Carbon trading is emerging as a critical mechanism for mitigating climate change globally, and Nepal is steadily developing a regulatory framework to facilitate participation by both domestic and foreign entities. This article provides an overview of the legal, procedural, and compliance requirements for foreign governments, institutions, and businesses interested in engaging in carbon trading activities in Nepal.
Legal Basis for Carbon Trading
Nepal’s carbon trading market is primarily governed by the Environment Protection Act, 2076 (2019) and the Carbon Trading Regulations, 2082 (2025). These laws establish the legal foundation for the development, approval, registration, implementation, monitoring, and transfer of carbon credits generated from greenhouse gas emission reduction and climate-mitigation projects.
The Government of Nepal, through the Ministry of Forests and Environment and other sectoral authorities, serves as the primary regulator for carbon trading activities. Foreign participation is recognized under these regulations, provided it complies with Nepal’s environmental policies and regulatory requirements.
Pathways for Foreign Participation
Nepalese law allows foreign entities to participate in carbon trading through three main pathways:
Government-to-Government or Bilateral Mechanisms
Under this pathway, the Government of Nepal may enter into bilateral agreements with foreign governments or institutions to facilitate carbon trading. Agreements at this level may allow participation by commercial or institutional entities of both countries. Benefit-sharing and transaction frameworks are determined by the terms of the bilateral agreement. This mechanism is particularly suitable for strategic or policy-level carbon-credit collaborations.
Project-Based Participation through a “Proponent”
A “Proponent” is an entity that develops a carbon-trading project. Eligible proponents include Nepal-registered companies, joint ventures between foreign and Nepalese companies, and government entities at federal, provincial, or local levels. Foreign companies cannot directly operate project-level carbon trading but may either establish a Nepal-registered company or form a joint venture with a Nepalese company. Proponents are responsible for obtaining approvals, registering carbon credits in the National Carbon Registry, and entering agreements with buyers.
Carbon Trading via the Government of Nepal
Carbon credits generated from approved projects and registered in the National Carbon Registry may also be transferred through the Government of Nepal. In this case, the government acts as an intermediary in the transaction, ensuring regulatory oversight and compliance.
Nepal recognizes two main carbon-credit mechanisms: the Paris Agreement Carbon Credit Mechanism, for projects aligned with international frameworks, and the Voluntary Carbon Market Mechanism, which includes projects approved by the Ministry, whether private, government-owned, or community-based.
Developing, Approving, and Registering Projects
The procedural framework for carbon trading projects in Nepal is structured as follows:
Project Concept Note
Proponents submit a Project Concept Note to the relevant ministry. Forest-related projects are submitted to the REDD Implementation Centre, while other projects are submitted to the appropriate sectoral ministry. Ministries provide recommendations for the proponent to prepare the full Project Document.
Project Document Preparation
The Project Document must be prepared within one year of receiving approval for the Concept Note. Extensions of up to one additional year may be granted upon justification. The Carbon Trading Management Committee evaluates the document to ensure alignment with Nepal’s carbon-reduction commitments, environmental and social impacts, and Sustainable Development Goals (SDGs).
Approval and Registration
After evaluation, the Ministry issues a formal Approval Letter. Fees are based on project size, ranging from NPR 25,000 for micro projects to NPR 100,000 for large-scale projects. Following approval, projects intending to trade carbon credits under the Paris Agreement must register with the relevant international mechanism. The Ministry provides a Project Registration Number, which serves as the official identifier for all carbon trading transactions. Approved projects are valid for an initial period of five years and may be renewed up to a total of fifteen years.
Compliance, Reporting, and Administrative Requirements
Proponents must comply with structured standards covering project implementation, measurement, reporting, verification, registry registration, and profit-sharing, as provided below:
Project Implementation: Upon approval of the Project Document, the proponent must commence project implementation within one (1) year and notify the Ministry accordingly.
Agreements: The proponent must enter into contracts with local communities, institutions, or buyers, including certified copies submitted to the Ministry.
Measurement, Reporting, Verification (MRV): Measurement and reporting are the responsibility of the proponent, while certification must be conducted by an independent, accredited third party recognized under the relevant mechanisms. Certified reports must be submitted to the Designated National Authority, and carbon credits issued through such certification will be counted in the National Carbon Registry.
National Carbon Registry: All credits must be recorded in the registry maintained by the Ministry of Forests and Environment.
Nationally Determined Contribution (NDC): Five percent of verified credits contribute to Nepal’s NDC.
Fees and Profit Sharing: A carbon credit sale fee of NPR 100 per ton applies to the volume of carbon credits available for sale after deducting the NDC portion. Further, carbon credit sale fees and mandatory government profit-sharing apply (10% for private projects).
Annual Reporting: Reports submitted within three months of the fiscal year-end to the Designated National Authority; and consolidated reports sent to the UNFCCC every two years.
International Treaty Compliance: All activities must comply with relevant international agreements. Projects must commence within one year of approval, with possible extensions. Agreements with beneficiaries and buyers must be executed, with certified copies submitted to the Ministry.
Foreign Investment and Profit Repatriation
Foreign entities may participate as proponents through Nepal-registered companies or joint ventures. Profits proportional to foreign investment may be legally repatriated, subject to compliance with the Foreign Investment and Technology Transfer Act, 2075 (2019). Standard corporate taxation and administrative obligations apply to all projects.
Eligible Sectors for Carbon Trading
Nepal encourages projects that provide environmental and social benefits across six sectors:
Renewable Energy Development Sector
Energy Efficiency and Clean Energy Transition Sector
Agriculture, Forestry, and Other Land-Use Sector
Waste Management Sector
Transport Sector
Adaptive and Resilience Co-Benefit Sector
Conclusion
Nepal provides a structured legal and regulatory framework for carbon trading, offering foreign investors the opportunity to contribute to climate mitigation while participating in a growing carbon market. For project-level carbon trading, forming a joint venture or establishing a Nepal-registered company is typically the most practical approach, while government-to-government arrangements allow for broader strategic collaboration.
Engaging in Nepal’s carbon trading market enables foreign participants to support national and international climate goals, drive sustainable development, and access emerging opportunities in carbon markets.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice, advertisement, personal communication, solicitation or inducement. No attorney-client relationship is created through this content. Gandhi & Associates assumes no liability for any consequences resulting from actions taken based on information contained herein.
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