Government Allows Climate Finance Mobilisation in Private Sector Projects

The government has introduced a new policy framework that allows mobilisation of climate finance in private sector projects for the first time.

The Ministry of Finance issued the Climate Finance Mobilisation Procedure, 2082 to simplify, systematise and strengthen the effectiveness of climate finance flows in Nepal.  The new procedure explicitly permits the use of climate funds in projects led by the private sector.

The ministry said it will use climate funds allocated for the private sector, or earmarked for projects with private participation, to implement initiatives that address climate change mitigation and adaptation. Through this provision, the government aims to ensure active private sector engagement in tackling climate impacts.

However, the procedure requires the Ministry of Finance to exercise special caution while recommending private projects. It must ensure that such projects do not create any future financial liability for the Government of Nepal and do not require sovereign guarantees.

The procedure mandates that private sector projects be selected through public notice, providing equal access to all interested entities. As per the new framework, the government must develop clear evaluation criteria and projects must be assessed accordingly before submission to the ministry with a declaration confirming compliance.

The government will have to prioritize funds received under international mechanisms established by the United Nations Framework Convention on Climate Change and the Paris Agreement for mobilisation. The procedure defines a private sector project as one in which more than 50 percent of total investment comes from private entities.

A director-level committee led by the Finance Secretary will coordinate and provide guidance on mobilisation, while a technical committee headed by the Joint Secretary of the International Economic Cooperation Coordination Division will evaluate projects.

With the procedure now in effect following its recent approval, private sector entities in Nepal can access international grants and concessional loans for large-scale projects in green technology research, renewable energy and climate adaptation.

The procedure also allows climate finance grants received by the government and contributions from international non-governmental organisations operating in Nepal to be deposited into the Climate Finance Fund and mobilised in private sector projects. The private sector projects can use funds for initiatives aimed at reducing greenhouse gas emissions and supporting mitigation efforts.

Non-governmental organisations may also mobilise climate finance through the Social Welfare Council, provided they coordinate with federal, provincial or local governments to avoid duplication.

Administrative expenses are capped at a maximum of 20 percent of the total project cost, depending on project size.

A senior official at the Ministry of Finance said this was the first time Nepal had introduced a clear procedure governing climate finance mobilisation. “There was no explicit operational framework before. This is the first comprehensive procedure, and implementation will now proceed in phases,” the official said.

The procedure also has provisions for the development of a digital platform to track climate finance mobilisation in Nepal. The platform will include a list of ongoing projects, priority projects, project concept notes and digital mapping of projects.

Private Sector Participation ‘Essential’

Climate expert Madhukar Upadhyay said private sector participation in climate finance is essential.

He noted that climate-related expenditure in Nepal is often counted as government spending, but investments made by the private sector in clean energy and green technologies should also be recognised as climate finance.

According to Upadhyay, the private sector has made significant investments in hydropower, which qualifies as clean energy, though it is not always internationally recognised as carbon offset unless it replaces fossil fuel-based energy.

He also highlighted investment opportunities in large-scale biogas projects at municipal levels, electric vehicle promotion, domestic assembly of electric vehicles, energy-efficient technologies and induction heating equipment.

Upadhyay said climate finance should not be viewed solely as a separately established fund, but also include climate-responsive spending within the annual national budget, such as irrigation, drinking water, afforestation and rural infrastructure programmes.

He added that Nepal’s Nationally Determined Contribution (NDC) includes ambitious projects such as electric railways, where private sector participation could also play a role.

While he did not specify the total amount currently accumulated in the Climate Finance Fund, he stressed the need to assess both international sources, including the Green Climate Fund, and domestic budgetary allocations as part of Nepal’s overall climate finance landscape.