As climate impacts intensify globally, countries are increasingly exploring trade as a tool for adaptation, resilience, and sustainable development. This challenge is particularly acute for Nepal, one of the world’s most climate-vulnerable countries despite contributing only around 0.1% of global greenhouse gas emissions.

As a mountainous developing country, Nepal faces disproportionate climate risks, including glacier retreat, glacial lake outburst floods, floods, landslides, droughts, and climate-induced impacts on agriculture and livelihoods. It therefore embodies a stark global paradox: those least responsible for climate change often suffer its worst impacts. Nepal is ranked 54th in the ND-GAIN Index of climate vulnerability and readiness to adapt, with around 80% of its population exposed to climate hazards.

This imbalance carries major implications for global trade governance, climate finance, and market access rules. As new trade-related climate measures emerge—such as the EU’s Carbon Border Adjustment Mechanism (CBAM), the EU Deforestation Regulation (EUDR), and the Ecodesign for Sustainable Products Regulation (ESPR)—developing and climate-vulnerable countries risk facing additional barriers layered on top of existing structural disadvantages.

At the same time, Nepal is increasingly seeking to harness international trade as a pathway to climate resilience and green transformation through renewable energy development, integration in sustainable value chains, and active engagement in multilateral trade and climate negotiations. 

This article argues that trade can serve as a powerful instrument for building climate resilience only when it is governed by principles of equity and sustainable development.

Accordingly, the multilateral trading system should be reformed to better reflect climate justice by ensuring that trade rules support, rather than constrain, the adaptive capacity and sustainable development of climate-vulnerable developing countries.

Trade and climate change are deeply interconnected. International trade facilitates the diffusion of clean technologies, renewable energy equipment, climate-smart agricultural practices, and environmental services that are essential for low-carbon and climate-resilient development. For developing countries, access to these goods and technologies can accelerate adaptation efforts while creating new economic opportunities.

At the same time, trade rules influence how countries pursue climate policies. Tariffs, subsidies, technical standards, and environmental regulations can either support or hinder green transitions. As governments implement climate measures, ensuring coherence between trade and environmental objectives has become increasingly important.

The imbalance between Nepal’s negligeable contribution to global emissions and the severity of domestic impacts underscores the importance of climate justice and the principle of common but differentiated responsibilities (CBDR), which recognizes that countries have different capacities and historical responsibilities in addressing climate change.

Nepal's climate vulnerability is particularly striking: the country ranks among the most climate-vulnerable nations globally while its readiness to adapt remains constrained by limited resources and infrastructure. With approximately 80% of the population exposed to climate-related hazards, Nepal ranks 139th globally in climate readiness; underscoring the significant gap between its high vulnerability and limited adaptive capacity. 

The Himalayan region is warming faster than the global average, contributing to rapid glacier retreat. Studies indicate that Himalayan ice has been melting at approximately ten times the rate recorded before 2000, creating growing risks of glacial lake outburst floods.

At lower elevations, communities are increasingly affected by recurrent floods and landslides. Disaster records indicate a marked rise in climate-related hazards over the past decade, with tens of thousands of disaster incidents reported nationwide. The southern Terai region is experiencing more frequent extreme heat events and prolonged droughts, while increasing monsoon variability is creating significant uncertainty for agriculture, water resources, and rural livelihoods.

Despite these challenges, Nepal has adopted ambitious climate trajectories. Through its updated Nationally Determined Contribution (NDC 3.0), the country has committed to achieving net-zero emissions by 2045—five years ahead of the global target. Meeting the conditional targets is estimated to cost $25 billion, requiring substantial international support in the form of climate finance, technology transfer, and capacity building.

A major milestone in Nepal’s climate diplomacy was the Sagarmatha Sambaad 2025, the country’s flagship climate dialogue. Named after Sagarmatha (Mount Everest) and Sambaad (meaning dialogue), the event brought together heads of state, diplomats, scientists, and civil society to advance a shared agenda on mountain climate challenges. Held under the theme “Climate Change, Mountains and the Future of Humanity,” it produced the Sagarmatha Call for Action—a landmark outcome document and the platform for launching Nepal’s NDC 3.0.

The Call for Action sets out four key priorities with direct relevance to trade and climate governance.

First, it calls for scaled-up climate finance through grants, concessional funding, simplified access, and a dedicated facility for mountain nations, addressing persistent barriers faced by vulnerable countries. This comes at a time when aid for trade flows remain under pressure relative to rising climate-related needs. 

Second, it reinforces climate justice and the principle of CBDR, urging priority support for low-emission, high-vulnerability countries and the full operationalization of loss and damage finance for communities experiencing irreversible impacts. For Nepal, these impacts are already affecting livelihoods and productive systems.

Third, the document elevates mountain ecosystems and glacier protection as a global priority, calling for a shared approach “from Sagarmatha to the seas” that links mountain and coastal vulnerabilities within a broader climate solidarity framework. 

Finally, it stresses the alignment of trade policy with climate resilience, including stronger technology transfer for clean energy and targeted aid for trade to build climate competitiveness.

Together, these priorities reflect Nepal’s broader message: climate-resilient development requires integrating trade, finance, and environmental policy, with equity at its core.

Achieving the objective of human health protection will require cooperation on means of implementation. As governments design mechanisms to ensure that effective, timely, and accessible financial, technological, technical, and capacity building support are available where and when required, it will be important that they keep in mind both cross-cutting and specific areas of support that may be required to advance the effective implementation of treaty obligations that meaningfully contribute to health protection objectives.

Over the past decade, Nepal has progressively embedded climate considerations into its national development and trade frameworks.

The country's 2015 constitution recognizes the right to a clean environment. Subsequent policy initiatives—including the National Climate Change Policy, National Adaptation Plan, Long-Term Strategy for Net Zero Emissions, and the Sixteenth Development Plan—have further integrated climate objectives across sectors such as agriculture, energy, infrastructure, and industry.

Recent trade-related measures reflect this growing policy coherence, with climate at the heart of trade policy. Nepal has introduced tariff exemptions on products such as solar panels, energy-efficient lighting, and clean cooking technologies. Incentives for electric vehicle imports aim to accelerate the transition towards greener transportation. Environmental criteria are increasingly incorporated into public procurement processes, while sanitary and phytosanitary measures and technical standards are being aligned with international requirements to support export competitiveness.

At the multilateral level, Nepal actively participates in discussions on trade and environmental sustainability at the World Trade Organization (WTO), advocating for special and differential treatment provisions that recognize the circumstances of vulnerable developing countries and calls for transparent, non-discriminatory approaches to emerging carbon border adjustments.

Despite notable progress, significant barriers continue to constrain Nepal's ability to fully leverage trade for climate resilience.

One major challenge is limited access to climate-related technologies and infrastructure. Technology transfer provisions in international agreements have historically been aspirational rather than operational. Cold chain facilities, sustainable logistics systems, and advanced production technologies remain insufficient in many sectors. This affects both domestic resilience and export competitiveness.

Non-tariff barriers also present growing challenges. Compliance with increasingly stringent environmental, technical, and sustainability standards requires investments in certification, traceability, and quality infrastructure.

Nepal also faces an additional risk as it graduates from least developed country (LDC) status. While graduation reflects important development progress, it may result in the gradual loss of preferential market access and trade preferences that have supported key export sectors. Nepal has projected merchandise export losses of 2.5–4% as a direct consequence of LDC graduation.

Additional constraints include weak value chain integration, limited climate finance (notably declining levels of aid for trade relative to growing needs), and insufficient productive capacity to scale climate-smart exports without capacity building or develop energy-intensive manufacturing in the absence of renewable power. Addressing these challenges will require coordinated investments in infrastructure, skills development, technology transfer, and institutional capacity.

Despite these obstacles, Nepal possesses significant opportunities to position itself as a supplier of green products and services.

Hydropower represents the country's most important green export asset. Nepal's theoretical hydropower potential is estimated at approximately 83,000 megawatts, with around 43,000 megawatts considered economically and technically feasible. Cross-border electricity trade with neighbouring countries such as India and Bangladesh is already expanding and could become a major source of sustainable economic growth while contributing to regional decarbonization.

Beyond hydropower, Nepal has strong green export prospects in organic agriculture, including products such as coffee, tea, big cardamom, medicinal herbs, and other high-value niche exports. Nepal is the world’s third-largest producer of big cardamom, and its coffee sector is gaining international recognition. The country is also developing opportunities in eco-tourism services, sustainable forest products, and carbon markets.

Aid for trade initiatives can play a pivotal role in helping Nepal capitalize on these opportunities.

Recent efforts have focused on strengthening climate competitiveness through trade facilitation, digital certification systems, carbon accounting capacity, and support for compliance with emerging environmental regulations. Particular attention has been given to preparing exporters for the EUDR, including ITC-supported geolocation mapping and SME coaching workshops.

Nepal's community forestry system offers a promising foundation for deforestation-free value chains. Forests cover approximately 45% of the country's land area and are managed extensively through community-based approaches; with 2.4 million hectares managed by nearly 19,000 community forest user groups. Investments in traceability systems, geospatial mapping, and certification can help ensure that Nepali products, including agri-exports such as coffee, meet evolving sustainability requirements while generating income for local communities. Nepal is currently a leader in Reducing Emissions from Deforestation and Forest Degradation (REDD+) implementation, with an Emission Reductions Payment Agreement valued at $45 million for 9 million tonnes of CO2 reductions in the Terai Arc Landscape. 

Similarly, Nepal, with partners, has been increasing its preparedness for the EU’s ESPR, including small and medium enterprise training to adopt circular economy principles and strengthening upstream traceability and responsible sourcing to help industries such as pashmina bolster their position in international markets.

The EU's CBAM, currently in its transitional phase, is likely to have growing implications for developing country exporters as its scope expands. A key concern is that uniform border carbon adjustments could create new trade barriers for countries that have contributed little to global emissions. For Nepal, this raises important questions of fairness and compatibility with the principle of CBDR. 

Nepal has consistently argued at the WTO that border carbon adjustments should not penalize low-emission developing countries, and that a meaningful share of the revenues generated should support climate finance for vulnerable nations. This position reflects the principles enshrined in the United Nations Framework Convention on Climate Change and reaffirmed in the Paris Agreement, which recognize the differentiated responsibilities and capabilities of states in addressing climate change.

Nepal’s experience highlights both the challenges and opportunities that developing countries face at the intersection of trade and climate policy. Nepal consistently calls on WTO members to ensure that trade rules enable, rather than constrain, climate resilience for the most vulnerable.

Moving forward, this requires action across six key priorities:

1. Extending special and differential treatment timelines for Nepal in WTO disciplines affecting green trade, particularly in the context of post-LDC graduation.
2. Accelerating tariff reductions on clean energy goods, hydropower equipment, and climate adaptation technologies essential for Nepal’s energy transition.
3. Scaling up aid for trade to strengthen Nepal’s climate export competitiveness, including organic certification systems and compliance with emerging regulations such as the EUDR.
4. Ensuring that border carbon adjustment measures are fully consistent with the principle of CBDR and do not penalize low-emission developing countries like Nepal
5. Recognizing community forestry and REDD+ outcomes within global trade and carbon market frameworks and improving Nepal’s access to Article 6 mechanisms under the Paris Agreement.
6. Operationalizing the commitments of the Sagarmatha Call for Action, including enhanced climate finance for mountain countries, dedicated loss and damage funding, and improved access to adaptation resources.

Nepal’s message is both clear and urgent: trade can become a powerful driver of climate adaptation, resilience, and green growth; but only if international cooperation ensures that vulnerable countries are provided with the finance, technology, capacity building, and policy space needed to participate fully in a just, sustainable, and inclusive green transition. This underscores the need for a multilateral trading system that meaningfully embeds the principle of CBDR and ensures that trade rules strengthen, rather than constrain, climate resilience and justice for the most vulnerable.

* This article draws on interventions during WTO Trade and Environment Week 2026.

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Dr Damaru Ballabha Paudel is Deputy Permanent Representative, Permanent Mission of Nepal to the United Nations and other international organizations in Geneva.

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