Crafting a Carbon Market from India’s Grassroots

In India, the carbon market is starting to take root. The country is now home to a large share of carbon-offset projects, many of which are certified under the Clean Development Mechanism (CDM) of the Kyoto Protocol. Yet forests remain poorly represented in these efforts.

This may not be the case for long, however, if one of India's climate-focused entrepreneurs has his way. M. Satyanarayanan is hoping to utilize a new and innovative business model to create a veritable forest of wealth.

Dr. Satya, as his friends call him, is the founder of Veda Climate Change Solutions Limited (VCCSL), a company that is developing a network of tree planting operations to promote livelihood creation across six rural districts. These are areas with largely tribal populations, low literacy, minimal employment opportunities, and few natural resources.

"The majority of CDM projects that have been approved so far [in India] are in sectors such as  biomass-based cogeneration, energy efficiency, industrial processes, fuel switching, renewable energy, and a few in the field of municipal solid waste," said Dr. Satya, who now serves as an honorary advisor to VCCSL. "The number of projects in sectors relating to rural people, including farmers, is negligible, though they are the most vulnerable to climate change."

Working in the states of Orissa and Andhra Pradesh, VCCSL has teamed up with Rayagada-based manufacturer JK Paper Mills on an innovative pilot project. The mill provides farmers with saplings at a subsidized rate and trains them to grow and maintain the trees, helping to regenerate the local landscape. Meanwhile, the trees capture carbon dioxide from the atmosphere, mitigating climate change while generating a new income stream for residents.

Once a project template is in place and the method for certifying "carbon credits" is validated, Dr. Satya hopes to replicate the model at a larger scale. He envisions implementing similar projects across India, East Asia, Africa, and South America, as well as diversifying the range of industries that the company works with.

"This model could include not only paper mills, but also construction, furniture, and biofuels, as well as the creation of ‘green' fuel for other local economic activities," said Dr. Satya, who also serves as Resident Commissioner for the State of Orissa and has worked for many years with the Indian Ministry of Environment and Forests.

It was his experience working with high-level climate policymaking that inspired Dr. Satya to found VCCSL in 2003. His goal was "to take climate solutions from theory to practice."

The tree saplings, which include eucalyptus and Casuarina, are carefully bred and selected for their suitability to local conditions, providing benefits such as drought resistance and protection against high winds. The farmers then sell the mature timber to JK Paper Mills, generating a new income stream that previously did not exist. At the same time, VCCSL assesses the wood for both voluntary and certified carbon credits that can be sold on the global carbon market, generating a second income stream for the farmers.

VCCSL acts as the intellectual support partner for the venture, working with carefully identified local industries and communities to ensure that the value created at the base of the supply chain extends fully into the global market in an effective and sustainable way.

"We need to get into the ‘business of development,' as it can no longer be ‘business as usual' but ‘business unusual,' in which stakeholders would become shareholders," Dr. Satya said.

The project works across 3,500 hectares of land and involves nearly 2,000 farmers, each of whom will earn an additional 10-20 percent on their earnings from the paper mill from the sale of carbon credits, VCCSL estimates. As the cost of carbon in the market rises, so too will the benefits gained by these rural farmers and their families.

"The venture epitomizes the way that progressive business models are moving today," said Tina Goyal, an associate with Endeavor, a New York-based non-profit that assists entrepreneurs in eight developing-country markets.

By developing public-private partnerships that address economic, environmental, and social concerns - the "triple bottom line" - VCCSL plans to support the creation of a complete value chain in India, from the country's arid plains to the air-conditioned innards of metropolitan investment banks.

"It is a self-sustaining, scalable model that in time will benefit not only the local farmers and industries, but also VCCSL itself through the company's cut of carbon sales," Goyal said. So far, however, VCCSL has chosen to apportion an unusually high share of revenue from carbon credits - as much as 80 percent-to the farmers.

By 2030, India is projected to account for some 5 percent of global carbon dioxide emissions, generating an estimated 1.4 metric tons per person, according to the International Energy Agency. The Energy and Resources Institute (TERI), a Delhi-based non-governmental organization, estimates that emissions will grow at nearly double the IEA's projected rate and reach 5 tons per person by 2032 if they continue at their current pace. 

The Indian government has identified eight national "missions" to limit greenhouse gas emissions, with an emphasis on solar energy, energy efficiency, water conservation, and sustainable agriculture. 

Anna da Costa is a Worldwatch Institute Fellow based in New Delhi.