Carbon Trading in the Agriculture Sector

  • IASbaba
  • January 17, 2023
  • 0
Economics, Environment & Ecology
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Context: Recently, The Union Ministry of Power has notified the implementation of the Energy Conservation (Amendment) Act, 2022, from January 1, 2023. The amendment empowers the Union government to lay down a carbon credit certificates trading scheme in India.

About Carbon Trading and Carbon Credit:

  • Carbon trading is a market-based system that aims to offer financial incentives to persuade enterprises to lessen their environmental footprint.
  • In contrast to voluntary offsets, which allow consumers to pay to offset their carbon impact, carbon trading is a legally binding scheme.
  • Carbon trading seeks to place a price on CO2 using the caps and trade principle and is calculated by individual governments and policymakers.
  • The amount of emissions that are allowed for each carbon-producing industry, such as the power sector, the automobile industry, and air travel, is capped by the government.

Carbon Credit:

  • A carbon credit is a kind of tradable permit that, per United Nations standards, equals one tonne of carbon dioxide removed, reduced, or sequestered from the atmosphere.
  • Carbon allowances or caps, meanwhile, are determined by countries or governments according to their emission reduction targets.

Significance of Carbon Credit:

  • Carbon credits allow carbon dioxide emissions to be traded as a commodity in the market which compensates sellers for investing in emission reduction practices and thus incentivises the net reduction of carbon dioxide in the atmosphere.
  • Corporations that cannot directly reduce their GHG emissions can offset their emissions indirectly by purchasing carbon credits from other individuals and entities.
  • As the significance of climate and sustainability increases for countries, investors (especially ESG-driven investments), employees, and customers’ demand for these credits is also expected to significantly increase.
  • Various practices could be eligible for earning carbon credits, including renewable energy, afforestation, ecological restoration, agriculture, waste management, etc.

Advantages of carbon credit in Agricultural Sector:

  • Carbon credits could be generated in agriculture based on carbon dioxide sequestered and stored by the soil from the atmosphere as well as the reduction in carbon dioxide emissions during the cultivation process from ploughing to the management of stubble.
    • For instance, various activities related to agriculture such as tilling of fields before sowing seeds, use of chemical fertilizers, stubble burning, etc. result in carbon dioxide emissions.
  • Agriculture is also the biggest contributor to GHG emissions within the entire food system.
    • Being a major source of emissions, agriculture could also serve as an important sink to store carbon and thus reduce, avoid or sequester carbon dioxide emissions.
  • The improvement in the carbon-storing capacity of the soil could improve fertility, crop yields, farmers’ income, water conservation, etc., thereby aiding in making agriculture resilient in the long run.
    • Use of the direct-seeding method to cultivate rice instead of transplantation of saplings in flooded fields can reduce methane emissions (generated from bacteria in flooded fields) and water consumption, and also improve soil nutrition.
  • The promotion of similar practices could help in reducing emissions and providing carbon credits to farmers.
    • Farmers can then sell these credits in the market and earn additional income, thus further incentivising them to implement such activities and improve soil carbon.
  • Encouraging activities like zero-tilling agriculture, agroforestry, improved water management, crop diversification and reduced use of chemical fertilizers can improve soil health and its capacity to store carbon.
    • It is estimated that soil carbon sequestration is a cost-effective measure to mitigate climate change and can sequester around 2.6 gigaton emissions per year.

Challenges before Carbon credit in the Agriculture sector:

  • This nascent level of agricultural carbon trading can be attributed to various reasons such as –
    • Low level of stakeholder awareness
    • Low level of methodology for determination of emissions reduced, avoided, or sequestered due to agriculture activities
    • Non-permanence of carbon sequestered in the soil
    • Verification of the quality of carbon credits
    • Monitoring of underlying projects,
  • Determination of the fair value of carbon credits to incentivise farmers to adopt sustainable practices etc.
  • The average landholding size of an Indian farmer is just over one hectare.
    • Therefore, the amount of carbon credits received may not be enough for a small farmer to adopt regenerative agriculture practices.
  • Low Participation of Agriculture Sector:
    • The carbon credits conceptually seem encouraging for climate change and agriculture but there is low participation of the agricultural sector in carbon trading markets.
    • For example, as per the Berkeley Carbon Trading Project, agricultural activities accounted for only 1 per cent of all carbon credits issued for emissions reduction projects in 2021.

Way Forward:

Farmers need to be made aware of the existence and benefits of carbon credit programmes, so that all farmers practicing regenerative agriculture can benefit from it. Need of a streamlined policy to address these challenges which will help in expanding the currently under-utilized space for carbon credit trading from commercial agriculture.

Thus the governments at the state and central level could attempt to align existing natural farming, regenerative farming, and organic farming schemes so as to nudge farmers to participate in carbon credit programmes along with the associated organizations.

Source:  The Hindu

Previous Year Questions

Q.1) “Climate Action Tracker” which monitors the emission reduction pledges of different countries is a : (2022)

  1. Database created by coalition of research organisations
  2. Wing of “International Panel of Climate Change”
  3. Committee under “United Nations Framework Convention on Climate Change”
  4. Agency promoted and financed by United Nations Environment Programme and World Bank

Q.2) Consider the following statements:

  1. The Climate Group is an international non-profit organisation that drives climate action by building large networks and runs them.
  2. The International Energy Agency in partnership with the Climate Group launched a global initiative “EP100”.
  3. EP100 brings together leading companies committed to driving innovation in energy efficiency and increasing competitiveness while delivering on emission reduction goals.
  4. Some Indian companies are members of EP100.
  5. The International Energy Agency is the Secretariat to the “Under2 Coalition”.

Which of the statements given above are correct?

  1. 1,2, 4 and 5
  2. 1,3 and 4 only
  3. 2,3 and 5 only
  4. 1,2, 3, 4 and 5


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