Harnessing Opportunities: India's Growing Carbon Credit Landscape

Even though the carbon credit market in India is presently at an initial stage of growth, it holds promise for considerable expansion in the future. India has also pledged to limit global warming below 2°C above pre-industrial levels by signing the Paris Agreement.

India aims to lower its greenhouse gas emissions intensity from its current level to achieve its goal and target a reduction between 33% and 35% compared with those experienced in the baseline year of 2005 until they reach the year 2030.

A carbon credit marketplace could help India achieve its climate goals by incentivising companies that decrease emissions and invest in sustainable technologies. In recent times, there has been some good news regarding the growth of India's carbon credit market.

The provision of monetary assistance for environmentally friendly power generation comes from India's National Clean Energy Fund, which is an initiative that promotes the generation of carbon credits, and several Indian businesses have also stepped forward to invest in sustainable and clean power generation options leading to the generation of carbon (emission) credits.

However, there are some impediments to the development of India's carbon credit market, despite its promising outlook. A significant obstacle is the need for more transparency in the regulatory guidelines regarding carbon credits. An obstacle that Indian companies might encounter is the scarcity of interest in carbon credits from abroad, which can limit their earning potential.

Although India's carbon credit market has a bright future ahead, achieving its full potential will necessitate continuous support from both the government and private sector.

Agronomy accounts for a significant proportion of greenhouse gas emissions, especially from raising livestock or applying fertilisers, which also include rice farming. But sustainable land management techniques, including agroforestry, conservation agriculture, and improved livestock care, can turn it into an important carbon sequestration tool.

Trees in agricultural areas with agroforestry systems have multiple advantages, such as carbon sequestration by promoting photosynthesis and enriching the soil while conserving biodiversity. Agroforestry practices allow farmers to earn extra money by creating and selling carbon credits. By purchasing carbon credits from the market, companies can offset their own emissions.

Other practices, including conservation agriculture, water-efficient irrigation, and improved livestock management, can also produce carbon credits in addition to agroforestry. Farmers can improve the sustainability of the agricultural sector, reduce greenhouse gas emissions, and generate additional income streams through these practices.

Agriculture is a significant contributor to the economy in countries like India, making the opportunities for carbon credits significant. The adoption of carbon credits in the agriculture sector can be facilitated by the growth of carbon markets in India and the government's support for sustainable agriculture practices.

Nevertheless, some obstacles require attention, including insufficient infrastructure for trading carbon credits and providing technical support to farmers to implement sustainable agricultural methods. Carbon credits have promising prospects in the agriculture sector, and they have the potential to contribute to both environmental and economic sustainability.

There are four broad challenges. First, a comprehensive regulatory framework for carbon credits is needed in India, the absence of which can create uncertainty and limit the potential for investment in the market. Indian companies may face limited revenue potential due to international buyers' relatively low demand for carbon credits.

Second, developing infrastructure for carbon credit trading, including exchanges, brokers, and registries, is necessary. To participate in the carbon credit market, especially in the context of sustainable agriculture practices, farmers and other stakeholders require more technical knowledge and expertise.

Third, training, skill enhancement, and professional assistance are required to solve these obstacles. The Indian government and business sector may be essential in providing farmers and other stakeholders with technical help to adopt sustainable agriculture practices and participate in the carbon credit market. This can involve carbon credit generation training, verification, trading, and financial incentives to promote market participation.

Lastly, building a legislative framework for carbon credits in India might give investors better confidence and transparency, encouraging further investment in the market. Finally, increased international cooperation and coordination, particularly in the context of climate change mitigation efforts, might boost the expansion of India's carbon credit market.

The carbon credit market has existed for over two decades and has expanded rapidly in various parts of the world. The European Union Emissions Trading System (EU ETS) is the world's largest carbon market, with Europe being the largest market for carbon credits. In recent years, other regions, such as China and South Korea, have also developed carbon markets.

India has been somewhat slow to build its carbon credit market, which is currently in its early phases. However, there are some encouraging signals of expansion in the Indian market. The Indian government, for example, has developed several programmes and projects to encourage renewable energy and reduce greenhouse gas emissions, such as the National Clean Energy Fund and the National Solar Mission.

India's commitment to fulfilling its Paris Agreement climate objectives would necessitate massive investment in renewable energy and other low-carbon technologies. This investment might open up enormous prospects for expanding India's carbon credit industry. While India may take some time to catch up with other more established carbon markets, the Indian market has enormous development potential.

Because of India's enormous population and rising economy, there is a high demand for energy and other resources, allowing businesses to invest in sustainable technology and practices that create carbon credits. India must unleash this potential by providing a framework that will benefit both farmers and businesses.

Anjal Prakash is the Associate Professor (Research) and Research Director at the Bharti Institute of Public Policy at the Indian School of Business. He contributes to IPCC reports.

The views expressed here are those of the author and do not necessarily represent the views of BQ Prime or its editorial team.