People all over the world are being hit by the reality of climate change, and Nepal is no exception. The Global Climate Risk Index indicates that between 2000 and 2019, Nepal is the tenth (10th) country most affected by the impacts of climate extreme events. Estimates suggest the economic cost of climate change to Nepal at around 1.5 to 2 percent of GDP which can jump to 2 to 3 percent. For a low-income country like Nepal, the loss of life, personal hardship and existential threat is much more widespread due to low resilience capacity. Moreover, women, poor and marginalized communities are disproportionately affected. With the increasing impacts of climate change on lives and livelihoods, it is important and urgent to deal with climate change, thus leveraging investments for climate actions is the key.
Nepal’s Climate Ambitions
The Government of Nepal has identified policy priorities and set ambitions for transitions towards net zero emission, climate-resilient future and sustainable development goals. The National Climate Change Policy envisions building a climate resilient society. The Second Nationally Determined Contributions and the Long-Term Strategy for Net Zero Emissions envision to achieve net zero emissions from 2020-2030 and after a period of very low emissions to full net zero by 2045. Similarly, National Adaptation Plan 2021-2050 sets short, medium, and long-term priority actions and goals to address climate risk and vulnerability in Nepal.
Trends and Investment Requirements for Climate Actions
The climate financing data on domestic contributions in Nepal are limited; nonetheless, the government asserts that its climate budget has increased dramatically in recent years, both in absolute terms and as a percentage of total climate financing. The Government of Nepal has taken steps to increase public investments to address the challenges of climate change. Over the last five years, between 4 to 6 percent of the federal budget has been highly relevant to addressing climate change issues. In FY 2022/23, the share of highly relevant climate budget 5.90 percent. The allocation of budget for addressing climate change increasing steadily only and not yet enough to address the increasing challenges of climate change. In addition, the lack of a financial separation between development and climate finance continues to make determining actual climate financing requirements difficult. While private sector is increasing investments in green sector, there is no systematic record of domestic private-sector investments in climate change or green investments relevant activities in one place so far.
Nepal requires substantial financial resources to transition towards a green future. It is estimated that nearly 36 billion USD is required for mitigation and 21 billion USD for adaptation between 2021-2030. In addition, the average investment required for achieving the Sustainable Development Goal targets is USD 19.68 billion per year, which is about 48% of the GDP on average. Nepal has identified a financial gap of NPR 585 billion in achieving the SDGs by 2030, which includes NPR 367 billion from the private sector.
Leveraging investments for Climate Actions
With the increasing climate risks and impacts in Nepal and substantial financial requirements and gaps, it is pertinent to leverage investments from public, private, and international sources for climate actions.
Presently, the Government of Nepal has a framework to catalyze public financing into climate change in the broader context of economic development and the government fiscal planning process. It is estimated that if the direct public financing is projected to increase in the current trend, in 2030, public financing on climate-related initiatives would be roughly USD 8.6 billion. There is a greater need to mainstream climate change with focused programmes across sectors and federal, provincial, and local governments’ plans and budget, and increase domestic spendings on climate actions. All levels of government should be capacitated to identify, design, and implement climate actions targeted for vulnerable population.
Besides, public sources, the private sector is a critical actor in helping drive the green transition, and some private sector players have already begun taking significant steps to decarbonize and have been contributing to meet green objectives in delivering a sustainable impact. Such actions could be accelerated and amplified in the private sector at large through a business environment designed to facilitate green growth, including tax credits and subsidies for green growth, research and development on green innovations to unlock private sector investment, and targeted regulations on sustainability. The IFC study states that there is an investment potential of USD 46.1 billion by 2030, which the private sector, including the multilateral development banks, local and regional financial institutions can tap into.
On the international front, Nepal is already accessing funds from climate financing windows such as Green Climate Fund (GCF), Global Environment Facility (GEF), and Adaptation Fund (AF). The study suggests that in the best-case scenario the government will be able to access USD 864 million through the United Nations Framework Convention on Climate Change (UNFCCC). For this, the government needs to take necessary measures such as strengthened capacity. The Green, Resilient and Inclusive Development (GRID) approach, jointly agreed by the international development partners and the Government of Nepal, the with a shared vision to drive prosperity and growth while simultaneously addressing the multiple crises confronting development including climate change and exclusion, further can help leverage international funds.
As Nepal faces the challenges of climate action, there is an urgent need to address the impacts of climate change and the green finance and sustainability initiatives are becoming increasingly important. Nepal has clearly raised its ambitions through different policies and strategies and the need of the hour is to drive climate actions and deliver on promises. While accessing international funds is essential, leveraging finance from domestic public and private sources is even more crucial. Leveraging investments from these sources would drive climate actions that would ultimately help in creating a more sustainable future for all.
Responding to the climate crisis requires collective actions from all nations, cities, financial institutions, private sector, and individuals. It is time to recognize the solutions identified for climate crisis, consider the needs of future generation at the centre of investments, and drive sustainable actions. Investment decisions made today will determine whether we create or destroy the potential paths to prosperity and whether we ensure or endanger intergenerational justice.
Rojy Joshi is currently associated with the Oxford Policy Management Limited, Nepal. Her work primarily focuses on research and analysis in the areas of climate change.