Now Reading
The Dubious Business of Trading Carbon and Its Stakes For India’s People and Forests

The Dubious Business of Trading Carbon and Its Stakes For India’s People and Forests

Featured photo: Seratobikiba/Wikimedia Commons. CC BY-SA 4.0.

Tribal communities in the Araku Valley of Andhra Pradesh “signed away” their rights to carbon credits through a local NGO intermediary named the Naandi Foundation.

While the tribal communities undertook plantations on their private land spread across 6,000 hectares – an area of the size of almost 150 football grounds – in 333 villages, these began generating carbon credits for the French company Livelihood Funds in 2010.

The Paris-based company obtained these credits, while Evian – a popular luxury water brand – of French food production MNC Danone (on whose behalf the NGO acted) took credit for this carbon sequestration and claimed it was carbon-neutral.

Meanwhile, the Michelin Group – a leading tyre manufacturer based in France – used the same carbon credits to “offset” emissions from its employees’ travels.

Notably, Livelihood Funds did not sell these credits in the open market, but to its investors like the Michelin Group, Schneider Electric and others. The data is sketchy on how many credits Livelihoods Funds sold to its investors.

These findings, based on ground reports by Rohini Krishnamurthy and Trishant Dev, researchers from the Delhi-based think tank Centre for Science and Environment (CSE), are part of their recent report titled ‘Discredited: The Voluntary Carbon Market in India’.

Krishnamurthy and Dev’s visits also found that in many cases, locals did not reap any benefits from this business.


Carbon markets were first envisioned in 1997 as part of the Kyoto Protocol, which intended to put a price on the amount of carbon dioxide (CO2) being emitted by developed countries.

This market’s function, like that of any other market, is to connect buyers to sellers. If you polluted or emitted to the permissible limit, you could purchase carbon credits off the carbon market and emit more CO2.

A carbon credit is a kind of tradable permit and equals one tonne of CO2 removed.

You could purchase credits by investing in projects that either prevented future emissions or promised to remove carbon from the atmosphere.

Such investments were to be made in projects that needed additional revenues for their implementation. The project’s outcome couldn’t have been ‘business as usual’ either, meaning that the project should have been able to mitigate more CO2 emissions than would have been mitigated in its absence.

The idea that a project must offset more emissions that would have occurred if it didn’t exist is known as additionality. Photo: Jonathan Wilkins/Wikimedia Commons. CC BY-SA 3.0 Unported.

Early research on carbon offsets in India in 2000 showed that since Indian state governments at the time were very interested in building wind farms, they gave many subsidies and incentives for the required technology. At the same time, European countries too were interested in building the same wind power.

But such projects didn’t really contribute to climate change mitigation; instead, they ended up polluting the environment even more. These projects also did not offset more emissions that would have occurred in their absence.

Barbara Haya, a researcher and faculty at the University of California Berkeley’s Goldman School of Public Policy, points out that countries should not get credits for building something that would have been built anyway.

Haya spoke to a consultant who was helping a wind developer with a project and ended up preparing two different financial assessments for it. In one, he would show the project to be cost-effective and send this assessment to banks. In the other, he would show that the project wasn’t cost effective and send that to the UN.

This shows how carbon credits and the way they are planned can be manipulated.

Later, Article 6 of the Paris Agreement allowed for the creation of carbon markets.

Of this, ‘Reducing Emissions from Deforestation and Forest Degradation’ (REDD+) projects are the ones with the most credits on the voluntary carbon market.

A leading idea from this was that industrialised nations could buy tradable carbon credits by paying governments, organisations, communities and individuals in forested areas, primarily in the countries of the Global South, including India.

Carbon trading has been criticised on many grounds. One of these is the potential creation of “sacrifice zones”. This means that carbon emissions can get accumulated in one area where a local transmitter continues emitting carbon by buying credits from other sources.

There have been examples of oil refineries disproportionately sited in areas where underprivileged communities live. These refineries emit not only carbon, but also several co-pollutants in the process. These co-pollutants – including toxic gases such as benzene, dioxins and ammonia – may also get traded along with the carbon emissions, while also exposing local communities to further hazards.

It has been anticipated that there is potential for these to exacerbate the already-existing exposure of lower-income minority communities to landscapes of environmental injustice.

“Voluntary carbon markets claim to serve the public good, providing quantitative and qualitative benefits to the climate and the community. But the ecosystem designed to help companies make claims of carbon neutrality is, in itself, a black box,” says Dev of the CSE.

Article 6 of the Paris Agreement allowed for the creation of carbon markets. Photo: UNclimatechange/Flickr. CC BY 2.0.

Forestry projects and carbon markets

Haya of Berkeley’s Goldman School says that “the offsets can only work if one’s sure that they’re keeping carbon out of the air”.

Every country maintains a registry to track such offsets, which mandates a set of rules stipulating project types as well as the eligibility criteria and methods for estimating emissions reductions.

For instance, if an entity wants to buy wind farms to offset CO2 emissions, these rules determine if it qualifies to do so.

Voluntary carbon markets grew from organisations that wanted to offer companies and individuals a chance to buy the carbon credits necessary to offset their emissions voluntarily. The majority of projects on the market are forestry projects, accounting for as many as 43% of credits.

“Most forest projects aren’t credited for doing something, but not doing something … not deforesting, not aggressively harvesting,” Haya said.

She added that it was “easy to tell the story of a high risk of deforestation”, referring to how a project proponent can claim that a certain forest is likely to be deforested and needs protection or conservation, without necessarily having supporting evidence for the same.

“Most projects on the market are forest projects [relating to] improved forest management and avoiding deforestation, especially in the Global South.”

In 2023, an investigation by SourceMaterial, The Guardian and the German weekly Die Zeit revealed that more than 90% of the rainforest offset credits that Verra, a registry, had verified did not represent genuine carbon reductions.

Not only that, but some of these projects, such as the ones in Peru run by the NGO Conservation International along with the country’s government, are rife with human rights abuses, with evidence of people being displaced from their homes.

Many of these projects estimate credits by predicting the deforestation that would happen in the absence of conservation efforts. The rainforest offset investigation revealed that most of them were meaningless. This has led to greenwashing by organisations.

Verra has disputed these findings.

Also read: When Carbon Credits Drive People From Their Homes

Khaled Diab, the communications director at Carbon Market Watch, an organisation that commissioned a study assessing REDD+ carbon credit projects, said they wanted to explore the methodological systems in place, whether they had an impact as claimed and on the close relationship between over-crediting and methodological flexibility.

For instance, choosing a particular methodology can result in a higher number of carbon credits. Each methodology “defines what projects are allowed to participate and generate credits and the methods for monitoring and calculating the emissions reductions/removals from each project”, says the aforementioned study.

Five quality factors, including baselines (deforestation that likely would have occurred in the absence of the project’s intervention), were assessed.

“We wanted to assess independently the climate effectiveness of these forest-based REDD+ projects and explore the role of methodological systems in place [and] whether these had an impact on the climate as they claim,” he added.

“We did find a close relationship between over-crediting and methodological flexibility to calculate the estimates of climate impact. The project developers had too much leeway towards [choosing] the methodology that maximises the [purported] climate benefits of their projects.”

Diab points out that voluntary carbon markets as they stand today face several problems, both on the supply and demand sides.

On the supply side, there is the quality of carbon credits. “The voluntary carbon market is overflowing with low-quality carbon credits that don’t have the climate impact they claim to have.”

He explained that this was because of the questionable nature of climate impacts and the way they are measured, as well as due to factors of “additionality”, which refers to the idea that a project must offset more emissions than would have occurred if it didn’t exist.

Carbon credits are also problematic for shifting the burden from polluters to developing countries. Representative photo. Credit: BemanHerish/Wikimedia Commons. CC BY-SA 4.0.

He asked, “Do these projects bring additional benefits that wouldn’t have occurred otherwise? Renewable energy projects are a classic example. They have become financially feasible on their own and don’t really need financing to be productive. That’s why most of the high-quality standards exclude renewable energy projects, except in the least developed countries.”

One problem with forestry projects is measuring the exact amount of carbon stored in a forest. Another is counterfactual – coming up with a skewed scenario of what would happen if the project was not in place.

“Sometimes, a forest may be protected that doesn’t need protecting. Or the forest is protected till the project is done, but once the project is over, the forest is no longer protected,” Diab says, adding that such uncertainties add to the difficulty in measuring just how much carbon a forestry project will offset and for how long.

This may lead to the project developers getting away with false credits that don’t contribute to the sequestration of carbon or do it only temporarily.

The challenge is the nature of carbon. While the burning of fossil fuels releases carbon stored for millions of years which can then persist in the atmosphere for centuries, “… for a particular forest project to have a positive climate impact, it needs to store carbon for centuries,” Diab highlights.

On the demand side, the idea of carbon credits being used to compensate for emissions is problematic as it shifts the burden from polluters to developing countries.

Such compensation also suffers from the issue of permanence. ‘Permanence’ refers to how long the CO2 removed by a project is kept out of the atmosphere for. However, the term is vague and offers only an approximate sense of the degree to which a project proponent can guarantee to keep CO2 out of the atmosphere.

Diab feels that this is at best a zero-sum game and at worst ends up resulting in greater emissions.

The Energy Conservation Act and carbon markets in India

India notified the Carbon Credit Trading Scheme in June 2023 without consulting the Ministry of Tribal Affairs.

Analysts such as Diab point out that these projects can’t take place without the free, prior and informed consent of indigenous and local communities if they are to be launched on their lands.

A press release issued in December 2022 to announce the creation of carbon markets in India said that as per the framework laid down by the Conference of the Parties, if any carbon credit is sold outside the country, it cannot be used for meeting the nationally determined contributions (NDCs) of the originating country.

It said that carbon credits will on priority be used within India to meet its NDCs.

Notably, India revised its NDCs in August 2022, but didn’t change its target on forestry and land use, in which it commits that it will create an additional carbon sink of 2.5 to three billion tonnes of CO2-equivalent through additional forest and tree cover.

India’s financial documents on fulfilling its NDCs and its biennial reports show that the forestry sector is the sink that India is relying on heavily to fulfil its climate-related commitments and NDCs.

The linkage between NDCs and carbon credits as observed in the Carbon Credit Trading scheme notice becomes clear – India intends to bring more of its forests under the carbon market regime. Explorations in several states in the northeast indicate the same.

“If such a regulated carbon market is extended into India’s land use and forestry sector in the future, a few factors need to be kept in mind,” said Manan Bhan, a fellow at the Ashoka Trust for Research in Ecology and the Environment, a Bengaluru-based research organisation.

“It would be useful to consider a robust carbon accounting and governance framework for the forest carbon market. Since millions of people in India are dependent on land resources, maximising their involvement and sharing benefits from the market equitably would also be key to success,” he added.

However, experiences such as those from Araku Valley show that far from accessing any benefits, people were not even aware that their plantations were generating carbon credits in the first place.

Further, the government notification added that in specific cases where carbon credits are created by high-technology and expensive assets, these may be permitted to be externally marketed by the ‘National Designated Authority’ created by the government, which shall exercise and perform functions that inter alia include receiving projects for evaluation and approving the host party (or the project proponent).

It did not mention how these externally marketed projects will be monitored.

The Delhi-based NGO PRS Legislative Research, which carried out an analysis of the amendments to the Energy Conservation Act, 2001, said that while the Energy Efficiency Act comes under the Ministry of Power, several other ministries such as the Ministry of Environment, Forest and Climate Change; the Ministry of Agriculture and the Ministry of Tribal Affairs may be relevant to its objectives.

India’s efforts to launch this market in the initial phase couldn’t bear much fruit. The Clean Development Mechanism (CDM), a UN-run carbon offset scheme, ended up generating credits that couldn’t pass the scrutiny of international standards. In fact, most projects ended up polluting the environment further.

On the other hand, the voluntary carbon market started thriving. Notably, many projects relied on forestry to build carbon credits.

The report launched by the Delhi-based CSE has reiterated that the projects under the voluntary carbon market may have also ended up polluting the environment further.

Chart: ‘Discredited’ report.

Establishment of the carbon trading market

There aren’t any official or formal carbon markets in India right now. The Energy Conservation Act represents the first step towards incorporating the idea of carbon trading into Indian law, but the specifics of this are left up to the Union government’s discretion.

Soumitra Ghosh, a researcher associated with the World Rainforest Movement, says that the attempt is to create a domestic carbon market where credits would be traded between entities inside India.

The previous carbon market followed the Kyoto Protocol of 1997 and was conducted under the supervision of the UNFCCC. It was an official compliance market, which meant that “entities earning and buying credits can fit in on paper with the official carbon reduction targets”, Ghosh said.

Experts suspect that it’s quite possible that India may demand that the products from its domestic markets are included in the compliance market, when the new Sustainable Development Mechanism (SDM), another name for the fourth paragraph within Article 6 of the Paris Agreement (which allowed for the creation of carbon markets), gets going.

The SDM builds on and shares features with the Kyoto Protocol’s CDM, but “will need to function in a radically changed world,” a report on the SDM by Carbon Markets Watch said.

The amendment to the Energy Conservation Act envisions the creation of a domestic carbon market and a steering committee has been formed to govern this market.

“The impact of this regulation on the voluntary carbon market, which has international stakeholders involved, however, is not immediately clear,” said Dev of the CSE.

One major concern with voluntary carbon markets has been that it is hard to measure the climate impact of projects and hence make stakeholders accountable.

First, the market should be transparent. There should be publicly available and verifiable information about the location of these projects, their expected emission reductions, the prices of credits and the traceability of claims of climate-neutrality back to the concerned projects.

Dev argued that voluntary participation in emission reductions should not lead to arbitrary arrangements for claiming and trading carbon credits. The market should adhere to minimum standards prescribed by governments or government-recognised institutions to engage in the system, he says.

These markets also pose a significant challenge to community interests. Dev said that community participation, representation and consent, along with fair benefit-sharing mechanisms, need to be implemented in these projects.

“Benefit-sharing is considered fair because it compensates the community for the resources and labour they contribute to help reduce emissions. It is also essential to incentivise the community to continue these practices, which is often not the case. This lack of incentive is something we have observed, and it raises concerns about the permanence of these emission reduction activities.”

This is especially important as many state governments have started issuing tenders in forested areas for baseline surveys to be conducted as part of assessing carbon stocks, while communities are caught surprised due to a lack of awareness about these developments.

Photo provided by author.

‘Discredited’ – the CSE’s report – also points to another case. During visits to seven villages in Madhya Pradesh, where EKI-Energy Services and Greenway Grameen Infra Pvt Ltd had distributed improved cookstoves, it was revealed that the carbon credits arising from this project had been overestimated (by assuming lower baselines) and that expectations of behaviour change were inaccurate. Moreover, some households already possessed LPG cookstoves.

“Our findings came despite the discouragement that we faced from project developers, who demanded that we sign non-disclosure agreements or simply did not permit us to visit the project areas,” say Krishnamurthy and Dev.

The 28th Conference of the Parties saw a deadlock on the anticipated carbon markets between countries that wanted carbon markets and other countries that pushed for greater scrutiny.

“This was better than having rushed through a bad deal,” Diab pointed out.

An email sent to Rajasree R., who has been appointed as the head of the National Designated Authority, awaits a response.

Sushmita is an award winning journalist, researcher, multimedia artist and a former engineer with over 15 years of experience across sectors. She works on climate change, environment, forests, gender based violence and more. She can be reached at

Scroll To Top