Bhutan's cities are growing quickly
When people think of Bhutan, they often picture pristine forests, quiet monasteries perched on cliffs, and the famous philosophy of Gross National Happiness. And it’s true—Bhutan is one of the greenest and most peaceful places on Earth. It’s also one of the few countries that absorbs more carbon than it emits. That alone makes Bhutan a global climate champion.
But behind this beautiful picture is a country that’s confronting some tough challenges. Bhutan’s economy relies heavily on hydropower and agriculture, both deeply tied to nature and significantly vulnerable to climate change. Its cities are growing quickly in risky areas. Its young people are looking for jobs in a narrow economy. And its roads and bridges, essential lifelines in this mountainous country, face growing pressure from floods and landslides.
These challenges are at the center of the Bhutan Country Climate and Development Report (CCDR), prepared by the World Bank in consultations with the Royal Government of Bhutan. The report dives into how Bhutan can continue to protect its natural environment and grow a stronger, more resilient economy. Along the way, we came across some important insights. Here are four that stand out:
1. Being carbon negative doesn’t mean being climate safe.
It may seem like Bhutan, with its lush forests and low emissions, is largely immune from the worst effects of climate change. But the reality is the opposite. Bhutan is highly exposed to floods, landslides, and glacial lake outburst floods (GLOFs)—climate disasters that are becoming more intense and frequent. So, while Bhutan is a climate champion in managing carbon emissions, it still needs major investments to adapt to the impacts of a warming planet. Climate resilience isn’t a luxury, it’s a necessity.
2. Hydropower production, the backbone of Bhutan’s economy, can face challenges in climate futures characterized by drier and hotter conditions.
Hydropower has powered Bhutan’s economy for decades and will continue to do so, especially because the country currently uses only about 9 percent of its hydro potential. It brings in export revenues, fuels development, and provides clean energy. But changes in rainfall patterns, snowmelt, and river flows can subject hydropower production to substantial uncertainties, especially in dry and hot climactic conditions. This creates a tough situation: Bhutan’s most important green asset is becoming more vulnerable to climate change. It’s a strong reminder that even “clean” sectors need to adapt to climate change, and as early as possible.
3. Building resilient infrastructure is expensive, but worth every ngultrum.
One of the clearest messages from the CCDR: investing in climate-resilient roads and bridges pays off. With Bhutan’s steep slopes and intense monsoons, transport infrastructure is especially vulnerable. The good news is that the economic returns from resilient design are high. In many cases, the benefit-to-cost ratio is greater than one, meaning every ngultrum spent today avoids bigger future losses. And with Bhutan’s towns and cities expanding, often into flood-prone areas, planning smarter now will save lives, jobs, and budgets later. Modeling results from the CCDR, which focus primarily on adaptive investments to climate-proof critical infrastructure, indicate that such investments alone could offset approximately 40 percent of the climate-induced GDP losses under a dry/hot scenario - with even greater returns possible if a broader range of adaptive measures are considered.
Hydropower is an important driver of Bhutan's economy, and extremely climate-sensitive
4. Diversifying the economy is also a climate adaptation strategy.
We usually think of economic diversification as a growth strategy - but for Bhutan, it’s also a smart climate response. Many of Bhutan’s key sectors—like hydropower, tourism, and agriculture—are highly climate-sensitive, meaning a single bad season or climate shock can ripple through the entire economy. The good news is that Bhutan’s carbon-negative status, along with high forest cover and robust institutions positions it well to lead in a new development paradigm. Targeted policies can unlock green jobs, mobilize climate finance and foster new sectors like sustainable tourism, forest-based industries, digital services, and climate-smart agriculture.
Adaptation is not just a climate imperative—it’s Bhutan’s most strategic investment for inclusive growth, job creation, and long-term resilience. To succeed, Bhutan must also overcome persistent constraints: a small private sector, limited credit, nascent green industries, and heavy dependance on agriculture or public sector jobs. It will be essential to develop domestic green finance instruments, effectively harness carbon markets, and strengthen public financial management. Institutionalizing climate-responsive planning - through dedicated climate law and investing in monitoring and transparency systems - will help attract capital and ensure accountability. With local governments closest to the climate-affected communities they serve, Bhutan’s decentralized governance and strong social cohesion offer a unique advantage: the ability to scale locally led adaptation that reflects on-the-ground realities and community priorities.
Bhutan is at a crossroads. It has achieved a lot by protecting its environment and prioritizing well-being. But the next chapter will require new tools, bold policies, and strong partnerships. The Bhutan CCDR offers a roadmap for that journey, one where climate action and economic development go hand in hand.
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