The case for pricing climate risks now

As Nepal prepares its national budget, a critical oversight persists: the failure to seriously debate and budget for the escalating costs of climate inaction. The Kathmandu Post has repeatedly highlighted the devastating economic toll of climate-induced disasters, with recent analyses showing average annual losses of $18 million, a figure that could balloon to nearly 10% of our GDP by the century's end if we continue on this path. Our national budget must reflect the reality of climate change, moving beyond mere rebuilding to proactive growth.

The Melamchi flood disaster serves as a stark, costly lesson. The $641 million in losses, far exceeding the project's construction cost, stemmed from infrastructure designs that failed to account for climate risks. This preventable tragedy underscores a fundamental flaw in our planning: we are not adequately pricing climate resilience into our development projects. International experience, such as the World Bank's findings, suggests that climate-proofing infrastructure adds less than 1% to costs while saving significantly more in avoided losses. For a nation where 80% of the population faces climate hazards, this is not an expense but a vital investment.

Nepal's innovative climate expenditure tagging system, launched in FY 2012-13, has seen climate-related budget allocations grow impressively on paper, now nearing half of the federal budget. However, this success is largely symbolic. The critical issue is not the tagging but the spending and, more importantly, the impact. The declining share of the budget directly linked to climate outcomes, even as floods ravage our infrastructure, reveals a disconnect. We are labeling more funds as climate-related without effectively addressing the risks. This disconnect between allocation and effective utilization is a critical challenge that must be confronted in the upcoming budget to ensure Nepal transitions from a cycle of disaster recovery to sustainable development.