Indian farmers are increasingly hearing about carbon credits as a possible new way to earn extra income from farming. But how do carbon credits actually work? Which farming practices can help farmers earn them? Can a small farmer earn money from carbon credits on their own? And how much income can farmers realistically expect?
The basic idea is quite simple: farmers can earn financial benefits from verified farming activities that help reduce greenhouse-gas emissions or remove carbon dioxide from the atmosphere. In general, one carbon credit represents one metric tonne of CO₂ equivalent that has been reduced, avoided or removed.
For farmers, carbon credits can provide an additional source of income along with their regular earnings from growing and selling crops.
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What Are Carbon Credits for Farmers?
A carbon credit is a tradable unit that represents a verified reduction or removal of greenhouse gas emissions. On a farm, this climate benefit can come from storing more carbon in the soil and trees or reducing emissions produced by different farming activities.
For example, a farmer may use agroforestry, improve the way soil is managed, reduce methane emissions from rice farming or manage animal manure in a better way. If these actions result in a measurable emission reduction or carbon removal that follows an approved methodology and is properly measured and verified, the project may be able to generate carbon credits.
India’s Carbon Credit Trading Scheme (CCTS) also includes agriculture among the sectors that can participate through its offset mechanism. The Bureau of Energy Efficiency currently lists an approved agriculture methodology for recovering methane from livestock and manure management at households and small farms.
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Which Farming Practices Can Generate Carbon Credits?
Not every sustainable farming practice automatically helps farmers earn carbon credits. The activity must first meet the requirements of an approved carbon-credit methodology. It must also show that it has created measurable and additional reductions in greenhouse-gas emissions or removed carbon from the atmosphere.
Some of the main opportunities for farmers include:
1. Agroforestry and Tree Planting
Planting trees on farmland, along field boundaries or as part of an agroforestry system can help capture and store carbon in tree biomass and soil.
Fruit trees, timber trees and other suitable tree species can provide carbon benefits while also giving farmers an additional source of agricultural or forestry income.
2. Soil Carbon and Regenerative Agriculture
Farming practices such as reduced tillage, cover crops, better management of crop residues, using organic materials and other soil-health practices can help increase the amount of carbon stored in soil or reduce emissions from farming activities.
NITI Aayog’s guidance on natural farming highlights practices such as mulching, cover cropping, reduced tillage, recycling biomass and agroforestry as possible ways to generate carbon-credit benefits.
3. Rice Methane Reduction
Growing rice in flooded fields can produce methane, which is a powerful greenhouse gas. Keeping rice fields continuously flooded can increase methane emissions.
Water-management methods such as alternate wetting and drying (AWD) can help reduce methane emissions from paddy fields.
Therefore, better water management and improved rice-growing practices may create an opportunity for carbon-credit projects when they meet the requirements of the relevant methodology and can be properly monitored.
4. Livestock and Manure Management
Better management of livestock manure and systems that recover methane can also create carbon benefits. This opportunity is especially relevant because the current CCTS offset methodologies of BEE include methane recovery from livestock and manure management at households and small farms.
Also Read: Verra vs Gold Standard vs India CCTS: Which Carbon Credit Standard Is Right for Your Project?
How Can a Farmer Generate Carbon Credits?
The process generally includes several important steps:
- Eligibility assessment: The farmer’s land, crops, current farming methods and the changes they plan to make are checked to see whether the project can qualify for carbon credits.
- Baseline measurement: The project first determines how much carbon would normally be released or stored if the farmer continued farming without making the proposed changes.
- Adoption of practices: Farmers start using the agreed farming practices, such as planting trees through agroforestry, improving water management or adopting methods that can increase carbon stored in the soil.
- Monitoring and data collection: The project regularly tracks farming activities, land area, farm inputs and changes in environmental conditions. This may include farm records, satellite or remote-sensing data, soil testing and other MRV methods.
- Verification: An independent verification process checks the project data and confirms whether the claimed emission reductions or carbon removals are genuine and meet the required standards.
- Credit issuance: After the project meets all applicable requirements, the verified carbon benefits can be converted into tradable carbon credits.
- Sale and revenue sharing: The carbon credits are then sold to buyers, and the farmer receives the agreed share of the revenue earned from those carbon credit sales.
India’s CCTS offset mechanism follows a project-based baseline-and-credit approach for non-obligated entities. This means eligible projects must meet the required eligibility conditions and follow the applicable procedures before Carbon Credit Certificates can be issued.
Also Read: How Much Does a Carbon Credit Project Cost in India? Complete Cost Breakdown
Can Small Farmers Generate Carbon Credits?
Yes, small farmers can generate carbon credits, but in most cases, it is better for them to join together through an aggregation model.
India has millions of small and marginal farmers. For one farmer, setting up a carbon-credit project can be expensive and difficult because these projects need technical assessments, regular monitoring, proper reporting and third-party verification. Research on India’s agricultural carbon market shows that FPOs, cooperatives and other farmer aggregation models can help reduce these costs and make carbon markets easier for small farmers to access.
Instead of every farmer registering and managing a separate carbon project, hundreds or even thousands of farmers can come together and participate in one larger project.
Companies such as Costmos can help farmers, FPOs and agricultural organisations understand whether their farming activities are suitable for a carbon project. They can also help with areas such as carbon-credit development, documentation, monitoring, reporting, verification and participation in the carbon market.
Also Read: Carbon Credit Verification, MRV & Certification in India: Complete Guide
How Much Can Farmers Earn From Carbon Credits?
There is no fixed amount that every farmer can earn per acre or hectare from carbon credits.
The amount a farmer may earn depends on several factors, including:
- Type of carbon project
- Number of verified carbon credits generated
- Size of the farm
- Farming practices being followed
- Market price of the carbon credits
- Cost of developing and verifying the project
- Revenue-sharing agreement
- Quality and demand for the carbon credits
Because of these factors, farmers should be careful about anyone promising a guaranteed amount such as ₹X per acre before properly checking the project.
Agricultural carbon projects may generate smaller quantities of carbon credits compared with some large industrial or other large-scale projects. Because of this, the financial benefits can often become better when many farmers participate together in one project.
Also Read: Which Projects Can Generate Carbon Credits in India? 15+ Eligible Project Types Explained
How Do Farmers Sell Carbon Credits?
Farmers usually do not sell individual carbon credits directly to random buyers.
Instead, a project developer, FPO, aggregator or another project entity may manage the complete carbon-credit process. This can include project registration, monitoring, reporting, verification and finally selling the verified carbon credits to buyers.
Before joining any carbon-credit project, farmers should clearly understand the following:
- Who will own the carbon credits?
- How long will the agreement remain active?
- What percentage of the carbon-credit income will go to farmers?
- Who will pay for project development and verification?
- Which carbon standard or methodology will be used?
- When will farmers receive their payment?
- What happens if the project generates fewer credits than expected?
Farmers should have a clear written agreement before joining the project. The revenue-sharing arrangement should also be easy to understand and clearly explained.
Also Read: The Role of Carbon Credits in Combating Climate Change: Can They Really Save Our Planet?
Are Carbon Credits Worth It for Indian Farmers?
Carbon credits can provide an additional source of income for Indian farmers, but farmers should not consider them guaranteed farm income.
The most useful carbon projects are usually those where the climate-friendly farming activities also provide real benefits to farmers. These benefits can include better soil health, lower water use, more diversified farm income and greater resilience to changing weather conditions.
India’s agricultural carbon market is still developing. ICAR has highlighted opportunities in areas such as soil, crop and water management, biochar, horticulture and agroforestry. At the same time, it has also highlighted the importance of strong carbon monitoring and reporting systems, especially when smallholder farmers are involved.
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Final Takeaway
Carbon credits can give Indian farmers an opportunity to earn additional income by converting measurable climate-friendly farming practices into verified environmental assets. Activities such as agroforestry, soil-carbon improvement, methane reduction, better manure management and other eligible practices may create carbon-credit opportunities, depending on the methodology that applies to the project.
For most small farmers, joining through an FPO, cooperative, aggregator or reliable carbon-project developer is likely to be more practical than trying to create and manage an independent carbon project.
The important point is that simply following a “green” or environmentally friendly farming practice does not automatically create a carbon credit. The activity must be measurable, verifiable and eligible under the relevant carbon-credit framework.
Farmers should therefore carefully check the carbon-credit methodology, project developer, agreement, costs and revenue-sharing terms before committing their land or changing their farming practices.