New Budget Casts Doubt on Nepal’s Net Zero Ambitions

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Given the government’s revenue crunch, there were many ways Finance Minister Barsha Man Pun could have balanced his budget while putting Nepal on a path to green energy. But he chose the easy way out.

Taxes on electric vehicles have been increased once again, including for battery-powered public transport. There are no incentives for electrical appliances to boost power consumption now that generation capacity is going into surplus.

Taxing electric SUVs makes sense since they are luxury vehicles, but making them less competitive vis-a-vis petrol cars means petroleum imports will not go down. There are no tax rebates for electric buses, scooters or home appliances to promote consumption of surplus electricity. Nepali households should have been incentivised to switch from LPG to electrical cooking.

To be sure, the new budget was an improvement on the 2023-2024 tax range. Last year’s budget had increased taxes on entry-level EVs, electric public utility vans and battery-operated microbuses, while reducing taxes for luxury SUVs and larger variants.

Nonetheless, overall tax on electric vehicles has increased with excise and customs up by 5-20%, and there is a backlash from importers who had been enjoying a boom in sales. More than 60% of the cars imported in the past six months were electric.

‘There is no clarity in the government’s intention to support and promote electric vehicles,’ said NADA (Nepal Automobile Dealer’s Association) in a statement. ‘The fluctuations in EV taxation don’t only affect the EV business but also discourage entrepreneurs who want to produce electric vehicles in Nepal.’

On Tuesday, Finance Minister Barsha Man Pun unveiled a Rs1.860 trillion budget for 2024-25 in Parliament and said it would set Nepal on an annual economic growth track of 6%. Yet, he managed to allocate only 0.46% of the total budget for environmental protection.

In fact, he gave the green light to controversial projects like the Nagmati Reservoir in Shivapuri National Park, and the proposed $3.5 billion international airport at Nijgad. Both would mean large-scale logging, and lack ecological and economic rationale.

These announcements directly contradict Prime Minister Pushpa Kamal Dahal’s own commitment to achieve net zero by increasing forest cover and reducing petroleum use in the next 20 years, which he repeated at last week’s International Expert Dialogue on Mountains, People, and Climate at Chandragiri.

In light of the budget, the prime minister’s speech at that event rang hollow: “We must build upon the momentum of past efforts to translate commitment into tangible action preserving the delicate balance between mountain environments for future generation… Climate change is a great concern for us who are experiencing the peril of our pristine natural resources.”

Like previous budgets, Pun’s speech was sprinkled with words like pledge, promise, commit, undertake. He used the word  (will be done) 379 times during his 2 hours speech. (development) was repeated 107 times. Energy and the environment barely made the mark.

There were some announcements on renewable energy like the plan to add another 900MW of hydropower to the national grid. Nepal will be generating 6,500MW of power once under-construction projects come on line, and the challenge is to increase household and industrial consumption for which transmission lines need streamlining.

Switching to electric transport would also benefit public health by reducing Kathmandu’s atrocious air pollution. Kathmandu was the world’s most polluted city on multiple days in the past two months. The life expectancy of Nepalis might have increased, but air pollution has slashed nearly 5 years of our lives. At least a quarter of children visiting hospitals have asthma with school children in Kathmandu inhaling at least eight times more toxic air than the safety threshold.

Nepal’s moral high-ground at the climate summit in Bonn next month will be diminished with budgetary policies that directly contradict our public commitments. A clear national policy that balances economic growth with ecological preservation would give our negotiators more weight when they demand adaptation or loss and damage funds.