The Union Ministry of Power has notified the implementation of the Energy Conservation (Amendment) Act, 2022, from January 1.
Apart from the other key changes, the amendment empowers the Union government to lay down a carbon credit certificates trading scheme in India.
Although carbon credit is not defined in the Act, it essentially 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 utilised for further promoting such sustainable activities.
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. The global mechanism for carbon trading is also prescribed in the Paris Agreement as a measure to combat climate change.
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.
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.
Various practices could be eligible for earning carbon credits, including renewable energy, afforestation, ecological restoration, agriculture, waste management, etc.
As per the Food and Agriculture Organisation, agriculture and related land use activities contribute more than 18 per cent of global carbon dioxide emissions.
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 fertilisers, stubble burning, etc. result in carbon dioxide emissions.
Encouraging activities like zero-tilling agriculture, agro-forestry, improved water management, crop diversification and reduced use of chemical fertilisers 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.
The carbon credits conceptually seem encouraging for climate change and agriculture. However, as per the Berkely Carbon Trading Project, agricultural activities accounted for only 1 per cent of all carbon credits issued for emissions reduction projects in 2021.
The nascent level of agricultural carbon trading can be attributed to various reasons such as low level of stakeholder awareness, 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.
A streamlined policy to address these challenges will help in expanding the currently under-utilised space for carbon credit trading from commercial agriculture.
This article was originally published in The Hindu Business Line on 23 January 2023 Co-written by: Nawneet Vibhaw, Partner; Himanshu Pabreja, Associate. Click here for original article
Contributed by: Nawneet Vibhaw, Partner; Himanshu Pabreja, Associate
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