to citizens impacted by climate change.

The concept of climate reparations could be applied here. The concept is a call for money to be paid by Global North to Global South to address the historical and current contributions made by Global North to cause climate change. Thus, the Nepal government could evoke this concept to request the development partners to provide grants instead of loans to combat the negative impact of climate change. Mobilising domestic funding through implementation of green financing can also be another option of raising funds.

OP-EDs and Columns

Renewable energy and Nepal

– NISCHAL Dhungel* and SISIR Bhandari

Dhungel is a non-resident fellow at NIPoRe. The opinion piece originally appeared in The Kathmandu Post on 30 October 2022. Please read the original article here.

In the current context of climate change, where global movements towards renewable energy are gaining momentum, the world’s attention is shifting to doubling renewable energy resources. The world has witnessed a significant rise in the production of renewable resources from 941 terawatt hours in 1965 to 7,931 terawatt hours in 2021. In this context, Nepal, with more than 6,000 rivers and rivulets, can become a bedrock of energy security for South Asia. The country’s untapped hydropower can play a significant role in future energy supply as it is an affordable and renewable source of electricity with few environmental effects. It can significantly reduce the carbon footprints of neighbouring giants and one of the most populous countries, Bangladesh.

Nepal has declared Energy and Water Resources Decade (2018-28) to implement the Roadmap for Energy Development. Nepal has now become self-sufficient in electricity production, producing 11,064 GWh in 2022, a significant jump from 4,258 GWh in 2013. The roadmap promotes generating and using electricity, intending to increase production, consumption and national income by selling energy. With the rise in electricity output, today, 93 percent of the population has direct access to electricity. The government has aimed for 100 percent energy access by the fiscal year 2022-23.

Arun 4 (capacity 490.2 megawatts), West Seti (750 megawatts), Arun III (900 megawatts) and Lower Arun (769 megawatts) are major hydropower projects which will start distribution between 2030 and 2035. There has been increased production and export of energy and a reduction in energy imports. Where should we use this surplus energy? The ideal answer would be using it to replace traditional or non-renewable energy. Nepal has also become the first country in South Asia to participate in the Indian Energy Exchange from which it aims to expand trading in South Asia. Today, 14.1 percent of the country’s total imports consist of petroleum products which can be easily substituted by electricity. Nepal’s hydropower can convert one-third of South Asia from non-renewable to renewable energy consumption, thus reducing approximately 3.5 percent of total greenhouse gas emissions worldwide by 2040.

Nepal should focus on making the best use of hydroelectricity and possibly hydrogen energy, which has a promising comparative advantage in the energy trade. This presents an opportunity for Nepal to decarbonise the region’s major energy end-use sectors such as households (use of electric cooking stoves) and transport (battery-powered vehicles).

Climate financing

Climate change priorities and strategies are mainstreamed into government planning and budgeting procedures; however, direct government investment is significantly low. Legal and practical obstacles limit foreign direct investment, private sector investment and bilateral and multilateral support. Energy-related industries had received 59.7 percent of the investment pledges as of March of fiscal 2020-21, but actual investment came to only 35 percent. There is a need to create a favourable environment by relaxing legal obstacles to attract more foreign investment in the vibrant energy sector.

The financial requirement for meeting climate objectives is huge and needs to be better defined. Currently, the primary climate funding comes from the government, multilateral funding agencies and small private sector contributions. The climate budget has increased from $3.75 billion in 2017-18 to $4.66 billion in 2021-22. Since 2010, Nepal has received more than $300 million in international climate funds from the United Nations Framework Convention on Climate Change (UNFCC) alone. According to the most recent data, between 2015 and 2020, Nepal received over $2.59 billion in climate finance from international development banks, with $1.2 billion coming in 2020 (excluding mitigation and adaptation funds). Most domestic banks finance hydropower projects with local currency debt, but their capacity for large-scale lending is limited. Between 2017 and 2021, private independent power producers invested $400 million per year in hydropower production.

The energy sector in Nepal received investments totalling, on average, $527 million annually from 2010 to 2017. The power generation sector received most of the funds (more than 70 percent), nearly all of which went to hydropower projects. Local independent power producers and the Nepal Electricity Authority came second and third, respectively, in terms of investment in hydroelectricity generation. A total of $29-$46 billion in investments is expected to be required in the electricity sector over the period 2018-2040. Although a large sum, it is insufficient to cover the annual needs.

Energy investments

Moreover, export-focused hydropower projects would require yearly incremental investments of $0.5-$1.0 billion. Even under the most optimistic assumptions, the financial sector’s capabilities are limited and require further investment. The underlying economics of export-oriented projects and the creation of a solid institutional and regulatory environment for energy commerce will determine their success in contributing to the national economy. Development partners are already on board, note World Bank support for Nepal’s Green, Resilient and Inclusive Development approach, climate financing and the Millennium Challenge Cooperation compact (United States-Nepal partnership), and Indian and Chinese energy investments.

The government should build on the momentum and gain more support from the international community. Also, the international community should understand Nepal’s untapped energy potential that can contribute to long-term climate goals in the region. In the coming years, domestic consumption (industrial and household) alone will not be sufficient to consume the ever-increasing electricity generation. India and Bangladesh particularly seem interested in Nepal’s enormous energy potential to lift the region out of energy poverty and point it towards environmental salvation by bringing regional energy connectivity to the centre of discussion, commitments and collaborations. Energy trade can be fruitfully fostered.