Agriculture is a victim and a source of climate change. But it also offers solutions. Developing countries heavily depend on agriculture and lack the resources to look for cost-effective solutions to climate change in agriculture itself. India has committed to achieving the target of net-zero emissions by 2070, and towards this, it has taken several proactive actions. The Government of India enacted “The Energy Conservation (Amendment) Bill, 2022” for promoting the use of renewable energy and creating a national carbon market.

The recent Union Budget 2023 lays considerable emphasis on Green Growth for sustainable economic development. Nonetheless, most of such actions are broad-based and indicative and not specific to any economic activity. Recognising this gap, the Ministry of Environment and Forests has recently proposed a Green Credit Programme under the Environment Protection Act, 1986, which provides a basic framework for harnessing the green growth potential of different farm and non-farm activities through economic incentives.

Nodal agency to issue credits

The programme provides for a market-based mechanism to reward voluntary environmental actions that help conserve nature and mitigate climate change. It offers green credits as incentives for specific activities that deliver positive environmental outcomes. The programme involves all stakeholders, that is, individuals, industries, farmer producer organizations, urban local bodies, gram panchayats, and private entities to earn green credits for the adoption of eco-friendly practices including tree plantation, water conservation, sustainable agriculture, waste management, mangrove conservation and restoration, eco mark labelling, sustainable building and infrastructure, and air pollution reduction.

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The Indian Council for Forestry Research and Education (ICFRE) is designated as the main agency to issue green credits, and oversee its implementation and tracking the progress. The green credits earned through these activities can be traded on a domestic market platform. In addition, the activities generating green credits are also eligible for carbon credits for trading in the carbon market.

The Government of India has taken several initiatives for promoting sustainable development of agriculture, but it is for the first time a dedicated domestic voluntary national market mechanism has been proposed to incentivize stakeholders engaged in agriculture for their adaptation and mitigation actions.

Repurposing subsidies

The Programme can be a game changer for providing much-needed market mechanism for sustainable development of agriculture and enhancing farmers’ income. First, several agricultural practices such as zero-tillage, direct seeding and alternate wet and drying systems in rice, green manuring, organic manure, cultivation of legume crops, rainwater harvesting and conservation, organic or natural farming, precision agriculture, and agro-forestry generate several intangible ecosystem services, which are not valued but are freely available to the society. Through the green credits the farmers will be rewarded for the adoption of farm practices that generate positive externalities to the environment, human and animal health.

Second, the programme can serve as an entry point for repurposing agricultural subsidies, which have become detrimental to natural resources and unsupportive of sustainable production patterns. For instance, the heavily subsidised electricity for irrigation has caused a significant reduction in the groundwater table in States such as Punjab and Haryana. The burning of paddy straw pollutes the environment, affecting human and animal health. The current subsidy regime can be transformed by linking economic incentives for the green credits with the adoption of environmental-friendly agricultural practices.


Though quite promising, several practical challenges are likely to crop up while operationalising the Green Credit Programme. The biggest challenge is the establishment of an equivalence factor for allocating green credits across different activities. For example, estimating equivalence factor for water conservation and carbon sequestration is complex and difficult task.

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Another hurdle is the valuation of intangible ecosystem system services that agriculture generates. As the primary objective of the Programme is to provide monetary incentives for the protection of the environment, the absence of robust mechanisms for the verification of green credits and their monitoring may lead to greenwashing. Furthermore, measuring green credits at the farm level is a difficult task due to the significant diversity in farm size, cropping patterns, and agronomic practices. Of the total farm households, about 86 per cent have landholdings of less than or equal to two hectares, and they often face significant financial constraints on the purchase of eco-friendly inputs and the adoption of capital-intensive farm practices.

The first step for implementation of the Green Credits Programme is that the prices of the green credits from agricultural practices need to be differentiated from the prices of the practices in other sectors. There is a very probability of a reduction of crop yields in the initial years of switching over to green practices. Second, the programme should adopt a community approach for the certification of green credits to minimize transaction costs. Third, to avoid the risk of greenwashing, the pricing of the green credits must be differentiated by the type of activity. Finally, agriculture mitigates the greenhouse gas emissions and enhances carbon sequestration; hence the price of green credits should be fixed higher for the agricultural activities.

(Kumar is Scientist, ICAR-National Institute of Agricultural Economics and Policy Research, New Delhi and Birthal is Director, ICAR-National Institute of Agricultural Economics and Policy Research).