Preliminary Findings on Foresight Modelling Project
On 9th of May, a key session was convened to present the preliminary findings of an extensive research initiative focused on climate foresight modeling. The gathering marked a significant checkpoint in a months-long process of data analysis, policy evaluation, and modeling, aimed at contributing meaningfully to Nepal’s climate commitments and development planning.
Remarks by Dr. Biswash Gauchan
The session commenced with remarks from Dr. Biswash Gauchan, Executive Director of IIDS. Dr. Gauchan highlighted Nepal’s ongoing climate commitment processes, particularly the recent release of the draft Nationally Determined Contributions (NDC) 3.0. A critical, evidence-based review of the draft was undertaken by the think tank, leveraging prior experiences with NDC 1.0 and 2.0. He emphasized that this marks the first thorough assessment of Nepal's delivery on its climate commitments.
A core message was the need for realism and economic grounding in climate policies. The foresight model presented attempts to bridge the gap between ambition and practicality, offering macroeconomic analysis of the potential impact of NDC targets on GDP growth and employment—two fundamental development metrics.
Dr. Gauchan underscored the importance of equity and proportionality in climate action. It was noted that policymaking in Nepal has often lacked holistic vision, especially with respect to cross-sectoral economic impacts. This study offers a tool to correct that by incorporating broader development concerns—most notably, employment generation—into climate planning.
Dr. Gauchan concluded with reflections on the broader implications of the modeling exercise. It was emphasized that this is not a standalone project but part of a growing capacity for macroeconomic and policy foresight in Nepal. Plans are underway to host a more detailed dissemination event later in the year, targeting academic and policy communities.
Summary of the Main Presentation by Dr. Barun Deb Pal
- Introduction
Nepal's Nationally Determined Contributions (NDC) 3.0 provide a forward-looking and integrative roadmap to align climate action with national development objectives. This report synthesizes key findings from a foresight modeling exercise jointly organized by the Institute for Integrated Development Studies (IIDS) and the International Food Policy Research Institute (IFPRI) at the Kathmandu Hilton Hotel. The primary aim was to estimate the macroeconomic impacts, poverty outcomes, and sector-specific implications of implementing NDC 3.0 targets by 2035 using an economy-wide modeling approach.
2. Methodology Overview
The analysis employed a computable general equilibrium (CGE) model based on Nepal’s 2022 national accounts, encompassing 80 economic sectors. This was supplemented with sectoral simulations (transport, energy, agriculture) and microsimulations using national household survey data from 2022. The household module included 20 population groups, differentiated by rural/urban residence and expenditure quintiles. Employment impacts were disaggregated by education levels.
Two primary scenarios were compared:
- Business-as-Usual (BAU): Continuation of existing trends without new policy interventions.
- NDC 3.0 Implementation: Full achievement of targets in the three modeled sectors by 2035.
3. Sectoral Analysis
3.1 Transport Sector: Scaling Electric Vehicles (EVs)
NDC 3.0 targets 90% of new passenger vehicles and 20% of freight vehicles to be electric by 2035. In 2022-23, EVs made up just 2% of the 4.9 million vehicles on the road. The model projects that EVs will represent 17.6% of the total fleet by 2035 under NDC implementation.
The transport sector GDP is projected to grow 1.5 percentage points faster annually, contributing to a 1.4% increase in national GDP by 2035. Around 10,000 new jobs, primarily for less-educated urban workers, are expected. Poverty could fall by 9,200 people, mostly among the urban poor.
While EV promotion reduces fuel import dependency and emissions, benefits remain urban-centered. Equitable outcomes will require rural EV charging infrastructure and affordability measures.
3.2 Energy Sector: Solar Scale-Up and Grid Expansion
NDC 3.0 aims to expand installed capacity from 3,500 MW in 2022 to 28,500 MW by 2035, with 15,000 MW from solar energy. Currently, hydropower contributes 95% of electricity generation and 11% of total export earnings.
Electricity sector GDP is expected to grow 6.2 percentage points faster per year, resulting in a national GDP increase of 2.2% by 2035. Job creation is estimated at 82,200, mainly in construction and utility services. Poverty may fall by 36,000, although higher-income households see greater income gains.
Energy investments generate strong macroeconomic benefits but depend on foreign financing. Rural power access must be expanded for inclusive development.
3.3 Agriculture Sector: Climate-Smart Productivity Enhancements
NDC 3.0 targets significant agricultural interventions: reducing post-harvest losses to 15%, increasing soil organic matter from 1.92% to 3.95%, expanding solar irrigation, improving 500,000 cattle sheds, and planting 10,000 hectares of fruit orchards.
The sector's annual GDP growth rate could reach 2.85%, boosting national GDP by 0.94% per year. Agriculture-driven economic growth would result in a 12% larger economy by 2035. The main contributor is reducing post-harvest losses, responsible for nearly half the GDP gains.
Poverty is projected to fall by 317,400 people, making agriculture the most pro-poor sector. Investments in soil management, post-harvest infrastructure, and climate-smart practices are crucial.
4. Combined Sectoral Impact
Meeting NDC targets across transport, energy, and agriculture could enlarge Nepal's economy by 14% by 2035. Annual GDP growth would accelerate by 1.1 percentage points. About 121,000 new jobs could be created, primarily for less-educated workers, and 339,000 people could be lifted out of poverty.
Agriculture delivers the most poverty reduction, while transport and energy drive structural transformation, income growth, and urban employment.
5. Policy Reflections and Commentary
5.1 Equity and Feasibility Considerations
Stakeholders raised concerns about feasibility, particularly for conditional targets dependent on external finance. The 90% EV target and solar expansion face implementation and land use barriers. Broader issues include capacity gaps and alignment with food security and infrastructure priorities.
Realistic policy sequencing and integrated planning are essential to maintain development coherence.
5.2 Institutional and Financial Gaps
Implementing NDC 3.0 demands multi-level coordination among ministries and local governments. Adequate costing, dedicated climate finance instruments, and linkages between sectoral strategies and macroeconomic planning are needed. The absence of a clear financing roadmap undermines implementation feasibility.
5.3 Recommendations for Future Modeling
The next phase of modeling should include scenarios for partial implementation (25%, 50%, and 100%), clearer distinctions between solar and hydro paths, and broader coverage including adaptation, solid waste, and market linkages. Stakeholder validation and data transparency will improve credibility and uptake.
6. Conclusion
Nepal’s NDC 3.0 offers a powerful opportunity to align climate action with inclusive development. Agriculture shows the highest return in poverty reduction, while energy and transport accelerate economic modernization. However, these benefits rely on smart policy design, financing, and capacity-building.
This modeling effort lays a foundation for evidence-based planning and Nepal’s engagement in COP30 and beyond.
7. Reflections on the Economic and Policy Implications of Nepal’s NDC 3.0 Targets by Guests
Batu Krishna Uprety (Former Joint Secretary, Ministry of Environment) shared his reflections on the economic implications of Nepal’s proposed NDC 3.0 targets. Although not an economist by training—his background lies in botany and over three decades of experience in climate change policy and environmental impact assessment—Mr. Uprety expressed appreciation for the opportunity to engage in the discussion. He noted that he initially attended the event with the intent to listen and learn, particularly about the employment and economic impacts of the NDC 3.0. However, he found the preliminary modeling results to be both promising and compelling. According to the presentations, the proposed targets could lead to significant employment generation, poverty reduction, and a projected 14% increase in Nepal’s economy by 2035, with an additional 1.1% in annual GDP growth. Mr. Uprety emphasized the importance of communicating these findings effectively to policymakers and political leaders. He stated that if the NDC targets are implemented successfully, they have the potential to yield substantial economic and social benefits by 2030 or 2035. While he acknowledged that many of the targets are still conditional and that the NDC 3.0 has not yet been officially endorsed, he expressed hope that it would soon receive Cabinet approval. He also recommended including a brief explanation of the modeling assumptions and methodologies used in the assessment. This, he suggested, would aid non-economists and senior decision-makers in understanding and internalizing the significance of the findings. In closing, he described NDC 3.0 as a potentially transformative tool for Nepal’s climate-resilient and inclusive development.
Purshottam Ghimire (Former Joint Secretary, Ministry of Environment) offered a policy-focused perspective, calling for a deeper reflection on implementation realities. He stressed the need to assess the progress of NDC 2 before moving forward with NDC 3.0, noting that without an honest evaluation of past performance, it is difficult to gauge the realism or ambition of the new targets. He highlighted challenges in several sectors, particularly transport and energy. For example, the target of achieving 90% electric vehicle adoption was described as overly ambitious and perhaps driven by external donors. In the energy sector, he pointed out the massive land requirements for achieving solar energy goals and questioned the feasibility of such targets in Nepal’s geographic and socio-political context. Mr. Ghimire also raised concerns about the availability and mobilization of climate finance, noting a disconnect between reported needs and actual funding flows. While he commended the modeling team for their robust analysis, he urged for more grounded and practical strategies that consider Nepal’s on-the-ground realities and institutional capacities. In his view, successful implementation would require translating high-level plans into executable actions supported by clear financial and regulatory mechanisms.
James Thurlow (Director, Foresight and Policy Modeling Unit, IFPRI) offered insights from the economic assessment conducted in collaboration with IIDS. He highlighted that Nepal is among the more advanced countries in terms of preparing a clear and measurable NDC, which significantly enhances the quality and utility of economic modeling. He commended IIDS for its technical leadership in macroeconomic and sectoral modeling, which was instrumental in generating the findings presented. Mr. Thurlow reported that the initial assessment shows strong alignment between Nepal’s climate goals and its broader development priorities, with few evident trade-offs. This stands in contrast to experiences in other countries, such as Indonesia, where competing objectives create tension. A particularly striking finding from the modeling was the outsized role of agriculture in driving economic benefits. According to the analysis, over three-quarters of projected GDP gains, job creation, and poverty reduction stem from the agricultural sector. This suggests that investments in agriculture-related climate action could yield the highest returns. However, he also cautioned that the cost dimension of the targets had yet to be evaluated. While actions like reducing post-harvest losses appear beneficial, they also require substantial investment and institutional effort. Mr. Thurlow concluded by outlining the next steps: a detailed cost-benefit analysis once the NDC is finalized, to better guide policy and investment decisions. He reaffirmed IFPRI’s commitment to supporting Nepal’s efforts to align climate action with inclusive and sustainable economic development.
Mr. Naresh Sharma (Under Secretary, Ministry of Forests and Environment, Government of Nepal) began by thanking Dr. Pal for his early and immediate work on the draft opinion concerning Nepal’s Nationally Determined Contributions (NDCs). He noted that while the draft had been made public a few weeks prior, it remained under government revision and was not yet the final version. Mr. Sharma expressed hope that, moving forward, such research efforts would be systematically linked to the NDC process, enabling Nepal to benefit from their findings in pursuing national climate targets. He also extended his appreciation to James Thurlow for his valuable insights, particularly on the agricultural benefits relevant to Nepal. Mr. Sharma acknowledged Carlo’s observations on critical aspects of the upcoming NDC targets and recognized the contributions of the Ministry of Forests and Environment in driving the process forward. Referring to earlier discussions with Dr. Gauchan, Mr. Sharma mentioned that they were aligned in believing the country was on the right track. Dr. Gauchan had shared his initial impressions prior to the event, and Mr. Sharma emphasized that he himself was still learning about the process and methodologies adopted during this exercise. He underscored the importance of scientific validation for the draft once the Government of Nepal formally approves the NDC 3.0 document, which will serve as a roadmap toward achieving the country’s 2030 and 2035 climate targets. Turning to climate finance, he emphasized that while setting ambitious targets is common in meetings, it is essential to align these goals with the country’s economic realities and financial capabilities. He stressed that achieving these targets would be significantly more feasible if Nepal were to receive adequate climate finance—whether conditional or unconditional—from international, bilateral, or multilateral sources. However, he acknowledged a lack of confidence in securing sufficient funding across all sectors, particularly outside the energy sector. He noted that while the energy sector has defined conditional targets and a relatively more secure funding outlook, overall financial support for NDC implementation remains low.
Prepared by:
Shakshyam Kafle (Center for Sustainability)
Shivani Basnet (Center for Strategic Affairs)
Shreesh Tripathi (Center for Economic Policy)