Understanding India's New Carbon Credit Plan and Its Implications

The ₹20,000 crore carbon credit programme announced in Union Budget 2026 is primarily aimed at supporting Carbon Capture, Utilization, and Storage (CCUS) technologies in India’s industrial sector. Contrary to popular perception, the programme is not designed for agriculture but is rooted in the Department of Science and Technology’s (DST) 2025 CCUS R&D roadmap.

The key focus areas include:

• Hard-to-abate industries: Power, steel, cement, refineries, and chemicals
• Technological intervention: Capturing CO₂ emissions from industrial smokestacks
• Utilization and storage: Reusing captured carbon or storing it underground

These sectors are termed “hard-to-abate” because their emissions are process-based and cannot be easily eliminated through renewable energy alone. For example, cement manufacturing releases CO₂ during chemical reactions, making CCUS essential.

The programme is thus a strategic industrial decarbonisation initiative, critical for India’s commitment to achieving net-zero emissions by 2070. While the term “carbon credit” is used broadly, the scheme’s architecture is clearly technology-driven and industry-focused, rather than agriculture-based.

The confusion surrounding the carbon credit programme stems from the conflation of two distinct climate strategies: industrial CCUS and agricultural carbon markets. The use of the generic term “carbon credit programme” in the Budget has led to multiple interpretations.

Key reasons for the confusion include:

• Ambiguous terminology: The phrase “carbon credit” is commonly associated with agriculture and forestry projects
• Parallel narratives: Media reports and social discourse have highlighted farmers as potential beneficiaries
• Growing voluntary carbon markets: Existing initiatives already allow farmers to earn credits through sustainable practices

For instance, several private companies in India are piloting soil carbon sequestration projects where farmers are compensated for regenerative practices. This has reinforced the perception that the Budget allocation is linked to such initiatives.

However, official documents like the DST roadmap clearly indicate an industrial focus. The confusion highlights a communication gap in policy articulation, where technical clarity has not translated into public understanding, leading to mismatched expectations.

Carbon Capture, Utilization, and Storage (CCUS) is a technology designed to capture carbon dioxide emissions at their source, particularly from industrial facilities, and either reuse or store them to prevent atmospheric release.

The process involves three key stages:

• Capture: CO₂ is separated from flue gases emitted by industries such as cement or steel plants
• Utilization: Captured CO₂ is used in products like chemicals, fuels, or construction materials
• Storage: CO₂ is injected into geological formations for long-term containment

This technology is crucial for hard-to-abate industries because their emissions are inherent to production processes. For example, steel manufacturing requires high-temperature reactions that inherently produce CO₂.

Globally, countries like Norway and Canada have successfully implemented CCUS projects, such as the Sleipner project in the North Sea. For India, adopting CCUS is essential to balance economic growth with climate commitments.

Thus, CCUS acts as a bridge technology, enabling emission reduction in sectors where renewable energy alone is insufficient, making it indispensable for achieving long-term sustainability goals.

Agriculture is excluded from the CCUS programme primarily due to the nature of its emissions, which differ fundamentally from industrial emissions. While industries produce concentrated, point-source CO₂ emissions, agriculture generates diffuse and biologically mediated emissions such as methane and nitrous oxide.

Key reasons for exclusion include:

• Diffuse emission sources: Agricultural emissions are spread across vast areas, making capture technologically unfeasible
• Type of gases: Methane and nitrous oxide require different mitigation approaches than CO₂
• Technological limitations: CCUS is designed for smokestack emissions, not soil or livestock-based emissions

Instead, agriculture is better suited for Carbon Dioxide Removal (CDR) strategies, such as soil carbon sequestration, agroforestry, and biochar. For example, regenerative farming practices can enhance soil organic carbon, effectively removing CO₂ from the atmosphere.

Thus, the exclusion is not a neglect of agriculture but a recognition of the need for sector-specific climate solutions. It underscores the importance of designing separate policies tailored to the unique characteristics of agricultural emissions.

The debate around the carbon credit programme reveals both policy clarity and communication shortcomings. While the technical framework is well-defined, its public interpretation has been inconsistent.

Strengths of the policy:

• Clear industrial focus: The DST roadmap precisely identifies target sectors
• Strategic alignment: Supports India’s net-zero goals by addressing major emission sources
• Technological advancement: Promotes innovation in CCUS

Gaps and challenges:

• Communication ambiguity: Use of broad terms like “carbon credit” has led to misinterpretation
• Expectation mismatch: Farmers and stakeholders anticipated direct benefits
• Lack of integrated messaging: Absence of clear distinction between CCUS and agricultural carbon markets

For example, similar confusion has been observed globally when carbon markets and emission reduction technologies are discussed under a single umbrella term.

The situation highlights the need for better policy communication and stakeholder engagement. Clear articulation of objectives, beneficiaries, and mechanisms is essential to avoid misinformation.

Ultimately, while the policy itself is robust, its effectiveness depends on transparent communication and complementary initiatives to address expectations across sectors.

Agricultural carbon credit initiatives focus on enhancing natural carbon sinks through sustainable farming practices, in contrast to the technology-driven CCUS programme.

Examples include:

• Soil carbon projects: Farmers adopt no-till farming, cover cropping, and organic inputs to increase soil carbon
• Agroforestry: Integrating trees into farmland to absorb CO₂
• Private sector pilots: कंपनियाँ जैसे Indigo Ag globally and Indian startups are enabling farmers to earn carbon credits

In India, some State governments and NGOs are experimenting with carbon farming models where farmers receive payments based on verified carbon sequestration.

Key differences from CCUS:

• Nature of approach: Biological vs technological
• Scale: Decentralised vs centralised
• Cost: Relatively low-cost vs capital-intensive

While CCUS targets emission reduction at the source, agricultural initiatives focus on carbon removal and ecosystem restoration.

These examples illustrate that both approaches are complementary, forming part of a broader multi-sectoral climate strategy.

Designing a carbon credit programme for farmers requires a tailored, inclusive, and scalable approach that addresses the unique characteristics of agricultural emissions and rural economies.

Key components of such a programme would include:

• Standardised measurement systems: Developing reliable methods to quantify soil carbon sequestration
• Institutional framework: Establishing a regulatory body to certify and trade agricultural carbon credits
• Financial incentives: Providing upfront support and risk mitigation for farmers adopting sustainable practices

For example, a pilot project could be launched in regions like Punjab or Maharashtra, where farmers are incentivised to adopt regenerative agriculture, with carbon credits sold in domestic or international markets.

Challenges to address:

• Verification complexity: Measuring carbon changes in soil is technically challenging
• Farmer awareness: Need for training and capacity building
• Market access: Ensuring fair pricing and participation in carbon markets

The programme should also integrate with existing schemes like PM-KUSUM or Soil Health Card initiatives to maximise impact.

Such a policy would unlock a dual benefit—enhancing farmer incomes while contributing to climate mitigation—thereby complementing industrial decarbonisation efforts under CCUS.