As India's carbon market grows, natural offsets wait on sidelines

As India moves to build its carbon market, most recently by setting out draft rules for companies' emissions intensities, nature-based offsets remain outside the policymaking agenda even as the country remains a major beneficiary of related programs.

This month, the government is set to finalize emissions intensity rules that are intended to push the aluminum, cement, paper, chlor-alkali and steel industries to decarbonize by investing in clean energy, such as renewables and green hydrogen, as well as technologies to capture carbon dioxide. Companies that fail to comply with targets will be able to purchase credits from those that exceed them.

Although government officials say they are taking a justifiable step-by-step approach, some analysts say the narrow focus on companies' own operations is coming at the expense of natural ways to reduce the amount of carbon in the atmosphere, such as enhanced rock weathering, that would speed up action on climate change and increase the flow of relevant finance -- acute concerns given the global warming impacts already being felt by sectors such as agriculture.

"Addressing emission avoidance, reduction and carbon removal would provide corporations with a broader set of tools for mitigating their carbon footprints, thereby fostering a more dynamic carbon market," said Kavin Kumar Kandasamy, CEO of ProClime, a Chennai-based carbon project management and trading company.

Advocates for encouraging nature-based offsets say that they can also help unlock wider environmental benefits beyond reducing the amount of greenhouse gases in the atmosphere.

For instance, enhanced rock weathering has been said to not only help lock away carbon dioxide for 10,000 years but also nourish depleted soil. The practice, backed by companies such as Japan's MOL Group, involves spreading rock dust on rain-fed agricultural land to speed up a natural process in which chemical reactions with the dust lead to carbon dioxide in the air being captured, and the resulting compound is ultimately transported to the ocean after it percolates into rivers and streams.

Over 16,000 smallholder farmers have partnered with Mati Carbon, a startup implementing enhanced rock weathering in India, for which it won the $50 million XPrize for innovative technology in April. The company says 2,000 early partners have already seen a 20% increase in crop productivity, lower disease losses and increased water retention capacity in their partner's paddy crops.

Other nature-based solutions such as biochar, wetland restoration and revegetation could help mitigate environmental challenges like biodiversity loss, flooding and water scarcity. But India is yet to approve these and other options for the voluntary carbon market, let alone the mandatory program involving the emissions intensity standards.

Casting a shadow over offset projects have been credibility lapses at global offset registries such as Verra and concerns around verifiability and longevity. For example, carbon offsets from projects restoring forests or developing them in unforested areas -- the only nature-based solutions India has approved for voluntary credits so far -- contain the possibility of stored carbon being released through forest fires and land-use changes.

"[Emissions reductions] have been overestimated by unreliable third-party verifiers," said Sourav Agarwal, regional finance and strategy head at offsets company Bridge Carbon. "So much so that the largest global registry Verra is going through a credibility crisis because of tree-planting projects that have failed."

These issues have raised industry skepticism about such forestry projects, which are known as reforestation and afforestation.

"In-house emission reductions offer greater direct control over the integrity, transparency and effectiveness of carbon reduction efforts, and minimize risks associated with the quality of external carbon credits," said Naveen Ahlawat, head of sustainability and decarbonization at Jindal Steel.

"Making decarbonization integral to the core business strategy" is superior to "a separate, potentially costly, offsetting activity," Ahlawat added.

Concerns over verification also linger over biochar -- biowaste heated without oxygen to lock away carbon -- and enhanced rock weathering. In the latter's case, questions are also being asked on what rock is safest to use.

Worries around overestimation and lack of transparency are valid, but they stem from poor implementation rather than the concept itself, said Parul Srivastava, an independent carbon markets and climate strategy specialist.

Broadening the carbon market policy to scale climate action, building credibility and bringing down the cost of credits would improve the voluntary market's damaged image and pave its effective integration with the compliance market, analysts say.

Srivastava recommends well-measured regenerative agriculture, agroforestry and watershed restoration, as seen in the Araku Valley in the state of Andhra Pradesh or Ahmednagar in Maharashtra.

"Strong baselines, transparent monitoring and community engagement are key," she said.

What would help tighten up the digital monitoring, reporting and verification process, as well as develop India's implementation expertise, is the entry of newer registries specializing in certain domains, like Isometric and Puro.earth, Agarwal said.

Isometric and Puro.earth certify carbon removal credits by verifying multiple data points. For instance, credits from enhanced rock weathering follow soil composition measurements, pore water alkalinity and rock tonnage estimates, proof of deployment, as well as periodical in-person audits.

While research has shown the potential of nature-based solutions to meet climate goals, these outcomes would ideally cost between $10 and $100 per ton of carbon dioxide -- a price they are currently far from matching. Noting that India's voluntary carbon market projects have so far largely drawn the backing of big multinationals like Google, Microsoft and Shell, who can afford to buy credits in the $150-$400 price band, Agarwal underscored the need to scale carbon finance mechanisms to attract investment from the domestic market.

Meanwhile, with the government projecting sharp decreases in agricultural yields due to climate change, adopting a wider carbon market policy has taken on a new meaning.

Rohit Kumar, general secretary of the Carbon Markets Association of India and the Climate Law Association, said, "Partially, if not wholly considering nature-based offsets for emissions compliance would further investments in agro-technologies that India's farming communities desperately need."

Read the entire article on Nikkei Asia here: https://asia.nikkei.com/spotlight/environment/climate-change/as-india-s-carbon-market-grows-natural-offsets-wait-on-sidelines