Date: 17/01/2023

Relevance: GS-3: Climate Change and International Conventions.

Key Phrases: Carbon Trading, Carbon Credit, Energy Conservation (Amendment) Act 2022, Climate Change, UNFCCC, Developed Countries, Mitigation Efforts, Global Warming, Climate Adaptation Cost, Credibility, UNEP, Climate Challenge, GHGs Footprint, Carbon Neutrality, Net Zero Emission, Kyoto Protocol.

Context:

• Recently, The Union Ministry of Power has notified the implementation of the Energy Conservation (Amendment) Act, 2022, from January 1.
• The amendment empowers the Union government to lay down a carbon credit certificates trading scheme in India.

Key Highlights:

• Many corporations around the world have set themselves the target of addressing climate change by reducing greenhouse gas (GHG) emissions to a certain extent or achieving net zero emissions.
  • The reduction in GHG emissions can be achieved by such corporations directly from their own operations.
• The carbon credit system was ratified in conjunction with Kyoto protocol and is aimed at reducing greenhouse gas emissions.
• The Paris Agreement validates the application of carbon credits and sets the provisions for the further facilitation of the carbon credits markets.
• As per the Food and Agriculture Organisation, agriculture and related land use activities contribute more than 18 percent of global carbon dioxide emissions.

What is Carbon Trading and Carbon Credit?

• Carbon trading is the buying and selling of the right to emit a tonne of CO2 or equivalent (CO2e).
  • The right to emit a tonne of CO2 is often referred to as a carbon 'credit' or carbon 'allowance'.
• It reflects an instrument received by a person whose activity has sequestered, reduced, or avoided one tonne of carbon dioxide emissions from the atmosphere.
• These credits can then be traded with other entities on regulated (global or national) or voluntary carbon markets and the amount received thereon can be utilized for further promoting such sustainable activities.

What is the 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.

Which activities are eligible for Carbon Credit?

• Various practices could be eligible for earning carbon credits, including renewable energy, afforestation, ecological restoration, agriculture, waste management, etc.

How can carbon trading benefit the agriculture sector?

• 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.
• 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.
• 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.
• 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.
  • As an example, the 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.

What are the challenges?

• 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.
• 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.
  • Thus, the amount of carbon credits received may not be enough for a small farmer to adopt regenerative agriculture practices.

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.
• 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.

Conclusion:

• With countries across the world making climate commitments, the interplay of carbon credit markets with farmers is likely to evolve over the coming years.
• However, given the multifaceted benefits of an increase in soil carbon levels, it may be the nudge that leads to the proliferation of regenerative agriculture practices and helps combat climate change.

Source: Business Line

Mains Question:

Q. What are the benefits of carbon trading in the agricultural sector and associated issues? Also, suggest measures to address these issues. (150 Words)