Empowering Agriculture Through Carbon Credits | 12 Oct 2024

The  Kyoto Protocol laid the foundation for carbon credits (CC) as a financial innovation aimed at reducing greenhouse gas (GHG). Carbon markets allow corporations to purchase CC from projects that mitigate emissions through various means, including afforestation, renewable energy, and methane capture.

Each CC purchased allows an emitter to emit one tonne of greenhouse gasses, enabling them to market themselves as carbon neutral. Agriculture is highlighted as a major contributor to India's emissions, with the potential for reduced emissions through natural farming practices.

Shifting to these methods can reduce farmers' input costs and enhance soil health, qualifying them to receive carbon credits. However, there are challenges in developing a viable agricultural project that generates carbon credits, including high costs and extended timelines for implementation.

What is Carbon Credit? 

• About: A carbon credit also referred to as a carbon offset, represents a credit for greenhouse gas emissions that have been reduced or removed from the atmosphere through an emission reduction project.  
  • These credits can be utilized by governments, industries, or individuals to offset the emissions they produce elsewhere. Entities that find it challenging to reduce their emissions can continue operations, albeit at a higher financial cost. 
• Key Features: Carbon credits are part of cap-and-trade systems, where governments set a cap on total greenhouse gas emissions. Companies that reduce their emissions below the cap can sell their excess credits to other companies that exceed their limits. 
• Types of Markets: 
  • Compliance Market: Governed by national or international legislation, such as the European Union Emissions Trading Scheme (EU ETS), where companies are mandated to adhere to emission limits. 
  • Voluntary Markets: Allow individuals and companies to purchase carbon credits voluntarily to offset their emissions. This is often pursued for corporate social responsibility (CSR) initiatives or to achieve sustainability goals. 
• Importance of Carbon Credits: 
  • Mitigation of Climate Change: Carbon credits create economic incentives for reducing greenhouse gas emissions, contributing to international efforts to combat climate change and achieve targets set in agreements such as the Paris Agreement. 
  • Funding Sustainable Development: The revenues generated from the sale of carbon credits can be reinvested in sustainable practices, renewable energy projects, and other initiatives that promote environmental conservation and resilience. 
  • Economic Opportunities: The carbon credit market offers new business opportunities for companies specializing in environmental services, renewable energy, and sustainable agriculture. 

What is the Role of Carbon Credits in Agriculture? 

• Economic Incentives for Farmers: According to NITI Aayog, Indian agriculture contributes 13% of a nation’s gross emissions. By adopting sustainable practices that reduce emissions or enhance carbon sequestration, farmers can earn carbon credits.  
• Market Opportunities: The global carbon credit market is growing, with prices for carbon credits ranging from USD 15 to USD 50 per ton. This presents a lucrative opportunity for farmers to monetize their sustainability efforts. 
• Promotion of Eco-Friendly Farming: Carbon credit programs encourage farmers to implement sustainable agricultural practices such as agroforestry, cover cropping, reduced tillage, and organic farming. These practices not only generate carbon credits but also improve biodiversity and soil health. 
  • Sustainable agricultural practices: It has the potential to sequester substantial amounts of carbon dioxide (CO₂) from the atmosphere, helping to offset emissions produced in other sectors. 
  • Soil Health Improvement: Practices associated with carbon credit generation often enhance soil organic matter, leading to healthier soils that can support higher crop yields. 
• Support for National Commitments: India has set an ambitious target of achieving net zero emissions by 2070. Carbon credits offer a mechanism for the agricultural sector to play a vital role in meeting these commitments. 
•  Many countries, including India, have committed to reducing their greenhouse gas emissions under international agreements like the Paris Agreement. Carbon credits provide a mechanism for the agricultural sector to contribute to these commitments. 

What are the Challenges of Carbon Credits in Agriculture? 

• Complexity of Carbon Accounting: Accurately measuring carbon sequestration and emissions reductions in agriculture is challenging due to variations in soil, weather, and farming techniques.  
  • The lack of standardized methodologies causes discrepancies in credit valuation, and the United Nations Development Program (UNDP)has raised concerns about double counting and greenwashing in the process.
• Fund Requirements: Transitioning to sustainable practices that generate carbon credits often requires significant upfront investment in technology, training, and infrastructure, which may be a barrier for smallholder farmers. 
  • Moreover, adopting such practices may initially lead to losses; for example, Sri Lanka's shift to organic farming resulted in a severe food crisis 
• Market Access and Participation: Many farmers are unaware of carbon credit programs and how to participate, which restricts their access to potential revenue. Additionally, they face challenges in entering carbon markets due to administrative burdens, limited resources, and difficulties meeting project scale requirements. 
• Regulatory and Policy Uncertainty: Changes in government policies and regulations related to carbon credits can create uncertainty for farmers and investors, potentially discouraging participation in carbon credit programs. 
• Impact of Climate Variability: Extreme weather events and climate change can affect the ability of agricultural practices to sequester carbon effectively, jeopardizing credit generation. 
  • For example, Soil erosion from heavy rains or extreme temperatures can reduce the soil's ability to sequester carbon, increasing uncertainty in the value and reliability of carbon credits from agricultural practices. 

How Can Carbon Credits Be Effectively Adopted in Agriculture? 

• Access to Financial Resources: 
  • Microfinance and Grants: Facilitate access to microloans, grants, or subsidies for farmers looking to invest in sustainable practices that generate carbon credits. 
    • For example, farmers in Kenya have accessed microloans through programs like the African Agricultural Capital Fund, enabling them to implement practices that improve soil carbon sequestration. 
  • Incentives for Participation: Governments can offer financial incentives for farmers adopting practices that contribute to carbon credit generation. 
    • In December 2023, the Government of India introduced the Carbon Credit Trading Scheme to implement a carbon trading mechanism and promote the Voluntary Carbon Market (VCM) in the agricultural sector. 
      • Programs like these can provide additional revenue streams to incentivize participation. 
• Standardization and Certification: 
  • Establish Clear Methodologies: Develop standardized methodologies for measuring and verifying carbon sequestration and emissions reductions in agriculture, making it easier for farmers to participate in carbon credit programs. 
  • Certification Bodies: Establishing reputable certification bodies is key for transparency and credibility. For example, Verra's Verified Carbon Standard (VCS) certifies agricultural carbon credits, ensuring they meet strict quality and reporting standards. 
• Integration with Existing Agricultural Policies: 
  • Align Carbon Credit Programs with National Policies: Integrate carbon credit initiatives into existing agricultural and environmental policies to ensure coherent support and alignment with national goals. 
  • Promote Sustainability Goals: Encourage farmers to adopt carbon credit practices as part of broader sustainability objectives, such as improving soil health and biodiversity. 
• Community Engagement and Participation: 
  • Involve Local Communities: Encourage community-based initiatives that empower farmers to collectively engage in carbon credit programs, sharing resources and knowledge. 
  • Stakeholder Collaboration: Foster collaboration among farmers, government agencies, NGOs, and private sector players to create a supportive ecosystem for carbon credit adoption.