From Farms to Finance: The Hidden Risks and Path Forward (Part 2)

Pradeep Motwani -CEO at Terrablu Climate Technologies Pvt Ltd

Pune (Maharashtra) [India], February 09: In Part 1, we examined how India’s agricultural carbon credit market promises to transform farming from an emissions source into a climate solution, but warned of troubling patterns emerging as agrochemical and pesticide companies dominate this new value chain. Part 2 explores the specific risks farmers face and outlines a comprehensive path forward.

Yield Risks and the Transparency Gap

Another critical concern is food security. If carbon farming reduces yields, farmers lose far more than they gain from carbon payments. Several studies indicate that the transition to certain sustainable or low-input agricultural practices can initially reduce crop yields, particularly during the early years of adoption. However, this evidence is often underreported or selectively presented by carbon credit companies operating in the agriculture sector. In many cases, the dominant focus remains on maximizing carbon credit generation, rather than transparently assessing impacts on farm productivity and farmer incomes. This lack of transparency raises serious concerns: if yield losses are ignored or downplayed, farmers may bear the economic risk while intermediaries capture the carbon revenues.

This risk is explicitly acknowledged in carbon standards. Under the widely used VM0042 methodology that certifies agriculture carbon credits, it is stipulated that certification will not be granted if a reduction of chemical fertilizer use results in a decrease in yields. Yet evidence on yield impacts especially during early transition years is often underreported by carbon credit companies, whose primary focus is maximizing credit volumes rather than safeguarding farm incomes. Without clear disclosure, robust safeguards, and farmer-centric design, agricultural carbon markets risk becoming extractive, prioritizing credit volumes over food security, livelihood resilience, and long-term soil health.

The Biochar Cautionary Tale

Biochar is increasingly being promoted in India as promising tools for carbon sequestration in agricultural soils, particularly because it is believed to offer long-term carbon storage. However, a growing body of scientific literature points to important limitations and uncertainties around their actual climate benefits at scale. The effectiveness of biochar is highly context-specific, varying with soil type, climate conditions, cropping systems, and complementary agronomic practices. This makes it risky to assume uniform carbon gains across India’s highly diverse agricultural landscapes.

While biochar is widely marketed as a long-term soil carbon solution, studies show that biochar delivers agronomic and carbon benefits only when applied in combination typically around 5% with organic manure or fertilizers. When applied alone, biochar has in many cases led to reduced crop yields and limited or even negative soil carbon outcomes. Its effectiveness is also significantly lower in acidic soils, which is a critical concern given that India has large stretch of agricultural land with acidic soil. Thus, methods like biochar carbon sequestration outcomes depend strongly on climatic and edaphic factors.

Despite significant scientific uncertainties, biochar-based carbon credits are being aggressively promoted in India, often without robust, large-scale field evidence across the country’s diverse agro-climatic zones. Several major technology companies, including AI-driven firms with rapidly rising emissions, are investing millions of dollars in biochar credits to offset their carbon footprints. While the demand for offsets is understandable, responsible climate action requires more than credit purchases. A more credible approach would be to fund independent research, long-term field trials, and large-scale pilots to rigorously assess the viability and scalability of biochar and other soil-carbon methods under Indian conditions. Without such evidence, the rush to monetize soil carbon risks becoming greenwashing delivering uncertain climate benefits and limited value for farmers.

The Untapped Potential of Dairy Methane Mitigation in India

Home to the world’s largest population of cattle and buffalo, India also generates the highest volume of methane emissions from enteric fermentation emissions released during ruminant digestion that are far more potent than carbon dioxide in the short term. Yet, despite this outsized climate footprint, India’s dairy sector remains largely absent from the country’s emerging agricultural carbon credit ecosystem. Most carbon farming initiatives focus on soil carbon, fertilizer optimization, or water management, while livestock methane arguably more measurable and impactful has received limited attention.

This gap is striking when viewed against international experience. In countries such as the United Kingdom, feed-based methane-reduction solutions have already been certified under global carbon standards and are generating tradable carbon credits. In India, however, fragmented smallholder dairy systems, limited animal-level emissions data, lack of India-specific methodologies, and weak incentives have slowed progress. Yet these constraints also point to opportunity. Even modest methane reductions per animal, if scaled across India’s vast dairy sector, could deliver significant climate benefits. Without deliberate policy and scientific investment, dairy methane risks becoming the largest missed opportunity in India’s agricultural carbon transition.

A Market Designed for Finance, Not Farmers

At its core, agricultural carbon markets are designed around financial efficiency, not farmer welfare. Without strong safeguards, transparent contracts, fair revenue sharing, yield protection, and independent verification, carbon credits risk becoming another extractive system, where farmers supply land and labour while others capture most of the value.

What Needs to Change: Recommendations

1. Mandate Revenue Transparency: Require public disclosure of carbon credit prices, transaction costs, and farmer revenue shares to prevent value capture by intermediaries.
2. Farmer, First Contract Standards: Develop standard, farmer-friendly contracts with limits on lock-in periods, clear exit clauses, and shared risk for climate shocks and reversals.
3. Yield Protection as a Non-Negotiable: Certification should be linked to independent yield monitoring, with compensation mechanisms if productivity declines.
4. Publicly Funded Field Evidence: Large-scale, multi-year pilots across soil and climate zones especially for methods like biochar and ERW must precede large-scale crediting.
5. Decouple Climate Finance from Greenwashing: Corporates buying agricultural credits should co-finance research, extension, and soil health restoration not just claim offsets.
6. Mainstreaming Dairy into Carbon Markets: Bringing India’s dairy sector into carbon markets requires context-specific methodologies that reflect indigenous breeds, buffalo dominance, mixed feeding systems, and smallholder realities. Large-scale pilots on methane-reducing feed additives, improved fodder, and herd productivity must precede credit issuance, backed by independent measurement and verification. Carbon programs should link methane reduction with higher milk yields, better animal health, and lower input costs, not just carbon revenues. Joint funding by government, cooperatives, and research institutions and strong revenue-sharing safeguards is essential to ensure small farmers benefit fairly.
7. Beyond Carbon Credits: Combine carbon payments with premium markets for sustainably produced food, concessional finance, crop insurance, and advisory services.
8. Strengthen Public Oversight: India’s carbon market regulator should actively monitor agricultural credits, enforce safeguards, and prioritize farmer welfare over credit volumes.

If carbon credits are to play a meaningful role in climate-smart agriculture, they must move beyond hype and financial extraction. Otherwise, the risk is clear: farms will become carbon assets for others while farmers remain as vulnerable as ever.

Terrablu Climate Technologies Pvt Ltd for more info kindly visit http://www.terrablu.life

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