Nepal's community forestry (CF) initiative, once celebrated globally as a model for sustainable forest management, is now at a critical turning point. Launched in the early 1990s, CF aimed to conserve forests and improve local livelihoods. For many rural families, forests provided fuel, fodder and timber. Over the past 30 years, CF has evolved from small-scale, subsistence-focused practices into more diverse management approaches, reflecting changing local needs and broader policy agendas. Yet, increasing dissatisfaction among local politicians, forestry authorities and community members has emerged due to the programme's declining effectiveness. While CF was successful in the past, its impact on livelihoods has not reached its full potential, and once-active forest user groups have become passive with the changes in socioeconomic conditions.

This does not mean the community-based approach is outdated. Core principles, such as devolving forest rights and community-based forest management, remain relevant. However, the current challenge is whether CF can adapt to become more market-oriented and climate-resilient while maintaining equity and sustainability. Urgent reforms are needed, as CF in Nepal faces significant obstacles due to major changes in rural dynamics. Without timely recognition of these issues and appropriate interventions, CF risks failure. Rather than focusing solely on subsistence, CF must tap into its economic potential in two key areas.

Sustainable forest resource harvest

CF can realise its economic potential through sustainable timber and forest resource harvesting. Over the past decade, Nepal’s involvement in global climate agreements, such as the UNFCCC, has increased the importance of forest management in national climate mitigation strategies. Despite this, the declining contribution of forests to household economies has weakened community members’ incentives to invest in forest management. Sustainable timber harvesting could generate much-needed revenue to reinvest in community and forest development projects.

However, several challenges have slowed progress in sustainable timber harvesting. The government introduced scientific forest management to generate revenue through sustainable practices by boosting timber production and employment. Yet, this initiative was criticised for forest exploitation, governance concerns and a "one-size-fits-all" strategy that ignored local conditions. Eventually, stakeholder opposition and a lack of scientific evidence led to its failure.

A more effective strategy would be categorising community forests based on specific objectives. For example, forests in the productive Terai region could focus on timber production, while those in more inaccessible hill and mountain regions could prioritise conservation, ecotourism, non-timber forest products, high-value medicinal herbs and even Reducing Emissions from Deforestation and forest Degradation ( REDD+) initiatives. The CF has successfully restored degraded forests but has struggled with governance and institutional capacity. The dissolution of scientific forest management guidelines further complicates matters, as the absence of national standards has hindered tree harvesting.

Additionally, the high costs of harvesting in challenging terrain, combined with poor forest management practices such as improper tending, frequent forest fires, insect infestations and old tree retention, have degraded the quality of local timber, making it difficult to compete with imports like Malaysian wood.

To address these challenges, Nepal’s forest management must blend art and science to maximise economic benefits. Managing forests as enterprises, establishing wood treatment centres to enhance timber durability, setting up softwood processing units and creating small-scale plywood and veneer mills are essential steps toward revitalising community forestry and making it economically viable.

REDD+ and carbon credits

When protection-oriented policies limit revenue generation from forest products, alternative funding mechanisms like payments for ecosystem services through REDD+ should be explored. REDD+ compensates countries for verified emission reductions, typically through carbon credits. Nepal has made notable progress with the development of the National REDD+ Strategy, the Benefit Sharing Plan and the establishment of the REDD Implementation Centre. However, these efforts alone are not enough to position Nepal as a reliable supplier of carbon credits in the global market. To remain competitive, Nepal must address both internal and external factors limiting its ability to fully benefit from these markets.

Internally, Nepal faces challenges such as unstable leadership within institutions managing REDD+ and a lack of adaptability in governance. Consistent leadership is crucial for continuity, efficient decision-making, resource allocation, and effective utilisation of REDD+ revenue. Equally important for Nepal is transitioning from grants to developing strategies that attract private-sector investment. With the voluntary carbon market projected to grow from $2 billion to $50 billion by 2030, the country must set long-term goals to ensure its forest-dependent communities can tap into this form of growth led by the private sector.

Externally, Nepal’s unique circumstances make it difficult to generate substantial carbon credits. The country does not qualify as a High Forest, Low Deforestation (HFLD) country and lacks the high deforestation rates needed to produce significant emission reduction credits under REDD+. Global carbon markets tend to favour tropical countries like Brazil and Indonesia, with higher deforestation rates.

Three primary standards govern jurisdictional-level carbon credits: ART’s TREES, Verra’s VCS JNR and the FCPF Carbon Fund. With the FCPF Carbon Fund ending in 2025 and Verra’s VCS JNR focusing solely on emission reductions, ART’s TREES will be the only standard permitting removal credits at the jurisdictional level. Nepal is part of the Lowering Emissions by Accelerating Forest Finance (LEAF) coalition, which follows the REDD+ Environmental Excellence Standard TREES standard. Under this standard, countries can generate removal credits only if their emissions during the crediting period are lower than the average emissions from deforestation and degradation over the previous five years.

Although Nepal has made significant progress in forest restoration, it may face challenges in claiming removal credits. Since emissions from deforestation and degradation are already low, even a small change in forest activity could cause emissions to exceed the historical baseline, resulting in the loss of removal credits. This situation might unintentionally penalise Nepal for its forest conservation efforts and make it harder to benefit from the global REDD+ programme.

Nepal must reform its policies, restructure community-level governance, practice active forest management, build capacity, strengthen leadership and adopt a forward-looking approach that embraces its forests’ economic and environmental potential. By doing so, the country can ensure that its forests continue providing economic and environmental benefits while maintaining core principles of sustainability and equity. Without these reforms, Nepal risks missing out on the significant benefits that community forestry can offer in the years ahead.