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Carbon Trading in Agricultural Sector

Carbon Trading in Agricultural Sector
Carbon Trading in Agricultural Sector

The Energy Conservation (Amendment) Act, 2022 came into effect on January 1, 2023, according to a notification made recently by the Union Ministry of Power. The amendment gives the Union government the authority to establish a trading system for carbon credit certificates in India.

A market-based system called carbon trading tries to provide financial incentives to businesses so they would reduce their environmental impact. Carbon trading is a legally obligatory programme in contrast to voluntary offsets, which let consumers pay to lessen their carbon footprint. Individual governments and policymakers calculate carbon trading, which aims to value CO2 using the caps and trade principle. The government sets a limit on the quantity of emissions that are permitted for each industry that produces carbon, including the electricity sector, the automobile industry, and air transport. According to United Nations standards, a carbon credit is a type of tradeable permit that equals one tonne of carbon dioxide that has been removed, reduced, or sequestered from the atmosphere. In contrast, nations or governments set carbon allowances or limitations in accordance with their goals for reducing emissions.

The ability to trade carbon dioxide emissions as a commodity on the market rewards producers for making investments in emission-reduction techniques, which encourages a net decrease in atmospheric carbon dioxide. Companies that are unable to cut their GHG emissions directly can nevertheless offset them indirectly by buying carbon credits from other people or organisations. Investor demand (particularly for ESG-driven investments), employee demand, and customer demand for these credits are all anticipated to rise dramatically as the importance of climate and sustainability increases for nations. Carbon credits may be earned through a variety of activities, such as waste management, agriculture, reforestation, and renewable energy.

Carbon credits have several advantages in the agricultural sector as follows:

  • Based on the carbon dioxide that the soil absorbs and stores from the environment as well as the decrease in carbon dioxide emissions during the cultivation process, from ploughing to the management of stubble, carbon credits could be produced in agriculture. For instance, numerous agricultural practices including tilling the ground before planting seeds, using chemical fertilisers, burning stubble, etc. cause carbon dioxide emissions.

  • The overall food system's largest source of GHG emissions is also agriculture. Agriculture is a significant source of emissions, but it may also act as a significant sink to store carbon, helping to cut, minimise, or sequester carbon dioxide emissions.

  • Enhancing the soil's ability to store carbon might increase fertility, crop yields, farmer income, water conservation, etc., all of which would help agriculture become more robust over time. Instead of planting saplings in flooded fields, rice can be grown directly from seeds, which reduces water use and methane emissions (produced by bacteria in flooded fields). It also improves soil nutrition.

  • Similar approaches may be encouraged in order to lower emissions and give farmers carbon credits. Farmers are then further encouraged to carry out such actions and enhance soil carbon by being able to sell these credits on the market for additional revenue.

  • The health of the soil and its capacity to store carbon can be improved by encouraging practices like zero-till agriculture, agroforestry, better water management, crop variety, and reduced use of chemical fertilisers. According to estimates, soil carbon sequestration can absorb about 2.6 gigatons of emissions annually and is a cost-effective method of reducing climate change.

Though conceptually optimistic for both agriculture and climate change, there is little involvement of the agricultural sector in carbon trading markets. For instance, according to the Berkeley Carbon Trading Project, only 1% of the carbon credits given for initiatives that reduce emissions in 2021 came from agricultural activities. An Indian farmer typically owns little over one acre of land. Thus, a small farmer may not be able to embrace regenerative agriculture practices with the number of carbon credits they obtain.

The determination of payments made to farmers through voluntary carbon markets will heavily depend on the reliability of agricultural carbon credits. This article examines the main obstacles that voluntary agricultural carbon credit programs face from both the supply and demand sides. It also serves as a resource for researchers, producers, policymakers, and other stakeholders who want a thorough examination of the obstacles this market still faces despite recent developments in favorable global agreements.

In order for all farmers who practice regenerative agriculture to profit from carbon credit programs, farmers must be made aware of their presence and advantages. There is a need for a simplified strategy to solve these issues in order to increase the currently underutilised market for selling carbon credits from commercial agriculture. In order to encourage farmers to take part in carbon credit programs together with the affiliated organisations, the state and federal governments could try to coordinate current natural farming, regenerative farming, and organic farming schemes.

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