SDGs and ESG

Voluntary Carbon Markets: A pathway to sustain India’s smallholder farmers and sustainable economic development

Urgent climate action is essential, not only to protect our environment but also to kick-start a new era of inclusive economic growth for India.  

Climate change is not confined to books and journals anymore; it’s a global reality as is being witnessed with extreme weather events occurring with increasing regularity across the world impacting lives and livelihoods. Without suitable adaptation and mitigation measures, climate change will accelerate the significant risks to earth’s ecosystems, jeopardizing the health of people, animals, and plants, including by placing its food supply under threat.

Importantly, climate action will not only protect our environment but will also kick-start a new era of inclusive economic growth for India.  

With a robust framework of actions guided by the Paris Agreement, nations around the world have duly showcased their commitment to adapt to the impacts of climate change, reduce greenhouse gas (GHG) emissions and strengthen the resilience of our systems. The vital pillars of sustainable development and climate justice have risen to the forefront of public discourse and business strategies, with more corporates, banks, insurers, and investors pledging to combat climate change by reducing their greenhouse-gas emissions. 

It is dawning on an ever-expanding group of stakeholders, including in the agriculture sector, that rapid, collective action is essential if we have any chance of delivering the Paris Agreement targets. Of course, climate change isn’t the only ecological challenge we must collectively address. As outlined below, we can address multiple environmental challenges such as water scarcity through harnessing innovative models, markets, and technology. Moreover, such innovations are a pathway to building the capability, capacity, and resilience of the entire agriculture value chain. 

Voluntary carbon markets are a rapidly developing mechanism that will help achieve net-zero emission commitments and take major strides towards the UN’s Sustainable Development Goals. A recent report by McKinsey & Company estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. Overall, the market for carbon credits could be worth upward of $50 billion in 2030[1]So, what does this mean for Indian agriculture and economic development? 

India: Status Quo & What Lies Ahead 

India is one of the fastest-growing economies in the world. While its per capita emissions are amongst the lowest in the world and its historical emissions relatively insignificant, India is also the world’s third-largest energy consumer and GHG emitter. Indicating its commitment to the targets set out by the Paris Agreement, India outlined priority focus areas for 2021-2030 in its Nationally Determined Contributions (NDCs) document. These include – reducing the emissions intensity of its GDP by 33-35 percent by 2030 (measured against its 2005 level), achieving 40 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources through technology and low-cost international finance, including from Green Climate Fund, and creating an additional carbon sink of 2.5 to 3 billion tons of CO2-equivalent through additional forest and tree cover by 2030. 

 Recently in a historic move at the COP26, India has, for the first time, pledged to cut emissions to reach Net Zero by 2070. This target demands clear climate action across the country, from India Inc and beyond, as we also strive to meet the country’s goals – ensuring 50% of energy is derived from renewable sources by 2030 and reducing total projected carbon emissions by one billion tons, by the same year.   

 Specific sector targets besides energy and forestry are not specified in India’s NDC. However, sectors highlighted for mitigation and adaptation strategies include energy, industry, transportation, agriculture, forestry and waste management. 

 Agriculture plays a vital role in India’s economy, with about 49% of the working population depending on it as their principal means of livelihood (MoA&FW, 2016). At the same time, as per IPCC, globally, the Agriculture, Forestry and Other Land Use sector is responsible for almost a quarter (~10–12 GtCO2eq/yr) of anthropogenic GHG emissions, mainly from deforestation and agricultural emissions from livestock, soil and nutrient management. Therefore, it’s imperative that, irrespective of India’s NDC, the country works on emissions reduction in agriculture while being sensitive to the requirements of the people employed and concerns like food security for the growing population. 

Figure 1: Sector wise GHG emissions in India 

 Figure 2: GHG Emissions within Agriculture 

SourceMoEFCC (2021), India Third Biennial update report to UN Framework Convention on Climate Change; Indian Agriculture @75, AF-TAB Oct 2021 

For India to fully leverage this opportunity and attract significant global investment in voluntary carbon credit generation projects, policy framework must be streamlined to bring clarity and support for these actions.

Private investment flows into carbon credit projects can help improve the country’s local environment and boost Indian farmers’ incomes. The potential of carbon capture opportunities in Indian agriculture is enormous. By effectively leveraging climate smart technologies, companies can significantly reduce GHG emissions.  

 Digital and satellite technology, advanced seed breeding, mechanisation, cross-sector collaborations, and strengthened value chain coordination are already improving the sector’s productivity. Deploying these approaches along with emerging developments, such as carbon markets, is a powerful combination that will enhance smallholder productivity, sustainability and resilience.

 Sustainability for India’s Smallholders 

 As we advance the subject of Indian agriculture’s role in the sustainability equation, we must also consider how the private sector and government bodies can support smallholder farmers in applying sustainability to their farming practices.  

 Indian smallholders grow paddy rice on around 44 million hectares of land, with transplanting being the predominant cultivation practice. Rice paddies, where the land remains in foot-high standing water throughout the season, are the second highest source of methane emissions across agriculture (Figure 2) and the highest from cropland. The alarming amount of methane and nitrous oxide emitted from rice paddies links to current cultivation practices (flooding and fertilizing) adopted by rice smallholders. But how can we create value for such farmers and help them reduce their environmental impact? 

 Thanks to advances in science and innovation, productivity and sustainability are no longer in conflict with one another. Smallholder farmers and rural communities across India can be both drivers and beneficiaries of climate action. To effect positive change, we must scale solutions that enable sustainability in agriculture. For example, encouraging paddy smallholders to adopt carbon and water-efficient practices like Direct Seeded Rice (DSR), Alternate Wetting & Drying (AWD), and Conservative Tillage can not only enable water conservation and reduce electricity usage in agriculture but also create an additional source of income for the smallholders in the form of carbon credit generation compensation for reducing GHG emissions. If flooding is eliminated in the rice production process, it would result in an estimated 30% to 40%  reduction in water use, per hectare. Moreover, approximately two to three tons of CO2 equivalent per hectare would be reduced.  

Furthermore, other issues, such as paddy stubble burning in Haryana and Punjab, can be alleviated by incentivizing farmers through carbon credits to limit their dependence on such highly polluting practices. Similarly, sugarcane smallholders can also benefit by switching to more water-saving, environment-friendly techniques. By offering training programs to smallholding farmers, alongside crop advisory to ensure optimized yield, we can effectively support the shift to sustainability in agriculture. 
 

Future Outlook 

 Encouraging investment to incentivize such projects can help the country resolve problems like excess water and electricity use, worsening soil quality, and GHG emissions, all while enhancing smallholders’ crop yields and incomes. By harnessing collective efforts, the agriculture sector presents a significant opportunity to contribute to India’s climate change mitigation actions. 

 As we look ahead, we must ensure a cohesive ecosystem of policies, incentives, agile business models, efficient tools and capacity-building initiatives is in place. To make this transformation a reality, ideas and initiatives must be driven by science and innovation and an effective policy environment, spearheading sustainability and inclusive growth to help people and the planet thrive. 

This article is authored by D. Narain, Senior Bayer Representative, South Asia, Managing Director & CEO, Bayer CropScience Limited 

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