Background

The carbon credit industry and market

The carbon credit industry involves the creation and trade of carbon credits globally to meet government-imposed carbon emission limits. These limits aim to drive changes in production practices, technology, and the exploration of alternatives to reduce greenhouse gas emissions. Carbon credits are generated by businesses that either remove carbon from the atmosphere directly or prevent its emission.

The issuance of carbon credits is managed by a limited number of registries, including the Verified Carbon Standard by Verra (VCS), Gold Standard (GS), and the American Carbon Registry (ACR). These registries evaluate projects based on specific metrics and standards to determine whether credits should be granted. Verra is the largest registry globally, accounting for approximately 3,500 projects and issuing around 1.1 billion credits (64% of the total). However, skepticism has grown over the legitimacy of credits issued by major players like Verra and ACR.

Many businesses purchase carbon credits to meet their emission reduction obligations, as they may not be able to adhere to reduction targets on their own fully. Each carbon credit represents the removal of one tonne of carbon dioxide from the atmosphere. This trading is part of the $899 billion Compliance Carbon Market, which is significantly larger in value than the voluntary carbon market.

The compliance market primarily operates through bilateral transactions between businesses, receiving limited media attention due to its routine nature and regulatory focus. However, concerns about the accuracy and credibility of issued credits have led to growing criticism. Many argue that the compliance market is an inefficient tool for addressing the climate change crisis.

The Voluntary Market

The voluntary market is a far smaller sector of the market (with a size of USD $2 billion USD value) that focuses on businesses that are social-objective oriented who want to reduce their carbon footprint. Their objective leans towards net-zero carbon emission, which is gaining popularity between firms and individuals. They plan to do this by offsetting their carbon emission by paying businesses to generate carbon credits. This is a niche market that involves up-and-coming businesses or businesses that have climate action as a underlying principle.

The voluntary carbon market consists individual trading platforms in different regions and carbon market initiatives, the latter of which work towards building a carbon credit market or platform for trade. Nearly all registries, including GS, VCS, and the ACR, focus predominantly on the compliance carbon market; there have nonetheless been attempts being made to regulate the purchase and sale of them. The Chicago Carbon Exchange (CCX) was one of the early attempts to create an official voluntary carbon market with established prices, yet this largely failed due to the lack of transparity and standardisation when issuing credits along with unstable political dynamics. Currently, the market is seen through individual projects that generate credits and retire, or provide credits back to the registry once used, at prices established bi-laterally. While failing as a concept previously, since then the demand for voluntary carbon credits, specifically in removal credits, has the potential to create a market of its own.

 Current understandings of the market and its future depend on demand of voluntary credits. The perspective of companies are slowly switching towards a net-zero emission policy, with an emphasis on nature-based credits. These trends are being guided by the Science Based Targets initiative along with the increased importance of public opinion and the climate crisis. Along with these, there is subsequent growth in removal credits, with the vast majority of buyers now focusing on the monitoring, reporting, and verification (MRV) of the credits. [8] 

While not applicable to all markets, specific markets create a difference between avoidance and removal credits.  

Avoidance credits are awarded for presenting emissions, while removal credits are awarded for removing them from the atmosphere directly. As of 2020, 80% of the credits in supply are avoidance due to their lower cost yet possessing significant commercial value. However, with the shift in the market, it is expected that removal credits will reach a market share of 35% by 2030. Nevertheless, experts believe that there should be a consistent maturity of both types of credits on quantity, permanence, and longevity as both remain valuable functions to mitigate the effects of climate change and aid in carbon removal.

The value of nature-based solutions is also increasing, especially through agricultural practices. Sustainable agriculture falls under a larger category of agriculture – which ranges from irrigation to forestry to sustainable farming. Yet each practice has various ranges of permanence and longevity (removal over avoidance) which impact their usefulness and their cost. Studies by  have suggested that are made that they can provide up to 30% of the mitigation needed to limit global warming and can be mobilized by the public sector to aid the rapid decarbonization within value chains.

Slowly, initiatives are being taken to create a functioning voluntary market through resolving the mistakes of the CCX. The CCX failed due to the lack of cooperation amongst firms, with many not standardizing the process for carbon sale, which made many doubt the validity of how this would aid the climate. However, this changed through Article 6 of the Kyoto Agreement(2016) on reducing carbon emissions – which has agreed that carbon offsets are a viable means of combating climate change. This cements the belief that carbon offsets do, in fact, have vital relevance in the reversal of our carbon emissions. This creates the grounds for establishing a large-scale voluntary carbon credit market. This links to the Nationally Determined Contribution (self-defined national climate pledges), which may allow countries to reach their established standards.  

The need to create high-quality credits that exceed mere carbon compliance is now in significantly higher demand than before the signing of the 2016 agreement. Initiatives, such as the one created by the London Stock Exchange (LSE) propose to create a new market designation for funds to purchase and invest in voluntary carbon credits and projects. Once projects provide the necessary information of their process, they can receive the designation for the marketplace and thus allow one to buy shares in the project and receive credits as dividends from anywhere in the world.

According to the LSE, the designation of the voluntary carbon market would have three advantages: more funding for emissions reduction initiatives, improved transparency and regulatory frameworks for the global voluntary carbon market; and easier access to a market for buying carbon credits for businesses and investors. With the market designation, there would be a marked increase in the amount of information projects and the money invested in them. The LSE designation would aid in transforming the voluntary market from bi-lateral approach with little to no transparency to a stock-exchange forum that would resolve the standardisation and transparency issues of the CCX.

The European Commission and the U.S. Department of State, in conjunction with the Bezos Earth Fund and Rockefeller Foundation, have created an EU carbon removal certification framework and the Energy Transition Accelerator, respectively. Both have been committed to increasing the voluntary market, though on a much narrower scale than the LSE. The LSE attempts to make this a globalized market to allow investment for the growth of these projects; however, the EU and the ETA both work towards the mere selling of the carbon credits. The EU takes it further, however, by creating a framework and means to generate carbon credits under them which can be used for further resale[12] .

 Introduction to Carbon Sequestration 

Sequestration

Background

Carbon sequestration, in its essence, is the process of capture, storage, and removal of atmospheric carbon dioxide (CO₂) from the atmosphere and embedding the compound into the soil. It is a naturally occurring phenomenon that can be altered based on factors such as land usage, agricultural practices, and soil attributes. Carbon sequestration can take place in various shapes and forms, such as natural land-based or aquatic stores to industrialised carbon capture storage (CCS) techniques. However, this article retruiction discussion to sequestration in soil (biological sequestration) which falls under the broader category of sustainable agriculture practice. 

Biological sequestration

Biological carbon sequestration refers to carbon storage in vegetation, soils, woody products, and aquatic habitats. It looks at the natural ability of ecosystems, flora, and other plants to store carbon in them. This carbon is taken from the atmosphere and is processed until carbon becomes situated within the organisms. This is the most common form of sequestration, being a natural process through the carbon cycle, and is how carbon is stored within the soil.

The process is based on photosynthesis, pulling CO₂ to bind with water to create sugar. This sugar (C₆H₁₂O₆) becomes a store of carbon that remains within the organism. These stores are, by no means, permanent stores – with the decomposition of the organism or its roots breaking these sugars apart, leading to carbon being readmitted into the air or other sources. Trees are the largest consumers of atmospheric carbon, with wood being a composite of approximately 50% sugar (quanitity ranging due to specie, soil quality, and geographic location) – making forests function as large-scale carbon sinks if they are used appropriately.

Carbon Storage Within Soil

Soil cannot sequester soil through physiological processes, though it can sequester through complementary processes. Carbon reaches the soil through dissolved organic matter, forest litter (previous plant life that contained carbon), and plant roots – the components of a plant. The amount of carbon that is sequestered is based on local variables from local geology, soil type, and vegetation. Soil type, specifically the ability of the soil to bind together and its soil organic matter content, is the primary dictator to the amount of carbon that it can hold – with clay and more nutrient-rich soil holding more carbon than finer particles. Even within the soil, there are various methods present on how carbon reacts to function as stores in the soil.

Soil Organic Matter

Carbon is stored in soil organic carbon (SOC),  a subsection of soil organic matter (SOM), being a fraction of the soil containing plant and animal tissue across various stages of decomposition. The SOM fractions also have differences in their particle size, turnover time and biological compositions: with the size and turnover time being directly related. The compositions of those fractions with longer turnover tend to have more decomposed plant matter that is less reactive.

The fractions of SOM also work towards affecting the characteristics of the soil which in turn affect the sequestration process. Living matter contributes to soil fertility and the potential of soil to support plant growth, as these release nutrients of the plant matter (N, P, K in various compounds). Stable SOM affects the soil structure, tilth, and cation exchange capacity (a measure of how many cations can be retained on soil particle surfaces). Soil organic matter allows for changes in the soil, primarily in the improved yield and harvesting productivity of the earth, along with the improved ability to sequester and store carbon.

Soil Organic Carbon

The ability to sequester carbon is measured and quantified by the soil’s SOC. When soil receives a better ratio of SOM, it suggests an improvement in SOC levels as well. The amount of SOM, measured via either direct mass, volume, or ratios, however, is not directly proportionate to SOC levels as SOC-SOM ratios can vary. To increase these levels, focus on increasing microbial activity or biomass, biological fertility of the plant, and reducing residue turnover or net organic output. Modern techniques for the prior include increasing and maintaining biomass, increasing irrigation, using low soil disturbance methods such as reducing tillage, increasing rotational frequency and cover cropping.

SOC is measured through the Walkley-Black chromic acid wet oxidation method which involves using K₂Cr₂O₇ to oxidize. The process tends to be aided by the heat energy that is produced by sulphuric acid and dichromate mixed in a 2:1 ratio, along with the data from a “ferroin” indicator or a potentiometric titration. The remaining dichromate is titrated with ferrous sulfate, the inverse of which works to depict and illustrate the amount of carbon present in the soil.

The sequestration of carbon and the formation of SOC is dependent primarily on the land and agriculture management deployed on the land. The documented, well-established are conservation tillage, cover cropping, and crop rotation. Conservation tillage involves minimizing the tillage manipulation of the soil for crop production. Tillage fractures the soil, disrupting its structure and speeding up surface runoff and soil erosion. Tillage also minimizes crop residue, which helps to absorb the force of rain, retains the structure of the plants and prevents dislocation. The aid of structure, allowing for larger particles and more rigid, fertile structures, allows for a greater mass of SOC and carbon sequestration possible. Cover cropping involves using crops that enhance soil structure and SOM content, such as clover and small grains interspersed amongst harvest crops. Crop rotation applies the same concept of cover cropping, however, works in a rotational system in which crops are grown in regular recurring succession on the same area of land – mimicking the diversity of a natural ecosystem. This mimicry allows improvement of SOM levels, compared to mono-cropping practices, and is related to the crops that are used during rotation and the timings of the rotation.

Particle Organic Matter and Mineral Associated Organic Matter (POM and MAOM)

Soil organic matter (SOM) can be divided into two main categories: particulate organic matter (POM) and mineral-associated organic matter (MAOM). Various methods are used to differentiate these forms, but for understanding carbon storage and sequestration, this distinction is critical to assessing permanence.

POM typically consists of lightweight, relatively undigested organic fragments, while MAOM comprises single molecules or microscopic fragments that either leach directly from plant material or undergo chemical transformation by soil biota. POM structures are generally more fragile compared to MAOM. Due to its larger particle size, POM is more vulnerable to decomposition by soil microbiota and may last only a single growing season. Activities like tilling or soil disturbance can cause POM to break down, releasing its stored carbon back into the atmosphere. In contrast, MAOM, with a significantly longer lifespan (~50 years compared to POM’s ~2 years), is more stable and resistant to decomposition.

This disparity in longevity highlights a critical issue: carbon sequestered in POM may persist for only a short time. For example, tilling during the next harvest cycle can release the carbon stored in POM, reintroducing it into the atmosphere—a point of contention that has led to criticism of programs like Verra for issuing so-called “phantom credits.”

However, POM is not without value. It plays an essential role in efficiently delivering nutrients to the soil, enhancing carbon and nitrogen uptake through photosynthesis, and supporting plant growth.

Currently, most carbon sequestration projects focus on maximizing POM production because it is more cost-effective and facilitates the accumulation of carbon credits. MAOM storage, while more durable, requires significantly greater resources and effort. This imbalance, coupled with a lack of focus on both forms of organic matter, could have serious implications for the long-term effectiveness of carbon storage strategies and future planning for climate mitigation.

 Nitrogen cycle process

The nitrogen cycle is a natural biogeochemical process that governs nitrogen intake by plants and other organisms. While it encompasses the entire journey of atmospheric nitrogen—from its entry into the soil to its eventual return to the atmosphere—this discussion focuses on its impact on soil’s ability to sequester carbon.

Nitrogen enters the soil primarily in the form of nitrate ions (NO₃⁻), which plants absorb through processes like diffusion or via organic matter such as herbivore waste and decaying animal matter. This is supported by ammonification, where bacteria and fungi break down nitrogen into essential organic compounds that promote plant growth, a process known as biological fixation. Nitrogen fixation not only aids plant development but also contributes to carbon sequestration by enhancing soil organic matter (SOM) quality.

The nitrogen cycle is essential for producing biomolecules like proteins, DNA, and chlorophyll, all of which improve soil fertility and quality. Nitrogen is delivered to plants through its incorporation into SOM, often derived from wildlife fecal matter and other organic inputs. To become usable for plants, this organic nitrogen is converted into inorganic forms through bacterial processes.

Nitrogen intake by plants facilitates greater carbon storage and sequestration, with studies indicating a 7–21% increase in soil carbon stock due to reduced carbon outflow. This reduction stems from lower plant litter decomposition rates, as plant litter represents a significant SOM reservoir. Excess nitrogen in the soil has been shown to enhance carbon sequestration further by promoting the growth of nitrifying and denitrifying bacteria, which process nitrogen efficiently. This, in turn, increases the soil’s capacity to store carbon while influencing CO₂ decomposition rates.

Additionally, nitrogen levels affect plant growth and the microorganisms inhabiting the soil, which in turn impact soil texture, CO₂ absorption, and carbon storage capacity. However, synthetic nitrogen fertilizers fail to replicate this natural process. Excessive use of these fertilizers damages soil health, disrupts the microbial ecosystem, and impairs potassium (K) and phosphorus (P) processing. This not only affects plant health but can also lead to carbon release through accelerated plant decomposition.

Thus, the nitrogen cycle plays a pivotal role in maintaining soil quality and enhancing carbon sequestration, though careful management is required to avoid adverse impacts from excess nitrogen or artificial inputs.

Brief Analysis of Carbon Projects

To provide insight on the utility of carbon offsets in the context of India, we referenced the Berkley Carbon Trading project. The project is a research and outreach initiative to examine the efficiency of carbon trading and offset schemes and make sure that this knowledge guides scheme design. The group focuses on solely the voluntary carbon market to understand the impact on climate change objectives and provide definite, globalized data on projects’ scopes, types, regions, and permanence. Through this data, predictions on the future of the voluntary market along with the extent of the impact on reversing the impact of climate change can be measured. To ensure the accuracy of claims and testaments made, we focus on only projects and credits generated in India.

About Carbon Credit Projects in India

India’s carbon credits are predominantly issued in renewable energy, with the country holding 88% of the credits issued, due to the focus on technological innovation by the state and private players. 

The ‘Household and Community’ and ‘Industrial and Commercial’ both hold around 4% each, with the minimal credits being issued in forestry and agriculture and the lowest being in transportation. 

Types of Agriculture related Carbon Credits
The impermanence of Agroforestry carbon credits

Relative to current trends, agroforestry and land management remain a larger source of carbon credits compared in agriculture.

However, a key thing to remember is the importance of permanent carbon stores in the soil, with previous discussions on carbon escaping soil being a prevalent issue for the forestry industry. When its permanence is compared with other industries, such as renewable energy or sustainable agriculture, the data showcases that agroforestry bolsters predominantly short-term sequestration.

According to the data, around 87% of the total forestry projects in India are classified as impermanent reduction, with the remainder being deemed mixed reduction. Compared to agriculture scope which has 57% as permanent reduction and 43% mixed reduction (assuming all facts and figures stated are of factual quantitative evidence), and renewable having 100% permanent reduction. Compared to the United States which has 92% as mixed reduction and 8% as impermanent removal. This means that, within the purview of India, agroforestry and land management techniques appear to be lackluster in their improvement of carbon sequestration. The carbon sequester is, due to various possible reasons, pushed out of the soil and into the atmosphere, mitigating the environmental benefit they may have had. A possible reason for this may be due to forestry involving repetitive chopping of trees, which means that the large stores of carbon within the tree themselves get broken down and released back into the atmosphere. Another reason may be due to the felling and limbing method used for mass deforestation. The method uses feller bunchers to uproot trees, which leads to damage to the soil’s surface. This may damage the particulate organic matter that is created, which causes this process further emit carbon into the atmosphere.

Within the agriculture scope, another set of problems reside. Agriculture is largely a permanent reduction, with no projects of the mixed reduction category being credited by any registry. Additionally, while Verra has granted the most credit for a single project, Gold Standard has been far more willing to issue credits for due projects. Additionally, Gold Standard has issued 56.6% of the credits of the scope. Thus they are more frugal while issuing credits for individual projects – which can be assumed as either performing appropriate due diligence or as frugality for providing due credits. However, it is important to account for that agriculture has only been issued a quarter of the credits that forestry has been issued and 0.2% of the credits issued by renewable energy. The area of focus for agriculture, also, has only been irrigation systems and not soil sequestration. This could be due to the maturity in processes and well established methodoloties through irrigation systems.Though, while nearly always mixed reduction, the ratio between permanent and impermanent can be modified through appropriate methodologies that not only allow carbon sequestration to occur at greater rates, it also allow for improved yields.

It is also crucial to keep India’s geography in mind. India has nearly 52% arable land, greater than most countries worldwide, with 4% as permanent crops and another 4% as permanent pastures. This land remains in use, which means that a large part of it can have techniques implemented into current practices that allow for improved sequestration. Using methods that involve reduced dependence on soil fertilizers and increased dependence on nutrient fixers promotes bacterial growth, reduced tillage of soil, crop rotation, and cover cropping, which all promote good soil health for not only sequestration but also for plant growth. This allows both farmers and society to benefit as they receive increases in their yields and crop quantity while allowing more carbon to remain within the soil. Controlling livestock within pastures would also allow for grass regeneration instead of livestock overconsuming the same regions repetitively, not allowing for carbon to be sequestered into the soil.

 The utilization of the arable land of India, with a birds-eye view perspective at a macroscale, suggests that India could sequester immense amounts of carbon, even if not purely permanent reduction, through more effective usages of crops, pastures, and land. What would incentivize the acceleration of this process would be to issue more credits towards sustainable agriculture projects, which would generate a surplus of projects and, due to the nature of competitive markets, would create hidden incentives for improvements in procedural achievements.

 Carbon sequestration projects are, in the vast majority of cases, done through institutions or private players rather than local farmers themselves. The majority of the players in this scope, such as Boomitra, CarbonX Solutions, and Godrej, all run projects on their own – which does not cover the largest regions of agricultural lands which is often held by the Government of India and by small, local farmers. Working through them would be the only way such projects would allow for mass sequestration, especially since localising soil to a few hundred acres is not possible and for overall soil organic carbon to increase over hundreds of square kilometres would require all stakeholders to collaborate. Government funding in such areas, or providing insights on methodology and benefits, would allow such a program to take place.

 Longevity and Implementation

The market trends are favouring the rise of the reduction credits of the voluntary market. Despite their price, many companies agree that to achieve true net-zero objectives along with actively reversing current damages we need to remove carbon from the atmosphere rather than simply avoid it.

Currently, due to the costing and prior trends, the most credited, funded, and documented projects lie in renewable energy. Providing a stronger alternative to the non-renewable coal and petroleum allows us to avoid dependence on these resources in the future which, in turn, means that we avoid emitting carbon into the atmosphere. This functions as a permanent means of reducing carbon inflows and as a permanent means of carbon reduction, thus amassing credits. These tend not to be retired as frequently as these tend to be of higher costs, from their cost-intensive practices, along with the inability to sell a large number of credits on the voluntary market in India.

Alternatively, the reduction of carbon is directly resolved under the scope of sustainable agriculture. As sustainable agriculture works to directly absorb carbon atmosphere, it works towards reduction. This reduction is not entirely permanent, though, it still combats to mitigate emission and reverse existing damages.

Additionally, sustainable agriculture remains of greater longevity and cost-effectiveness of its implementation to its alternative scopes. Renewable sources will face constant innovation, and thus funding, to remain effective. The more technology changes and the more energy-intensive we become, the more energy we would require as a collective which creates a cycle of innovation. In contrast, sustainable agriculture is rooted in a stable practice – facing only marginal change in depednat inputs.. Henceforth, agriculture becomes a long-term principle that is relatively unchanged which allows for a more consistent, permanent reduction method.

This links towards the cost-effectiveness of this practice, needing minimal improvements. This allows a more widescale approach compared to renewable energy as, due to the ability to easily upscale this practice in a relatively shorter tiem frame, we can apply this across agricultural planes over the the country. The low costs benefits the demographic, of low-income farmers that work as separate entities rather than under collective unions, and functions as a greater incentive for them to implement. We can see this being attempted, though on a significantly smaller scale than what would be ideal, through core farming projects by Core CarbonX Solutions Pvt. Ltd. who have 5 projects across 5 states registered under Verra. Though not credited as they are underdevelopment, projects such as these work towards the objectives outlied and would be a step towards progression and reduction. A policy, such as those proposed by the LSE, would allow increased investment in such ventres which accelerates these process and expedieties growth.

 Linkage towards the impact on Indian farmers

Touched upon partly previously, the impact on Indian farmers and India as a whole has to be focused upon to highlight the strengths of sustainable agriculture processes. While we see mixed, and sometimes impermante carbon reduction, when focusing on the Indian subcontinent we have to account for that there is significant disparity with a large part of the country reliant on agriucltirue for income with the other being able to focus on modern forms of carbon avoidance and removal. Rather than complete focus on one venture over another, an ideal yet possibly theoretical philosophy would be a blend of both practices. Scopes such as renewable energy, chemical practices, and household and community would all be viable in India due to its technological innovation background, its industrial output and its large populace – with all these practices being valuable assets for resolving climate change.

 Though, the ability to sequester carbon lies at the hands of 49% of the population who, with minute changes, can aid not only the environment but improve the growth of their yields and generate additional finances as a result. Improving SOM and SOC levels improves crop yields and allows for better turnover per quarter. If they can generate carbon credits, they will therefore be able to resell these for profit, and with their incomes being one of the lowest, this allows them to substantiate their purchase and thus improve their standards of living. The possibility of scaling the practice, along with the number of people that can be impacted in the process, makes this a viable solution to implement in our region.

As a conclusive objective to reach net-zero objectives, it is impossible to dictate if any measure would be viable to reverse our current damages entirely. It can be ruled out entirely that carbon credits cannot reverse net-zero objectives as a whole; however, they can be a method to practically avoid making increasing grievances. Creating a way to either avoid carbon from being emitted into the atmosphere or directly removing it would be a step towards keeping the earth’s temperature under the 2.5°C and ensuring the environment remains stable. Carbon credits creates a pathway to achieve this, though, it would need development from greater regulation to allowing more easy purchasing and selling of credits. Appropriate incentives must be created for creating offsets and using the voluntary market, being scaled to different demographics rather than applying on a universal scale. Under this model, it cannot be decisively determined whether net-zero objectives can practically be reached yet valuable attempts can be made towards this.