By Amit Kapoor and Subashini Prakash
Indian farmers stand at a curious crossroads, earning income from carbon credits not from what they grow but from the environmental outcomes they enable. As pilot programs take shape in Uttar Pradesh and climate-tech startups experiment with soil and biochar projects, the idea of earning from carbon rather than from crops is moving from concept to test case.
The idea is simple. Farmers generate carbon credits by adopting practices that remove carbon from the atmosphere, such as soil carbon or agroforestry, or by reducing emissions such as methane in rice cultivation. These credits are verified and sold, typically to corporates looking to offset their own emissions. To farmers, carbon becomes an agricultural by-product: an environmental service layered atop their crops. For climate markets, agriculture has become a distributed source of carbon removal across millions of hectares.
The timing for India is not about being first, but about fit. Agriculture is already stressed by climate impacts, volatile incomes, and productivity gaps, while global climate finance seeks scalable, nature-based carbon removal. Agricultural carbon credits sit at the confluence of these forces: climate as a market, farmers as suppliers, and soil as infrastructure.
India’s pilot phase is well underway. Uttar Pradesh has treated carbon credits as economic infrastructure, enrolling more than 25,000 farmers in a tree-based carbon programme and paying roughly ₹10,000 each as an advance against future credit earnings. Earlier batches paid upwards of ₹48 lakh to 237 farmers. Advance payments address the cash-flow problem that has historically slowed farmer participation. Partnerships with IIT Roorkee on soil carbon pilots signal a shift toward scientific MRV that aligns with global standards.
Climate-tech startups have prepared the architecture. Varaha, Boomitra, Grow Indigo and Sow&Reap Agro are experimenting with soil carbon, biochar, regenerative rice and agroforestry across thousands of villages. Their role is to convert global carbon markets into something Indian farmers can enter, aggregating smallholders through FPOs, deploying digital MRV and connecting projects to buyers.
Some projects have already issued credits. Boomitra’s soil carbon programme has supported more than 12,000 smallholder families, with credits issued for over 6,000 farmers across 25,000 acres. Sow&Reap has worked with around 35,000 paddy farmers in Telangana, winning Gold Standard certification for 37,405 credits. International buyers have shown interest in Varaha’s biochar projects. Though small relative to India’s agricultural footprint, these figures are notable for a sector that until recently had almost no intersection with carbon markets.
In global smallholder pilots, farmer earnings have ranged from roughly $20 to $70 per hectare per year, with revenue-sharing arrangements differing sharply. Farm Africa’s Acorn model in Kenya allocates around 80% of revenue to farmers, while Indigo Ag in the United States operates on a 75% share. In India, early pilots such as Uttar Pradesh’s advance payments are best understood as top-up income rather than primary livelihood performance-linked income layered atop agriculture.
Co-benefits matter as much as credit. Many practices that generate carbon, improve soil health, composting, water efficiency, and reduce fertiliser use enhance resilience and productivity. Verification cycles, however, can stretch across multiple seasons, making advance payments and institutional scaffolding central to inclusive design.
The economy is not guaranteed. Voluntary carbon prices have been volatile in recent years, falling sharply in 2022-23 amid scrutiny over offset credibility and greenwashing. Credits that once traded at $15-$20 per ton fell to low single digits before recovering in niche segments such as methane reduction and biochar, viewed as higher-integrity categories.
In India, this uncertainty is compounded by the emergence of a domestic carbon market framework, raising unresolved questions around double counting, farmer eligibility and whether agricultural credits sold abroad can also count toward national climate targets.
There is also policy and demand risk. If ESG frameworks tighten, or if global accounting shifts from offsetting to direct decarbonisation or in setting, demand may consolidate into narrower, high-integrity niches. Compliance with carbon markets may expand in the EU and US but may not automatically accommodate smallholder agriculture. India’s competitiveness in these climate-linked markets will depend on aligning methodologies, building institutional credibility and shielding farmers from regulatory whiplash.
Both government and startups bring strengths and weaknesses. Startups excel at digital MRV, aggregation and market linkage but struggle with trust, awareness and inclusion. Registrations often happen via FPOs, where farmers may not fully understand benefit-sharing arrangements or timelines. Tenant farmers, who cultivate roughly a third of agricultural land in some states, risk exclusion altogether.
In India, the picture is even more complicated because much of the cultivation happens on leased land. Current frameworks say that farmers and landowners can both earn from carbon markets, but they do not clearly spell out who should receive the money when the cultivator is not the landowner. Globally, registries generally require clear land-use rights and rely on contracts to decide whether credits and revenue go to landlords, tenants or both. Without explicit benefit-sharing clauses, there is a real risk that tenant farmers who adopt climate-friendly practices may see the carbon income flow to others.
The government brings legitimacy and extension networks and can address the biggest behavioural barrier. But schemes often fixate single practices, such as tree planting, whereas startups experiment across soil carbon, methane reduction and agroforestry. The most promising path is not state versus startup, but state with startup: legitimacy and access to meeting digital architecture and market linkage.
Global examples offer direction. Kenya’s Agricultural Carbon Project trained tens of thousands of farmers while generating Verra-certified soil carbon credits. Farm Africa’s Acorn sends 80% of revenue directly to farmers. Indigo Ag aligns with registry standards and operates a 75% farmer-share model. Australia’s Emissions Reduction Fund provides methodological clarity and permanence rules that reduce uncertainty. None of these models is perfectly portable, but they share two principles India cannot ignore: co-benefits first, transparency second.
Carbon credits are no panacea for Indian agriculture nor a substitute for broader reform. Yet they open a new pathway for agricultural livelihoods and climate finance, linking small farmers to global climate commitments through productivity and resilience. Whether this becomes a sustainable market opportunity or a passing experiment depends less on enthusiasm and more on design integrity, access and trust. If those elements align, carbon credits could become a durable complement to India’s agricultural income portfolio rather than a temporary climate fix.
Amit Kapoor is Chair at the Institute for Competitiveness, and Subashini Prakash is a Researcher at the Institute for Competitiveness.
The article was published with Business World on January 20, 2026.
