The carbon credit market in India is still in the early stages of development but has the potential to grow significantly in the coming years. Within this space, the opportunities for carbon credits in the agriculture sector, a major contributor to the Indian economy, are significant. The sector has the potential to contribute to both environmental and economic sustainability.

As a signatory to the Paris Agreement, India aims to limit global warming to well below 2 degrees Celsius. To achieve this, it has set a target of reducing its greenhouse gas (GHG) emissions intensity by 33-35 per cent below 2005 levels by 2030. The carbon credit market could be an important tool to generate funds to help India achieve this target.

“The agricultural sector is a significant contributor to GHG emissions, particularly through the production of livestock, rice cultivation and the use of fertilizers. However, it can also be a significant carbon sink through the use of sustainable land management practices, such as agroforestry, conservation agriculture and improved livestock management,” says Anjal Prakash, Associate Professor (Research) and Research Director at the Bharti Institute of Public Policy, Indian School of Business.

Agroforestry, which involves integrating trees into agricultural landscapes, can provide multiple benefits, including carbon sequestration, biodiversity conservation, and soil health improvement. Carbon credits can be generated by farmers who adopt agroforestry practices and can provide an additional source of income for them. The carbon credits can then be sold on carbon markets to companies looking to offset their emissions.

The growth of carbon markets, coupled with government support for sustainable agriculture practices, can create a favourable environment for the adoption of carbon credits in the agriculture sector. However, there are several challenges that need to be addressed.

These include a comprehensive regulatory framework for carbon credits and its trading through an exchange, brokers and associated infrastructure. Also, the relatively low demand for carbon credits from international buyers, which can limit the revenue potential for Indian companies must be addressed. The farmers and other stakeholders need technical knowledge and expertise to participate in the carbon credit market.

In this regard there is need to provide training, skill upgradation and expert help to farmers. They and other stakeholders must be trained to adopt sustainable agriculture practices. They must also learn carbon credit generation, verification and trading.

The market

The carbon credit market has existed for more than two decades and has grown significantly in some regions of the world. Europe has been the largest market for carbon credits, with the European Union Emissions Trading System (EU ETS) being the world’s largest. In recent years, other regions, such as China and South Korea, have also established their carbon markets. India has been rather slow in this area though the potential is considerable.

According to a report by the World Resources Institute India, “With a carbon market, India has at its disposal an instrument that can provide the right policy and price signals to incentivise deep decarbonization while ensuring global competitiveness. A well-designed carbon market can potentially reduce costs of emissions reductions and mobilise finance needed for decarbonisation.”

The Bureau of Energy Efficiency is set to administer the country’s carbon trading framework, which is getting ready for rollout. According to Abhay Bakre, Director General, Bureau of Energy Efficiency, “By 2030, the Indian carbon market will be the leading market in the world. It will ensure that this market assists in driving decarbonisation effort while driving the cost of technologies down.”

In December last year, Parliament passed the Energy Conservation (Amendment) Bill, 2022. The Bill amended the Energy Conservation Act, 2001, to empower the government to establish carbon markets in India and specify a carbon credit trading scheme.

Clean energy

India’s commitment to meeting its climate targets will require significant investment in clean energy and other low-carbon technologies, says Prakash, who has been part of the 6th assessment report of IPCC and works on issues of climate change adaptation and mitigation focusing on South Asia.

The carbon credit market holds promise for the future, but it will require continued support from the government and private sector to reach its full potential.