Recently, in a conversation amongst civil society personalities and some Good Samaritans, the subject of Carbon Credits (CC) cropped up. They were of the view that it is big money, waiting to be picked up. The reality is more fragmented than the ‘rosy’ picture being presented by market agents.

Kyoto Protocol (1997), recognised planetary warming, onset of climate change and presented frameworks to reduce carbon in the atmosphere. CC is one such financial innovation.

Carbon markets provide mechanisms for polluters (corporations) to pay to projects by tokenising and trading emissions as CC. Such funded projects include: afforestation, natural farming, methane capture, renewable energy, which capture or avoid GHG emissions.

Simply put, when an emitter purchases one CC from a project, which reduces, avoids or captures carbon from the atmosphere, emitter can emit one tonne of GHG! This interesting mechanism enables such corporations, designate themselves as ‘carbon neutral’ or even ‘green’!

There are two types of carbon markets; voluntary (unregulated), government-led and compliance-oriented (meeting set targets for industries, monitoring emissions, issuing credits, and facilitating trade). Voluntary markets, in fact, mimic compliance market procedures, allowing anyone to abate or compensate their emissions by channelling private capital to fund climate solutions.

Of the 9,089 voluntary market projects globally, 1,636 (18 per cent and second largest) are from Indian suppliers. They have supplied 333 million credits to date. But its unregulated nature results in unverifiable claims, information asymmetry and fly-by-night operators. To illustrate, a mangrove restoration project developer, promised a payout of ₹15,000 per year/hectare.

“We haven’t heard from them or received any money in over a year,” said a farmer to C-GEM!

Farm emissions

According to NITI Aayog, Indian agriculture contributes 13 per cent of a nation’s gross emissions. Transition to natural farming in India, well honed by grassroots movements and now strategically supported by the Centre, can theoretically reduce emissions through reduction in fertilizer, water, and energy usage, thereby building soil health and improving biodiversity.

A natural farming farmer, would primarily benefit from reduced input costs as s/he would be using local inputs for preparation of bio-fertilizers and bio-pesticides and better prices if marketed as ‘genuine & natural’ products. Super imposing CC on natural farming would enhance farmers’ incomes.Per some studies, such benefits approximately work out to two to five CC/hectare/year which is equal to ₹1000-4000/hectare/year. The net sown area in India is 139 million hectares. Such a big market appears lucrative — hence the start-ups, consultants and the hyperbole!

What is a realistic agriculture project which can generate CC? A farm of about 10,000 hectares in size, with four or five years of time to generate and issue CC, would entail a project cost of about ₹4-5 crore. Ensuing hard work involves; stakeholder consultations, land record verifications, KYC, developing contracts, coordination, technology adaptation, perfecting methodological challenges and rigorous audit.

These programmes span about 20+ years — remember carbon is being sequestered! Institutions such as cooperatives and FPOs that can ensure scale will have a role to play.

Under the Paris Agreement (2015), India is committed to Nationally Determined Contributions to reduce carbon intensity by promoting renewable energy and CC. India amended its Energy Conservation Act 2022, and has charted the path towards a compliance market, for obligated industries. This will eventually integrate with voluntary market mechanisms. The green credits framework (October 2023), would incentivize voluntary actions. To encourage small farmers to practice natural farming and avail benefits of CC, the Agriculture Ministry released a (January 2024) framework.

It is essential to recalibrate CC markets by ushering in community-centred designs, complete transparency, local stewardship rigorous verification and regulation and accountability of developers and auditors.

Suryakumar was Deputy Managing Director, NABARD, and Gupta is Founder, C-GEM

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