Advancing forest-based carbon trading in Nepal: Policy challenges and agroforestry opportunities

Nepal remains among the countries most vulnerable to climate-related disasters. Although several national policy documents have emphasized the urgency of mitigation and adaptation, climate action remains fragmented and significantly underfunded. Nepal’s unique geography—spanning the Himalayas, mid-hills, and Tarai plains—together with recent decentralization reforms offers a favorable context for implementing localized, context-specific solutions to climate threats. However, the lack of consistent policy frameworks, weak institutional mechanisms, limited investment, and fragmented governance across all levels of government continue to impede progress. In this policy note, we use carbon trading in the forestry sector as a case study to illustrate broader policy challenges and opportunities in Nepal and other Global South countries. Trading is a market-based mechanism that incentivizes the offset of greenhouse gas (GHG) emissions through credits for CO2 sequestration.. Nepal has adopted this approach in line with international agreements such as the Kyoto Protocol and the Paris Agreement. As one of the major strategies, the country has sought to capitalize on its forest resources to generate carbon credits and attract international climate finance.