In a step towards operationalizing the Paris Agreement’s carbon market, a UN supervisory body has adopted key standards to guide how emission-reducing projects are measured and credited. These new rules—established under the Paris Agreement Crediting Mechanism (PACM)—aim to ensure the generation of high-integrity carbon credits, supporting global climate goals while opening new opportunities for countries like Nepal to participate in international carbon finance.
PACM allows countries and private actors to collaborate on reducing greenhouse gas emissions, using a standardized framework to issue verified carbon credits. Two major standards were adopted during the recent meeting: one to determine the emission baselines (i.e., what would have happened without the project), and another to account for unintended emissions, known as ‘leakage’, that might occur elsewhere due to a project’s implementation.
The baseline standard requires a downward adjustment of emissions—starting with a 10 percent reduction below historical norms and continuing with at least a one percent decline annually. This move is aimed at avoiding over-crediting and increasing the climate integrity of the system. The leakage standard, meanwhile, mandates that all emissions displaced due to a project—such as increased deforestation in nearby areas—are accounted for. For REDD+ (Reducing Emissions from Deforestation and Forest Degradation) projects, alignment with national strategies is a prerequisite.
For Nepal, these decisions could be game-changing. With its extensive forest cover, successful history of community forestry, and national REDD+ framework already in place, Nepal is well-positioned to participate in PACM. The new rules provide clarity and credibility that can enhance Nepal’s ongoing conservation and reforestation efforts, ensuring they qualify for international carbon finance. Additionally, Nepal’s clean cookstove initiatives—which aim to reduce indoor air pollution and biomass use—could align with the Supervisory Body’s decision to bring older projects in line with the latest methodologies.
“We finally adopted a groundbreaking decision ensuring crediting levels are set consistently with a pathway to net neutrality, through a process of minimum downward adjustment of crediting levels over time,” said Martin Hession, chair of the Supervisory Body.
Maria AlJishi, vice-chair of the Supervisory Body, added: “These standards provide the clarity developers need to begin designing activities under the Paris Agreement Crediting Mechanism and are key to fully operationalizing it.”
For countries like Nepal, which are rich in natural resources but financially constrained, these developments offer more than just environmental benefits—they open the door to new streams of climate finance. The Supervisory Body also emphasized equitable benefit-sharing and capacity building, which could further assist Nepal in developing the institutional and technical systems required to effectively participate in PACM.
In support of national ownership and equity, the Body has also initiated discussions on how to ensure project benefits are fairly distributed in host countries. A dedicated consultation process and enhanced country engagement tools are expected to help countries like Nepal secure their share of mitigation benefits.
Despite the progress, the transition from older mechanisms like the Clean Development Mechanism (CDM) is expected to result in a short-term funding gap, as the pipeline for PACM projects is still in development. However, the first PACM methodologies are expected to be approved by the end of 2025, potentially enabling Nepal and others to begin designing eligible projects from 2026 onward.
As the global carbon market enters this new phase of integrity-focused evolution, Nepal has the opportunity to position itself as a regional leader in sustainable carbon project development—if it can mobilize the right strategies, partnerships, and institutional readiness.
