Nepal has recently ratified Kyoto Protocol, which considers justifiable use of resources to limit or reduce the emission of gases that contribute to green house gas inventory in the atmosphere. Nepal's per capita green gas (GHG) emission from energy use is insignificant. However, it is important for Nepal to adopt environmentally friendly energy options based on local resources like hydropower and biomass. Nepal can benefit from the provisions of clean development mechanism (CDM) under the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCC) or carbon funds being promoted by various organizations in order to obtain funding for new projects that reduce GHG emissions (ER). Funding can be generated through Carbon trading in international market as well. In this paper, the country's current contribution to GHG due to energy consumption is evaluated. Options for promoting more sustainable and environmentally friendly projects have also been discussed. (c) 2006 Elsevier Ltd. All rights reserved.