Nepal’s government recently signed what has been widely described as a “landmark” agreement with the LEAF Coalition, unlocking the prospect of up to USD 55 million in climate finance in recognition of the country’s success in reducing deforestation and expanding forest cover. The announcement was framed as a triumph: Nepal becomes the first Asian country to enter a LEAF agreement; the first government to offer correspondingly adjusted carbon credits to private buyers; and a global model for community-based forest management delivering climate mitigation at scale.
This is the story that is being told.
What is not being told with the seriousness it demands is how forest carbon markets function politically, whose interests they serve, and what risks they pose to communities, ecosystems and climate integrity if treated as technical solutions instead of political instruments. Carbon credits are not neutral. They are a financial abstraction built on assumptions, baselines and power relations. In countries like Nepal, which are ecologically fragile, politically transitional and structurally unequal, those abstractions can have real consequences.
Forest-based carbon credits have become one of the most aggressively promoted climate solutions of the last two decades. Under mechanisms like REDD+, forests are transformed into carbon sinks, and protection or “avoided deforestation” is monetised through tradable credits. In theory, this delivers a triple win: emissions reductions for buyers, finance for forest countries, and co-benefits for biodiversity and communities.
This promise is particularly attractive to the Global North and to corporate actors. Forest carbon is cheap compared to decarbonising fossil fuel-dependent systems. It allows emissions to continue elsewhere while claiming climate responsibility through offsets. It also fits neatly within the dominant logic of the rules-based order, which prefers market mechanisms over regulatory or redistributive solutions.
Nepal’s entry into the LEAF Coalition must be understood within this global political economy of climate mitigation. The agreement does not emerge in a vacuum, but in a world where carbon markets are rapidly expanding to meet net-zero pledges that are often structurally incompatible with real emissions reductions.
At the crux of forest carbon credits lies a methodological fiction: the baseline. Credits are issued based on how much deforestation is assumed to have been avoided compared to a hypothetical future in which forests would have been destroyed. This “what would have happened” scenario is not observable, not falsifiable and highly sensitive to assumptions.
Baselines can be, and often are, inflated. Higher assumed deforestation risks generate more credits. This creates a perverse incentive structure in which optimistic projections are financially rewarded. Even under jurisdictional REDD+ frameworks like Nepal’s JREDD programme, the integrity of credits depends on conservative baselines, transparent modelling and independent scrutiny. Without these, credits risk becoming numbers that satisfy accounting requirements rather than reflecting real atmospheric outcomes.
And when carbon markets rely on imagined futures rather than quantitative emissions reductions, credibility erodes faster than forests are protected.
Another structural problem is location bias. Many REDD+ programmes globally have focused on forests that were already well protected or under low deforestation pressure. Nepal’s community forestry success, rooted in decades of local stewardship, legal reforms and social mobilisation, predates carbon markets. The increase in forest cover to over 46 percent of national land area is the result of established community forest user groups, Indigenous knowledge systems and sustained public governance.
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This raises a critical question: what, exactly, is being paid for?
If forest protection had continued anyway, the credits would lack additionality. In such cases, carbon finance does not change behaviour; it simply monetises existing outcomes. This may still generate revenue, but it weakens the climate claim and risks turning community-led conservation into a commodity whose value is defined externally.
Third, deforestation is not eliminated simply because it is reduced in one jurisdiction. Economic activities such as logging, agriculture and infrastructure often shift elsewhere. This phenomenon, known as leakage, is difficult to measure and routinely underestimated.
One thing is clear: Nepal’s forest governance does not exist in isolation. Infrastructure expansion, hydropower development, road construction and extractive pressures continue across river corridors and mountain landscapes. Environmental impact assessments often fragment ecosystems while treating forests as compensable units instead of living systems embedded in social relations.
Stopping deforestation in one district while enabling diversion in another does not deliver climate mitigation; it redistributes ecological harm.
Fourth, forest carbon is inherently impermanent. Fires, pests, illegal logging, political instability or policy shifts can reverse gains within years or even months. Yet credits are sold as if they permanently neutralise emissions.
This temporal mismatch turns offsets into what critics describe as “carbon rentals.”
Nepal’s agreement is being praised for offering correspondingly adjusted credits, making them eligible for compliance schemes such as Singapore’s carbon tax and CORSIA, which are presented as safeguards against double counting.
But corresponding adjustments also require strong national accounting systems, political discipline and long-term transparency. With elections approaching and political instability intensifying in Nepal, the risk of overlapping claims remains very real.
And finally, the most important issue: who ultimately owns the carbon claim—the state, the community or the buyer? This is not merely a technical question; it is a political one and involves extensive legal issues under national and international climate policy.
Nepal’s community forestry system is often cited as a global success story, and rightly so. But carbonisation introduces new dynamics. Carbon has value. Where value exists, power follows.
Free, Prior and Informed Consent as a principle is frequently invoked but far less consistently implemented, especially in remote mountainous regions where information asymmetries are profound. Contracts written in legal and technical language, benefit-sharing mechanisms negotiated at central levels, and the pressure to demonstrate “results” can marginalise the very communities being celebrated.
There is a real risk that carbon markets replicate extractive logics under a green banner: value flows upward, while restrictions and surveillance flow downward. Ecosystems are reduced to sinks; biodiversity to co-benefits; livelihoods to safeguards. Carrying capacity, sustainable use, cultural relationships with the land and Indigenous material practices, such as traditional timber use adapted to local ecosystems, are sidelined.
Nepal’s development trajectory already reflects this tension. Hydropower projects are justified in the language of green development, yet they divert rivers that have sustained civilisations along their corridors for centuries.
Development happens—but for whom? At what ecological cost? And with whose consent?
Climate mitigation cannot be credible if it ignores these questions.
Without strong public regulation, independent oversight and a willingness to reject questionable credits, markets will continue to reward quantity over quality.
None of this is an argument against forest protection, community forestry or climate finance. Nepal deserves recognition for its achievements. But celebration without critique is dangerous.
Carbon credits are not climate action in and of themselves. They are tools that can either support or undermine genuine mitigation, depending on how they are governed, constrained and situated within broader decarbonisation strategies.
If carbon markets become a substitute for reducing fossil fuel emissions, they fail. If they commodify community stewardship without redistributing power, they fail. If they prioritise financial flows over ecological integrity, they fail.
The Question We Must Ask
Are forest carbon credits too good to be true? Not always. But too often, they are treated as simpler, cleaner and fairer than they actually are.
Nepal now stands at a critical juncture. The LEAF agreement could strengthen community forestry, fund conservation and reinforce public governance. Or it could entrench a system in which forests absorb the burden of a climate crisis they did not cause.
The difference will not be determined by press releases or donor applause. It will be determined by how seriously Nepal confronts the stories it is not being told and whether it chooses integrity over convenience in a carbon market eager for supply.
Climate action is not won in accounting frameworks alone. It is won or lost politically.
(The author is a young climate law advocate and the founder of Nyaya Vatika, South Asia’s first youth-led climate justice coalition.)
