Indian agriculture has undergone intense cultivation practices for the past six decades to ensure food security in the country. This has resulted in significant loss of soil organic carbon, deterioration of soil fertility and chemical pollution in major cultivated lands across the country. Further, intensive cultivation together with mono-crop cultivation of major cereals led to loss of biodiversity and exhaustion of ground water resources. These cultivation practices have also led to an increase in greenhouse gas (GHG) emissions that contribute to global warming and climate change.
The emissions from rice cultivation accounted for about 17.4 % of total GHG emissions from agriculture sector in the country, according to the India Third National Communication, submitted in December 2023, to The UN Framework Convention on Climate Change (UNFCCC). In such a scenario, carbon farming or regenerative agriculture can provide a potential opportunity for improving soil fertility, improving yields and reducing emissions, while providing additional income for farmers through trading carbon credits in a voluntary carbon market (VCM).
What is carbon farming?
Although the concept of carbon markets has been around for a few decades, global participation in them started after legally binding emission reduction targets were set for developed countries in the Kyoto Protocol in 1997. Subsequently, the Paris Agreement in 2015 made provisions under Article 6, allowing international cooperation to establish functional carbon markets. In simple terms, a carbon market is a marketplace where carbon credits are traded. One carbon credit is equivalent to one ton of emissions removed in CO2 equivalents (tCO2e). At present, there are no set targets for emission reduction in the Indian agriculture sector and hence farmers can trade their carbon credits in voluntary carbon markets to earn additional income.
They can do this by taking up the specified farming practices on their land and receive carbon credits. This process is commonly known as carbon farming or regenerative agriculture. Such farming practices aim to help in removing the atmospheric carbon (CO2) and store it in plants and/or soil. Some farming practices used in regulative farming include: less tillage, agroforestry practices, rotation of crops, use of cover crops, reduction of chemical fertiliser use and improved water management and irrigation techniques. Farmers receive one carbon credit for removal of one tonne of carbon emissions. They can trade these to receive additional income while also benefiting from the improved soil fertility and better yields.
Global VCM was valued at around $2.4 billion in 2023, according to the Voluntary Carbon Credit Market Report by Global Market Insights. As per the Voluntary Registry Offsets Database (v10) maintained by Berkeley Carbon Trading Project, a total of 1,978 MtCO2e of carbon credits were issued, from around 8,777 projects, across the globe till December 2023. However, agriculture accounted for only 1.4%, while forest and land use along with renewable energy accounted for more than 70% of total carbon credits issued.
India stood in first place with 1,586 projects and 321 MtCO2e of carbon credits issued till December 2023, accounting for 18% of total projects and 16% of total carbon credits. About 89% of the carbon credits were issued in the renewable energy sector in India, while agriculture received only 0.2 %. As of the end of December 2023, there are 78 VCM projects in India’s agriculture sector covering areas such as improved irrigation management, manure methane digestion, rice emission reductions, and sustainable agriculture.
VCMs, at the moment, are largely functional through private sector agencies and companies. To encourage small and medium farmers to avail their benefits, the agriculture ministry released a framework in January 2024. The framework aims to promote sustainable agricultural practices, and adopt regenerative farming to build climate resilience, in the country’s food production system. Apart from carbon credits, the green credit programme (GCP), which provides incentives in the form of green credits for specified activities, is also being implemented. GCP is overseen by the Ministry of Environment, Forests and Climate Change, while the implementing agency for VCM is the Bureau of Energy Efficiency. However, according to the agriculture ministry’s framework, an activity generating green credits under GCP may also receive carbon credits.
Also read: 500+ Signatories Call for the Rollback of Green Credit Rules
Carbon credits currently fetch between Rs 700 and Rs 1,000 each in international markets. But their price is expected to increase substantially with the rise in demand in coming years. On average, a farmer may generate about 2-6 carbon credits per hectare, according to an agriculture ministry report. Although, at present, Indian agriculture is kept away from targeted emission reduction commitment, adoption of sustainable agricultural practices can help Indian the sector in mitigation and adaptation to climate change in the long run.
Major challenges and the way forward
Indian agriculture is highly fragmented, with more than 80% of holdings being small and marginal. Hence, the size of holdings poses a major constraint, as pooling land across farms with diverse cropping patterns can be challenging. Another major challenge is the lack of awareness and knowledge to participate in VCMs. Moreover, it takes a considerable amount of time to receive the monetary benefits: up to 1.5 years to list and another 8 months to a year for receiving the money, studies show.
Transaction costs – in the form of measurement, monitoring, third party verification and certification etc – too add to the challenge. These costs may be very high, resulting in limited net monetary benefits for farmers.
Accurate measurement of carbon in the soil, before and after the implementation of proposed practices, is another major problem. Availability of technology, data and trained personnel are crucial for precise measurement.
Carbon credit market in agriculture is in its nascent stage and requires a strict monitoring and regulatory system. There are concerns that asymmetric information, lack of transparency, and inadequate regulation could lead to unfair pricing practices for carbon credits, resulting in low earnings for farmers. Additionally, the lack of knowledge and awareness among farmers and rural communities may lead to their exploitation. Given the fast-growing VCM in the country, there is an urgent need for policy measures to ensure transparency, regulation, and widespread awareness about VCM. These systems are essential for the efficient and transparent functioning of VCM in the country to ensure that the intended benefits reach farmers.
At the same time, concerns regarding the calculation of credits under the GCP need to be addressed. Activists and experts have expressed doubt over the methodology used in the process, which may lead to further exploitation of natural resources instead of protecting and conserving them.
The future demand for carbon credits is expected to increase about 15 times by 2030, according to McKinsey and Company. To address the long wait time to receive carbon credits, GCP may provide initial incentives to encourage farmers’ participation in VCM until they start receiving monetary benefits from carbon credits. It is essential to strengthen and equip the agricultural extension system in the country to create widespread awareness among farmers about the framework and processes of VCM, the direct and indirect benefits of regenerative agriculture, and its long-term positive impact on their cultivated lands and crop yields.
Dr. A. Amarender Reddy has a PhD (economics), FISPRD and is Principal Scientist (Agricultural Economics), ICAR-Central Research Institute for Dryland Agriculture, Hyderabad.
Dr. Tulsi Lingareddy is an economist studying financial markets, sustainable finance and climate change. Views are personal.
