India updated its Nationally Determined Contribution (NDCs) to the United Nations Framework Convention on Climate Change (UNFCC) in August 2022. The updated NDC includes 50 per cent cumulative electric power installed from non-fossil fuel-based energy sources and an additional carbon sink of 2.5-3 billion tonnes of CO2 equivalent through forest and tree cover by 2030.

To achieve these targets, Parliament, during the winter session, passed “The Energy Conservation (Amendment) Bill, 2022”, which mandates the exploration and use of non-fossil fuel energy sources and the creation of a national carbon market. The Bill is also futuristic in achieving the target of net zero emission by 2070.  

This Bill, though, focuses on renewable energy sources, it crafts scope for agriculture and agroforestry to contribute to the net zero emission target. Agriculture is both a cause and a victim of greenhouse gas emissions. It contributes approximately 22 per cent to the total greenhouse gas emissions, leading to a rise in temperature and changes in precipitation.

Agriculture is also significantly negatively impacted by climate change. Nevertheless, it also offers solutions for mitigating greenhouse gas emissions. Soil, the very basis of agriculture, is a natural carbon sink. It captures carbon from the atmosphere and stores it. Intensive agricultural practices remove organic carbon and other nutrients from the soil. Whereas, improved land and farm management practices such as no-tillage, residue retention, crop rotation, integrated nutrient management, intercropping, bio-char, and agroforestry have considerable potential to sequester carbon, improve soil health and restore ecological balance, and thus ensure the long-term sustainability of agriculture. These practices have 12-41 per cent higher carbon sequestration potential.  

Monetising sequestration

The creation of a carbon market will help monetise the carbon sequestered in agriculture and agroforestry systems and facilitate its transaction like any other commodity. It is an opportunity for farming communities to sequester and sell carbon credits in the voluntary carbon markets and earn additional income. In India, the market price of one agriculture-based carbon credit is approximately ₹725. A farmer can generate 4 to 12 carbon credits per hectare depending on the type of improved farming practices adopted and thus can earn additional income of ₹3,000-9000 per hectare.  

The global voluntary carbon market has been expanding fast due to the increasing demand for carbon credits from business organisations to meet their obligations to climate change mitigation. As per the 2022 Report of the Ecosystem Marketplace, about 500 million carbon credits, valued at $1.98 billion, were traded globally in the voluntary carbon market in 2021.

However, the share of agriculture-based carbon credits was minuscule — one million carbon credits worth $8.7 million. Given the urgency of meeting the target of net zero emission, the share of agriculture in carbon trade is expected to increase significantly. So is the price of carbon credits. Expansion of the credit market is also an opportunity to invest in the development and promotion of low-cost carbon abatement technologies.  

Biggest challenge

However, trading carbon sequester from agriculture is challenging. The biggest challenge is the quantification and verification of the additional carbon retained in the soil due to the adoption of farming practices. The process is costlier and time taking also. The second major challenge emanates from the existing agrarian structure. In India, agriculture is dominated by small landholdings, which usually differ in their cropping pattern and the adoption of carbon abatement farm practices. 

Of the total 146 million landholdings, over 86 per cent are of size less than two hectares. Reaching out to such a huge number of smallholders means higher administrative and transaction costs for buyers of the carbon credits. The third challenge is the trade-off between the expected additional revenue from adopting a carbon abatement practice and its impact on crop yield. A farmer will adopt a carbon abatement practice if he expects that revenue from the sale of carbon credits would compensate for the loss in crop yield, if any, due to its adoption.

Such a trade-off may act as a disincentive to the large-scale adoption of carbon abatement practices. Finally, farming communities lack awareness of the environmental, social, and economic benefits of carbon abatement practices and carbon markets. 

Tedious process

The first step towards creating a market for sequestered carbon is to evolve a transparent process of quantification and verification of additional carbon generated by different farm practices. Artificial intelligence and remote sensing offer scope for assessing the quantum of sequestered carbon. Further, for an individual farmer, the process of selling carbon credits in the voluntary carbon market is tedious.

Nonetheless, their participation in carbon trading can be facilitated by collectives such as FPOs and cooperatives that can organise farmers to adopt carbon abatement practices and sell the accrued carbon credits on their behalf. A few agro-tech companies, for example, Boomitra and Nurture. farm, organise farmers through intermediaries to facilitate their participation in voluntary carbon markets. Finally, there is a need to create awareness among farming communities on the benefits of the adoption of improved agricultural practices and participation in carbon markets. 

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