Carbon market: A panacea for boosting the rural economy

Sourabhjyoti Nath & Barnamala Kalita

(The writer can be reached at sourabhjyoti2000@gmail.com)

The carbon market is a system where companies, governments, and other organizations can buy and sell carbon credits to help reduce greenhouse gas emissions. A carbon credit represents the right to emit one tonne of carbon dioxide or an equivalent amount of other greenhouse gases. The carbon market was created to help combat global climate change by giving economic value to efforts that reduce greenhouse gas emissions. By trading carbon credits, countries and companies can financially benefit from reducing their emissions, encouraging more sustainable practices.

The concept of the carbon market took shape under the Kyoto Protocol in 1997 by the United Nations, which set country-specific limits on GHG emissions, thereby giving economic value to emission reductions. This facilitated the development of carbon markets, where emission units could be traded, helping to lower the economic costs of reducing emissions. India, one of the early adopters of this mechanism, currently holds the second-highest number of projects registered under the Clean Development Mechanism (CDM), following China (Ministry of Environment, Forestry, and Climate Change, 2020). The Paris Agreement of 2015 further advanced these efforts by introducing a voluntary mechanism aimed at promoting sustainable development and reducing global emission levels through international cooperation.

India is one of the few countries that initially responded to this carbon market mechanism and established the system in the country as per the requirements of the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC). India currently has the second-highest number of projects registered under the CDM mechanism after China. The World Bank (2021) mentions that carbon-credit markets have shown remarkable growth in the past year despite the COVID-19 pandemic and the related economic downturn. Both the number of registered projects and the number of credits issued have increased by 11 percent and 10 percent, respectively. This growth brings the total number of credits issued since 2002 to around 4.3 billion metric tonnes of carbon dioxide equivalent (tCO?e) (Source: World Bank 2021c). It is also estimated that the carbon market will grow by 31% annually between 2023 and 2028. It is reported that about 74 billion US dollars will be raised in 2023. A total of 303 billion USD has been raised since 2007 through the Carbon Market. Also, about 18% of global GHG emissions are covered under the global carbon market, as reported by the International Carbon Action Policy (2024). EUETS (European Union Emissions Trading System) accounts for the highest, i.e., 84% of the total global carbon share. A total of 8161 activities are registered under the CDM mechanism across more than 140 countries globally, which issues 2046 million metric tonnes of CO2 equivalent (mtCO2e) CERs (Certified Emission Deduction), which means it reduces 2046 mtCO2e to get released into the air globally (Voluntary Carbon Markets Insights, 2018).

In the purview of the Global Carbon Market, the Government of India has initiated the development of the unified carbon market mechanism ‘Indian Carbon Market’ (ICM), which will mobilise new mitigation opportunities through demand for emission reduction credits by private and public entities. India, with 46 projects, is second to China (279) and is leading in emission reduction among countries with agricultural projects on the Voluntary Carbon Market (VERRA). There are a total of 3023 projects under CDM in India. Maharashtra has the highest number of projects, followed by Gujarat and Tamil Nadu. About 278 million units of carbon credits were issued by India between 2010 and 2022. i.e., 278 million metric tonnes of GHGs are reduced or absorbed. Also, India commits to increasing an additional carbon sink of 2.5–3.0 billion metric tonnes of CO2 equivalent . through forest and tree cover by 2030.

Assam Agricultural University, Jorhat, recently signed an MoU with TERI (the Energy Resource Institute) on May 10, 2024, to plant 1 crore trees in 10 districts of Assam. It includes Jorhat, Sivasagar, Golaghat, Bongaigaon, Sonitpur, Darrang, Udalguri, Baksa, Nalbari, and Barpeta districts. It aims to provide income by selling carbon credits of the tree on the international market after 3 years of plantation. The institutions involved with this noble initiative are TERI, ReNew Synergy and Resource Centres, and Krishi Vigyan Kendras under AAU.

The Tea Research Association, Jorhat, also initiated a programme partnering with Boomitra. This initiative is designed to enhance productivity, promote soil health, and contribute to carbon sequestration. It promotes regenerative agriculture guidance in tea cultivation. Boomitra will enable tea growers associated with TRA to generate income through the sale of carbon credits.

The Assam government implemented Amrit Vriksha Andolon, which aims to plant 1 crore seedlings in Assam. It provides financial support of Rs 100 for planting a tree, and Rs. 200 will be provided in the third year to ensure plant survival. Through the Amrit Vriksha plantation programme, Assam can earn green credits, which can be traded in the carbon market.

Agriculture holds significant potential within carbon markets, offering a dual benefit of generating revenue for farmers and combating climate change. Through practices such as reducing stubble burning, cover cropping, zero tillage, agroforestry, and improved manure management, farmers can sequester carbon or reduce emissions, thereby generating carbon credits. These credits can then be sold to companies looking to offset their emissions, providing a new revenue stream for farmers and incentivizing sustainable practices.

In India, the rise in GHG emissions due to stubble burning is a significant concern. From 2011 to 2020, emissions from crop residue burning increased by 75%, from 19.34 mtCO2e to 33.83 million metric tonnes of CO2 equivalent in 2020. By avoiding stubble burning, India could potentially earn substantial revenue by selling the resulting carbon credits. For instance, at a rate of $10 per carbon credit, avoiding crop residue burning in 2020 alone could have generated approximately $338.3 million (Rs. 2811.83 crores). Also, we can earn money through biogas plants. The global warming mitigating potential (GMP) of a family-sized biogas plant is 9.7 t CO2 equivalent per year. The current price of one carbon credit is 10 US dollars. Therefore, we can earn about 97 US dollars per year. (8054 INR/year).

Proper feed additives and manure management can sequester 3.4 MtCO2 per year; one solar-powered water pump can replace a 5-horsepower diesel pump and reduce 5 tCO2 per year; drip irrigation uses 30%–60% less water and delivers 20%–50% higher crop yield, compared to furrow irrigation, it decreases N2O and CH4 direct emissions by 21%.

Direct seeded rice reduces India’s GHG emissions in rice-growing regions by 34 tCO2e (25%) because it minimises nursery bed preparation; intercropping cereals and legumes reduces nitrogen fertiliser use as legumes supply 15% of nitrogen and emit fewer GHGs compared to non-legumes. On average, inter-cropping can sequester 0.184 tCO2 per hectare per year; biochar reduces CH4 emissions by 79% and N2O emissions by 22%–48% after 2–7 years; zero tillage reduces CH4, CO2, and N2O emissions by an average of 20%, 15%, and 8%, respectively.

Farmers stand to benefit substantially from participating in carbon markets, as it offers them an avenue to earn additional income. By monetizing carbon sequestration and emission reductions, farmers are incentivized to adopt practices that enhance carbon storage in agricultural landscapes while diversifying their income streams.

While the Indian carbon market holds immense promise in advancing climate action and sustainable development, its success will depend on addressing these challenges through coordinated efforts from government, industry, civil society, and international partners. By leveraging the strengths of a diversified economy, a vibrant entrepreneurial ecosystem, and a rich pool of human capital, India has the opportunity to emerge as a global leader in carbon markets, driving innovation, prosperity, and environmental resilience for generations to come.