The economics of agricultural carbon markets: Nepal’s opportunity and strategic options
Climate finance has evolved from a peripheral concern of development policy into a central component of the global financial architecture. Carbon markets allow businesses and other organizations to monetize emissions reductions through credits sold on international exchanges.
- carbon markets
- climate change adaptation
- livestock
By Arbind Chaudhary and Suresh BabuJuly 29, 2026
Key takeaways
- Agricultural carbon markets can boost farm incomes in Nepal. Carbon credits could create a new revenue stream for smallholder farmers while supporting climate-smart agriculture.
- Methane reduction offers major potential. Improved rice and livestock practices could cut emissions and generate significant carbon credit revenues.
- Success depends on strong institutions. Better monitoring, fair benefit-sharing, and cooperative-based farmer participation are essential for scaling agricultural carbon trading.
Climate finance has evolved from a peripheral concern of development policy into a central component of the global financial architecture. Carbon markets allow businesses and other organizations to monetize emissions reductions through credits sold on international exchanges.
Agriculture currently represents only a tiny slice of this activity. The agricultural carbon credit market was valued at just $36.1 million in 2024 out of more than $100 billion globally.
This current landscape—a large compliance market (where governments require regulated entities to pay for emissions, valued at $107 billion in 2025), a small voluntary segment (where companies purchase credits to meet self-determined commitments, valued at just $1.7 billion as of 2024), and within the latter, a near-nonexistent agricultural niche—represents a significant opportunity for agricultural finance. Even a modest reallocation of voluntary credits toward agriculture would represent a large proportional gain for a sector starting from near zero. That, in turn, can provide an important funding stream to drive food system transformation.
Nepal offers a case study for the potential of carbon credits as a means of climate-friendly agricultural finance. The challenges are significant. Key among them will be integrating smallholder farmers into carbon markets. In Nepal, as in other countries, smallholder farmers are almost entirely absent from carbon markets historically dominated by energy corporations and reforestation programs.