Strengthening the roots of an agri-carbon market Premium

Carbon markets hold the potential to transform Indian agriculture, turning sustainable farming practices into a lucrative opportunity for farmers while combating climate change

Carbon markets hold the potential to transform Indian agriculture, turning sustainable farming practices into a lucrative opportunity for farmers while combating climate change. In this, carbon pricing is a critical tool for mitigating climate change. It functions through compliance and voluntary carbon markets. Compliance markets, regulated by governments or international bodies such as the United Nations, impose emissions caps on companies. Businesses exceeding these caps must either purchase carbon credits from projects that mitigate greenhouse gas (GHG) emissions, such as agroforestry or sustainable agriculture projects, or pay carbon taxes for their extra emissions. In contrast, the voluntary carbon market operates without regulation, allowing organisations to trade carbon credits through mechanisms such as the Clean Development Mechanism, Verra, and Gold Standard, among others. Together, these systems aim to reduce GHG emissions and support global climate goals.

Carbon markets are gaining momentum. At COP29, in November 2024, for instance, a centralised carbon market under the UN got a green signal. Last year, India announced that it would launch its own compliance and voluntary carbon markets. Recently, the National Bank for Agriculture and Rural Development, in collaboration with the Indian Council of Agricultural Research and State universities, listed five agriculture carbon credit projects in Verra.

Carbon markets rely on two key principles: additionality and permanence. Additionality ensures emission reductions happen only due to carbon credits, requiring farmers to adopt new practices. This means that those who already use sustainable methods are not eligible for credits. Permanence refers to the long-term durability of these benefits. Permanence guarantees these benefits last, such as ensuring carbon stored in soils through reduced tillage is not lost due to a return to conventional ploughing. Therefore, projects that aim to generate and trade carbon credits must adhere to certain conditions, including additionality and permanence.

To assess the readiness of India’s agriculture sector for a full-scale carbon market, we must examine the existing carbon credit projects listed under non-governmental entities such as Verra. This highlights challenges and the necessary fixes before scaling up. If projects fail to deliver promised environmental benefits, producing unreliable credits, buyers may lose confidence and stop purchasing agriculture carbon credits. This deprives farmers of extra income and discourages the adoption of sustainable practices. Ensuring high-quality credits from the start of Indian carbon markets is crucial for trust and long-term farmer participation.

In just four years, over 50 agriculture carbon farming projects have been listed in the Verra registry, targeting 1.6 million hectares of farmland in India. These projects aim to generate approximately 4.7 million carbon credits annually, equivalent to offsetting the GHG emitted from 11 billion miles driven by an average gasoline-powered vehicle. However, none of these projects is registered, which means carbon credits have not been issued and that farmers have not received the money.

A recent study by the writers of this article published in Climate Policy — “Carbon farming in India: are the existing projects inclusive, additional, and permanent?” — examines seven such carbon farming projects in Haryana and Madhya Pradesh, focusing on socio-economic inclusiveness, additionality, and permanence. The findings show that marginalised communities and small farmers were largely excluded, with women making up only 4% of participants. Carbon farmers in these States cultivated significantly more land — 51% more in Haryana and 32% more in Madhya Pradesh — than non-carbon farmers. Among non-carbon farmers, 46% of the land was owned by non-marginalised castes (general castes) and 17% by Scheduled Caste-Scheduled Tribe (SC/ST) farmers, whereas among carbon farmers, 63% of the land was under non-marginalised castes and only 13% was owned by SC/ST farmers.

Further, while some sustainable practices were already in place before the projects began, others such as zero tillage, alternate wetting and drying, intercropping, reduced chemical fertilizer use, micro-irrigation, and tree planting were newly adopted, which satisfies the additionality condition. This demonstrates that, when implemented effectively, these projects can genuinely reduce GHG emissions.