Meet the farmer with whom India's farming enters carbon credit market

The journey began in 2011 when Cheema, in his early 30s, took over the family farm. He had to deal with a host of problems every season—farm hands were not available on time; groundwater was depleting steadily. Also, with deteriorating soil fertility, farmers were using more chemical fertilizers to maintain crop yields. It was the warning of a bleak future and an impending desertification that pushed Cheema to experiment with unconventional methods.

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By 2019, Cheema had turned things around. For the kharif crop season beginning June, he shifted to the direct-seeded rice (DSR) method, replacing the traditional method of growing saplings in a nursery and then transplanting them in flooded fields. This helped him save large amounts of water required for flooding paddy fields and about ₹5,000 per acre in labour costs for puddling fields and transplanting saplings. Doing away with submerged paddy also led to a reduction in methane emissions (produced by bacteria in flooded fields).

Following the harvest, Cheema did not set the stubble on fire, as is the practice in states like Punjab and Haryana which worsens air quality in the National Capital Region. Instead, he used a mulcher to spread the stubble across the field and planted wheat seeds with a Happy Seeder machine without tilling the field. The zero-till wheat helped in trapping organic carbon in the soil even as mulching increased soil fertility and moisture. The result was lower requirement of nitrogenous fertilizers like urea as well as fewer rounds of irrigation. As weed incidence is negligible in fields covered with crop residue, weeding costs were also lower.

“I am using less inputs like urea, water and hired labour; yet yields have improved by 5-7% for both wheat and rice. When I started, my neighbours used to laugh at me. They would say: Sardarji pagal ho gaye. (The man has gone nuts)," Cheema said.

The new year is set to mark a new beginning for Cheema. By mid-2023, Cheema, along with hundreds of others, could receive the first of the carbon credits issued to farmers in India. Carbon credits are payments made for implementing climate-friendly practices which reduce carbon emissions. According to the United Nations’ Food and Agriculture Organization (FAO), agriculture and related land use emissions accounted for 17% of all greenhouse gas emissions from all sectors in 2018.

The credits, generated by practices Cheema has adopted, will be put up for sale in the global voluntary carbon market (VCM). These credits can be purchased by corporations to offset their own carbon emissions.

For instance, climate-friendly practices adopted by Cheema is likely to generate at least one credit per acre of land every year—equivalent to removing one tonne of carbon dioxide from the environment. The credits could be sold for a price, say $15 a piece, in the global market. For instance, if Cheema could generate a credit for each acre every year, he could receive a payment close to $4,000 for four years (on 65 acres of land).

“The savings and yield advantages are enough for me. What I receive from carbon credits will be an incentive and encouragement for farmers like me to adopt climate-friendly practices," Cheema said.

Nascent market

Since 2019, Cheema has been a part of a carbon credit programme started by Grow Indigo. The agri-tech startup, a joint venture of Mahyco Grow and US-based Indigo Ag, has so far enrolled 50,000 acres in its carbon credit programme spread across 20 districts in Punjab, Haryana and the National Capital Region. By March 2023, it has set a target to register 150,000 acres. Grow Indigo is also working to register more acres across crops like cotton, soybean, corn, rice and sugarcane in other states.

According to Ecosystem Marketplace, a global repository of information on environmental finance and payments, close to 500 million carbon credits, valued at $2 billion, were traded in 2021. Of the total credits traded, agriculture activities contributed a miniscule 1 million credits compared to over 200 million credits for both forestry and renewable energy projects.

Carbon credits generated from commercial agriculture is a nascent space but the Indian market is estimated to grow to $4-5 billion in the next five years, said Usha Barwale Zehr, executive director of the Mumbai-headquartered Grow Indigo.

“We are not guaranteeing any price (per carbon credit) to the farmer as those will be market driven. But our partner Indigo Ag has recently sold its credits for $40 in the US. From our perspective, the quality of the credit is extremely important—small holder (farmer) generated carbon credits, which are data backed, can fetch a higher price," Zehr added.

So far, Grow Indigo has raised about $13 million from investors. Varaha, another startup launched in August 2022, raised $4 million in seed funding in December.

“We took up the emerging concept of carbon farming to be on the same trajectory as western countries," said Madhur Jain, co-founder and CEO at Varaha. “A $200 payment to a large farmer in the US or Europe may not have a lot of impact but a $100 payment to a small farmer in south Asia for changing practices is a huge matter for them," Jain added.

Varaha is currently working on four projects—the largest one spanning 150,000 acres focusing on improving soil organic carbon content from regenerative agriculture practices. Two other projects are on alternate wetting and drying of rice fields to reduce methane emissions. A fourth one with tribal farmers in Andhra Pradesh aims to sequester carbon by planting trees on farm bunds.

“If you look at the macro parameters, global carbon emissions are around 45 billion tonnes every year… the target as per the Paris climate agreement is to cut emissions by half by 2030 and achieve net zero emissions by 2050. You cannot expect large companies or economies to just shut down and stop emissions. So, carbon offset through nature-based solutions (which can store large amounts of carbon in the soil) is a viable method… there will be ups and downs but demand for and price of such credits are going to increase in the future," Jain adds.

In addition to Grow Indigo and Varaha, an Ahmedabad-based carbon credit advisory firm, Creduce, is developing a handful of agriculture and agro-forestry projects. These include rubber plantation generated credits in Kerala and sustainably grown sugarcane in Maharashtra. Creduce is also in talks with the Gujarat government to help farmers using water saving drip irrigation systems claim carbon credits.

“Market estimates suggest that the global voluntary carbon market is poised to become $50 billion by 2030 and $400 billion by 2050. India’s is likely to be a significant supplier as the market matures. Nature based solutions comprising of forestry and agriculture projects will have the largest share globally, by 2030," said Shailendra Singh Rao, founder and MD of Creduce.

Climate and sustainability are global priorities with both government and private funds looking to expand ESG (environmental, social and governance) investments, said Anup Jain, managing partner at Orios Venture Partners, a venture capital fund, and an investor in Varaha. “This could well be another e-commerce moment for India."

How it works

The idea of a carbon marketplace first emerged in 1997 from the Kyoto Protocol which operationalized the United Nations Framework Convention on Climate Change by committing countries to limit and reduce greenhouse gases (GHG) emissions.

In agriculture, carbon credits can be generated in various ways. Soils, for instance, are large carbon sinks. Crops take in carbon dioxide from the air and fixes carbon in the soil which is released back into the atmosphere when fields are ploughed to grow the next crop. Zero tillage practices, therefore, help storing organic carbon in the soil which also makes the soil healthier and reduces use of nutrients.

Lower use of nutrients like urea and farm machinery also saves on energy required for manufacturing or while using those products—like a tractor for tilling uses diesel as fuel,while fertilizers use natural gas as a feedstock during manufacturing. Lower use of irrigation water also leads to energy savings since water is usually pumped into fields by diesel or electric pumps.

Once farmers are enrolled in a carbon credit programme, the project is usually registered with Verra, a non-profit which runs the world’s leading verified carbon standard programme. After a project is listed in Verra (or with Gold Standard, another registry) and carbon credits are generated after 18-24 months of documented practice change by farmers, the credits are verified by third-party rating agencies. Once the process is complete, the verified credits are put up for sale. Farmers receive about 75% of the payment, while the rest pays for implementation cost and margins of project developers (like Grow Indigo).

Measuring woes

A major complexity arises from how credits are calculated. Project developers deploy a host of technologies like remote sensing, direct measurement of soil samples, and simulations to calculate the impact of the project compared to a baseline scenario.

Carbon credits from solar, wind and energy efficiency projects are measurable, understandable and can lead to huge technological change, said Chandra Bhushan, founder CEO of iForest, a non-profit working on sustainable solutions to counter climate change. “But measurement, monitoring and verification are a challenge for agriculture and land related projects—which is why there have been so few projects historically," he added.

The argument that carbon credits are a ‘ticket to pollute’ is understandable but from the equity angle, carbon markets can enable capital to flow into developing countries to support a transition to climate-friendly practices, said Abhishek Jain, fellow and director at the Delhi-based Council on Energy Environment and Water.

For the carbon market to function, adds Jain, reasonable monitoring, reporting and verification standards have to be in place, else the market will be crowded by low-quality credits.

Carbon credits in agriculture are measured by two distinct pathways—carbon avoidance, say, by reducing use of fertilizer and energy on the farm, which are easier to quantify. Carbon sequestration (absorption of carbon in soil), however, is difficult to quantify. If a farmer goes back to tilling her field after a few seasons, the stored carbon may get released. This means the release of carbon was only delayed by a few years—and that is not a carbon credit worth buying.

“So, the permanence of these credits is not well established. And we need cost effective technologies to measure how much carbon is sequestered by change in practices," Jain said.

To tackle this challenge of ‘permanence’, carbon projects are now allocating a certain percentage of credits to a buffer pool and not make those available for trading. These spare carbon credits act as an insurance against worst-case scenarios in future.

Globally, soil organic carbon sequestration via regenerative agriculture practices can offset between a fourth to a third of the annual increase in atmospheric carbon dioxide, Rattan Lal, soil scientist and winner of the World Food Prize 2020, wrote in an influential paper in 2004.

But Lal also cautioned that it is a short-term strategy to mitigate human induced climate change. “A long-term solution lies in developing alternatives to fossil fuel. Yet, soil organic carbon sequestration buys us time during which alternatives to fossil fuel are developed and implemented. It is a bridge to the future."

In agriculture and forestry sectors, carbon should be viewed as a co-benefit; to convert the larger function of forests and soils into just one commodity—carbon—can backfire, warned Bhushan from iForest.

“In forests, it can lead to monocultures of say, fast-growing trees. In agriculture, crops which sequester more carbon may be pushed…. Instead of converting carbon into a commodity, it makes sense to think of a sustainable funding mechanism to change farm practices where carbon is a co-benefit."

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