From Farms to Finance: The Promise and Peril of India’s Agricultural Carbon Credits (Part 1)

India at the Climate Crossroads

India’s agriculture sector sits squarely at this intersection of climate risk and climate opportunity. It contributes around 13-14% of national greenhouse gas emissions, with annual emissions estimated at 550-750 million tonnes of CO₂ equivalent, driven largely by livestock methane, rice cultivation, and fertilizer use. Livestock alone accounts for more than half of agricultural emissions. At the same time, the sector offers a significant mitigation opportunity—nearly 85.5 MtCO₂e per year by 2030, or about 18% of current agricultural emissions—through climate-smart practices such as improved soil carbon sequestration, optimized nitrogen management, livestock feed management and better water use in rice systems.

With nearly 170 million hectares of agricultural land, India is uniquely positioned to scale nature-based and practice-based mitigation. This biophysical potential is now converging with finance. India’s carbon market is estimated at USD 4.17 billion in 2025 and projected to grow to USD 48.24 billion by 2032. Although agriculture currently accounts for only 0.2-1.5% of issued carbon credits, it is among the fastest-growing segments, driven by regenerative agriculture, agroforestry, soil organic carbon enhancement, and improved water stewardship.

Policy Momentum Accelerating the Shift

Policy momentum is accelerating this shift. Since 2022—beginning with Gujarat’s announcement of a carbon trading initiative and followed by amendments to the Energy Conservation Act, 2001—India has laid the groundwork for a national voluntary carbon market. The Union Ministry of Agriculture has issued guidelines to enable farmer participation, and the launch of the Indian Carbon Market (ICM) in 2025 marks a decisive step toward integrating agriculture into mainstream climate finance.

This push is also shaped by fiscal realities. India’s fertilizer subsidy regime has encouraged overuse of chemical fertilizers while placing mounting pressure on public finances, especially after global price shocks in FY2022 due to Ukraine war. As subsidies are rationalized, carbon farming is increasingly framed as a dual dividend: easing the fiscal burden for government while helping farmers reduce input costs. Reinforced by national leadership’s emphasis on natural, organic, and chemical-free farming, carbon credits are now being positioned as a tool to transform Indian agriculture—from an emissions source into a low-carbon asset.

The Economics Behind the Promise

Research suggests that agricultural land has a wide but meaningful potential to sequester carbon, depending on the practices adopted and local agro-climatic and edaphic conditions. Estimates indicate that farmland can sequester approximately 0.8 to 10 tonnes of CO₂ per hectare per year, with lower values typically associated with improved rice cultivation and optimized fertilizer and water management, and higher values achieved through practices such as agroforestry, perennial cropping systems, and long-term soil organic carbon enhancement methods such as biochar and enhanced rock weathering methods (ERW).

The cost of implementing these carbon-smart practices also varies considerably. Studies report annual implementation costs ranging from USD 16 to 90 per hectare, reflecting differences in labor inputs, transition costs, monitoring requirements, and the intensity of interventions. At the same time, the potential income from carbon credits and co-benefits can range from USD 22 to 258 per hectare per year, depending on carbon prices, crediting methodologies, aggregation models, and access to markets. These figures suggest that, under the right conditions, carbon credits can be financially viable or even profitable for farmers, particularly when combined with productivity gains, reduced input costs, and ecosystem co-benefits. However, realizing this potential at scale requires robust measurement systems, fair revenue-sharing mechanisms, and policy support to ensure that economic benefits flow meaningfully to farmers rather than being captured primarily by intermediaries.

Who Controls the Carbon Value Chain?

India’s agricultural carbon credit market is already becoming crowded and influential. More than 10 major players are currently operating in the sector, collectively targeting the abatement or removal of over 12 million tonnes of CO₂ equivalent per year across roughly 4 million hectares of farmland. Among them, Varaha, Grow Indigo, and Bhoomitra have emerged as dominant players, rapidly scaling farmer enrollment, project aggregation, and credit issuance. Their expansion reflects strong investor interest and growing demand from corporate buyers seeking low-cost offsets from the Global South.

However, this rapid growth also raises important concerns. A notable share of companies entering or dominating the carbon credit space in agriculture have historical roots in agrochemicals, fertilizers, pesticides, and genetically modified seeds. These are the same business models that, for decades, contributed to soil degradation, declining soil organic carbon, and increased dependence on chemical inputs. Their repositioning as champions of “sustainable” or “regenerative” agriculture—now monetized through carbon credits—creates a troubling paradox. Critics argue that this risks turning carbon markets into a new profit layer for legacy polluters, rather than a genuine transformation of agricultural systems.

The concern is not merely ideological. When the same actors that promoted chemical-intensive farming now control carbon methodologies, farmer contracts, and credit revenues, there is a risk that farmers receive only a small share of the value, while structural drivers of soil degradation remain unaddressed. For carbon farming to deliver real climate and livelihood benefits, transparency in revenue sharing, independence in verification, and safeguards against greenwashing will be essential. Otherwise, carbon credits may simply repackage past agricultural externalities into a new financial commodity—without truly restoring soils or empowering farmers.

In Part 2, we explore the hidden risks of agricultural carbon credits—from yield impacts and biochar uncertainties to the untapped potential of dairy methane reduction—and outline a path forward that puts farmers first.

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