[Answered] Examine the challenges in operationalizing India’s unified carbon market. Evaluate how balancing ‘smokestack’ industrial decarbonization with ‘soil’ sequestration can foster climate resilience while ensuring equitable outcomes for farmers.

Introduction

The Union Budget 2026-27 marks a watershed moment with a ₹20,000 crore allocation for the Carbon Capture, Utilisation, and Storage (CCUS) Mission, while simultaneously opening the Indian Carbon Market (ICM) to the agricultural sector.

Operationalising India’s Unified Carbon Market

India’s move towards a unified carbon market reflects its commitment to achieving net-zero emissions by 2070. The strategy hinges on balancing two pillars- smokestack industrial decarbonisation and soil carbon sequestration.

Understanding the Dual-Track Carbon Strategy

1. Smokestack: Industrial Decarbonisation: The ₹20,000 crore allocation focuses on Carbon Capture, Utilisation and Storage (CCUS) for hard-to-abate sectors. Target sectors: power, steel, cement, refineries, chemicals. Focus on capturing emissions at source and storing or utilising CO₂. For Example-Steel plants adopting CCUS to meet export standards under the EU’s Carbon Border Adjustment Mechanism (CBAM).
2. Soil: Agricultural Carbon Sequestration: Agriculture contributes through Carbon Dioxide Removal (CDR). first time, Indian smallholders are being integrated into the Carbon Credit Trading Scheme (CCTS). Practices like agroforestry, direct-seeded rice, and reduced tillage are being monetized. For Example-Pilot carbon farming projects in Punjab and Haryana have demonstrated that high-integrity soil carbon credits can generate ₹15,000 to ₹50,000 in additional annual income per farmer.

Challenges in Operationalising a Unified Carbon Market

India’s Indian Carbon Market (ICM), notified under the Carbon Credit Trading Scheme (CCTS), aims to cover both compliance (obligated entities) and voluntary segments. Several systemic barriers persist:

1. Verification and MRV Lag: While heavy industry uses automated sensors for smokestack emissions. Agricultural sequestration is diffuse and time-dependent. For Example-complex, multi-year Monitoring, Reporting, and Verification (MRV), leading to a verification lag for farmers.
2. Institutional Overlap and Double-Counting Risk: Confusion remains between the Green Credit Program (GCP) (for environmental actions like tree planting) and the Carbon Credit Trading Scheme (CCTS) (for actual emission reductions). For Example- Without a single National Carbon Registry, credits risk being counted twice, eroding credibility.
3. Price Discovery and Market Volatility: No domestic benchmark price exists; small farmers face exploitation by aggregators who capture 70-80% of credit value. Large buyers (EU, US) demand high-integrity credits, leaving low-quality soil credits unsold. For Example- Smallholders may receive minimal returns while aggregators capture most of the value.
4. Technological and Financial Constraints: CCUS requires high capital investment and technological maturity. Small farmers lack access to finance and technical knowledge.
5. Farmer Awareness and Access: Over 85% of India’s farmers are small/marginal; lack of digital literacy, land records, and FPO aggregation limits participation.
6. Geopolitical Exposure: EU’s CBAM (2026 onward) and US tariffs weaponise carbon costs; For Example- lack of export-competitive green standards.

Balancing Smokestack Decarbonization and Soil Sequestration

1. The ₹20,000 crore CCUS allocation targets power, steel, cement, refineries, and chemicals– sectors responsible for ~25% of emissions.
2. CCUS prevents new emissions at source, essential for net-zero 2070.
3. Soil sequestration (regenerative practices, agroforestry, direct-seeded rice) draws down atmospheric CO₂ and builds climate resilience (soil health, drought tolerance). Balanced approach yields dual benefits:
4. Climate Resilience: Smokestack capture secures industrial growth; soil practices reduce methane/nitrous oxide, protect 80% freshwater use in agriculture, and buffer monsoons.
5. Equitable Outcomes: Farmers earn ₹15,000–50,000/ha/year from high-integrity credits (Punjab/Haryana pilots); FPOs aggregate to reduce costs and ensure fair revenue sharing.
6. Economic Multiplier: Industrial decarbonisation maintains competitiveness under CBAM; soil credits create rural income streams, supporting Viksit Bharat’s inclusive growth.

Way Forward

1. Establish a Unified Carbon Registry: Establish single National Carbon Registry to prevent double-counting and enable transparent tracking.
2. Develop Robust MRV Systems: Subsidise MRV costs for smallholders via FPO-led aggregation and DPI tools (AIKosha-style platforms).
3. Ensure Fair Pricing Mechanisms: Introduce price-stability mechanism (floor price + buyer guarantees) to protect farmers from market volatility.
4. Empower Farmer Institutions: Mandate 30% of ICM revenue for farmer training and regenerative practice incentives.
5. Global Integration: Align ICM with Article 6 of Paris Agreement for international credit trading and finance access.

Conclusion

The green transition must be a just transition. By bridging the gap between industrial mandates and rural incentives, India’s carbon plan can turn climate liabilities into a sovereign economic asset.