Introduction
Kerala, with its lush forests covering over 54.42% of its
landmass, holds a carbon stock of approximately 205.523 million tonnes as per
the Forest Survey of India (FSI) 2021. This translates to 754.27 million tonnes
of CO₂ equivalent—a resource of immense economic value that remains largely
untapped. Given the escalating global efforts to combat climate change and the
rising importance of carbon markets, it is imperative that Kerala strategically
positions itself to monetize this asset.
Despite global carbon pricing mechanisms offering potential
economic returns, India, has yet to integrate carbon stock monetization into
its state-level economic frameworks. This article advocates for a paradigm
shift in Kerala’s Forest governance, proposing policy interventions,
institutional frameworks, and a road-map for leveraging forest carbon wealth to
enhance sustainable development, climate resilience, and economic security.
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Understanding the Valuation of Kerala’s Carbon Stock
Carbon Pricing: A Rational Basis for Valuation
International carbon markets function based on cap-and-trade
systems, carbon taxes, and voluntary carbon credit mechanisms. Prices fluctuate
based on supply-demand dynamics, regulatory environments, and commitments under
agreements like the Paris Accord.
As of 2024, carbon pricing varies widely:
- European
Union Emissions Trading System (EU ETS): $90–$100 per tonne of CO₂
- California
Cap-and-Trade Program: $30–$40 per tonne of CO₂
- Voluntary
Carbon Markets (e.g., REDD+ credits): $5–$20 per tonne of CO₂
- Global
average carbon price (World Bank estimate): $50 per tonne of CO₂
Thus, taking a conservative global average price of $50 per
tonne of CO₂, Kerala’s Forest carbon stock is valued at approximately $37.7
billion (or ₹3.13 lakh crore). Even at the lower bound of $5 per tonne,
Kerala’s forests could still represent a $3.77 billion economic asset. Would be
good to know in this context that, the total annual budget of Kerala for the
fiscal year 2024-25 is approximately ₹1.74 lakh crore, or $21 billion USD.
India’s National Carbon Credit Trading System:
India is establishing a regulated carbon market under the Energy
Conservation (Amendment) Act, 2022. The Bureau of Energy Efficiency (BEE) and
the Ministry of Power are working on a National Carbon Credit Trading Scheme,
expected to be fully operational by 2025. Initially, it will focus on energy
efficiency credits but may later expand to greenhouse gas (GHG) emissions
trading.
Under the Perform, Achieve & Trade (PAT) Scheme,
a cap-and-trade system launched in 2012 under the National Mission on EnhancedEnergy Efficiency (NMEEE). Here, large industries in energy-intensive sectors
(steel, cement, power) are assigned energy consumption reduction targets. Companies
exceeding targets earn Energy Saving Certificates (ESCerts), which they can trade
with underperforming companies.
The Renewable Energy Certificate (REC) Mechanism encourages
industries to invest in renewable energy projects. It allows carbon credit
generation from renewable energy, which can be traded in India’s Power
Exchanges. India does not yet have a national voluntary carbon market, but
companies participate in global carbon credit trading (e.g., Verra, Gold
Standard), while some Indian firms like Tata, Infosys, and ITC are engaging in voluntary
carbon offsets.
There is no Direct Carbon Tax in India unlike
countries such as Sweden or Canada. However, it levies an implicit carbon price
through the Coal Cess (National Clean Energy Fund) - ₹400 per tonne on coal
production, and through Excise Duties & GST on fossil fuels.
Some Global Practices:
- Costa
Rica’s Payment for Ecosystem Services (PES) Program that pays
landowners for carbon sequestration and has attracted over $500 million in
climate finance.
- Colombia’s
Carbon Tax & Offsetting System which is a national-level carbon
tax mandates emitters to purchase forest-based carbon credits.
- California’s
Cap-and-Trade Linkages allows tropical forest credits from
developing nations, offering a precedent for Indian states to access
Western carbon markets.
Article 6.2 of the Paris Agreement and Its Relevance to Kerala’s
Carbon Market Strategy
The Paris Agreement, under Article 6, establishes mechanisms
for international cooperation on carbon markets to help countries achieve their
Nationally Determined Contributions (NDCs) more efficiently.
Article 6.2 specifically allows countries to transfer carbon
credits between nations through bilateral or multilateral agreements, known as Internationally
Transferred Mitigation Outcomes (ITMOs). These credits can be used by countries
to meet their emission reduction targets while ensuring transparency and
avoiding double counting.
Although Kerala, as a state, cannot independently negotiate
ITMO agreements with foreign nations, it can still benefit from India's
participation in Article 6.2 mechanisms by:
1. Contributing
to India’s ITMO Strategy
The Government of India (GoI) is responsible for negotiating
ITMO agreements with high-emission countries (e.g., Japan, Germany, Canada)
that need carbon credits to meet their climate commitments. Kerala can advocate
for forest-based carbon credits to be included in India’s ITMO, ensuring that
credits generated from its afforestation, conservation, and carbon
sequestration projects are recognized and sold internationally.
2.
Generating Revenue from India’s Carbon Market
Exports
If India sells ITMOs internationally, revenue from these
transactions can be allocated to states that contribute significant carbon
sequestration. Kerala could push for a revenue-sharing mechanism where a
portion of earnings from international carbon credit sales flows back to the
state.
Challenges to Monetizing Forest Carbon in Kerala
1. Absence of a Regulatory Carbon Market Framework
India currently lacks a comprehensive domestic carbon
pricing policy. While initiatives like the Perform, Achieve, and Trade (PAT)
scheme and the Renewable Energy Certificate (REC) system exist, they do not
address carbon sequestration in forests. Kerala has recently announced policies
promoting green hydrogen and is engaging in broader discussions about climate
resilience financing. While this is not directly linked to carbon credit
trading, it indicates the state's awareness of global carbon markets. Programs
like Haritha Keralam focus on tree planting and ecosystem restoration, which
could align with voluntary carbon markets if formalized.
2. Limited Participation in Voluntary Carbon Markets
There have been informal discussions within policy circles
about leveraging Kerala’s extensive forests, particularly in the Western Ghats,
for carbon sequestration projects. However, no official legislation or
structured market participation has emerged. Projects such as REDD+ (Reducing
Emissions from Deforestation and Forest Degradation) offer pathways for carbon
trading, but Kerala has yet to register large-scale afforestation or
conservation programs in these markets. Kerala is aligned with India’s
commitments under the UNFCCC, but lacks a dedicated state-level REDD+ strategy.
3. Lack of Institutional Mechanisms for Carbon Credit
Accounting
Institutions like Kerala State Biodiversity Board (KSBB) and
Centre for Climate Change Studies (CCCS) have explored carbon sequestration
potential but have not yet moved towards implementation of carbon credit
programs. Effective monetization requires a robust MRV (Monitoring, Reporting,
and Verification) system for Kerala’s carbon sequestration. While India’s National
Adaptation Fund for Climate Change (NAFCC) supports climate resilience
projects, no dedicated institution oversees state-level carbon financing.
A key bureaucratic hurdle is determining which agency should
oversee Kerala’s carbon credit system. Should it fall under the Forest
Department, which manages conservation efforts, the Kerala State Pollution
Control Board (KSPCB), which handles environmental regulations, or should the
state establish a dedicated Carbon Trading Authority? The absence of clarity in
governance can slow down policy adoption and deter private sector investments.
Additionally, there are State vs. Centre conflicts in
approvals that must be resolved. Carbon trading mechanisms require alignment
with India’s national carbon market and international commitments. Kerala would
need explicit approvals from the Union Ministry of Environment, Forest and
Climate Change (MoEFCC) to integrate its carbon credit projects with India’s
emissions trading system. The state would also require new legislation or
amendments to existing forestry laws to enable private sector participation,
ensuring compliance with national and global carbon credit frameworks.
Given Kerala’s fiscal constraints, integrating carbon
monetization into economic planning could be a future move. The idea has not
yet become a major policy priority, but it could gain traction if economic
benefits are clearly demonstrated.
What can Kerala start doing in this regard.
1. Establishing a Kerala Carbon Credit Registry (KCCR)
and develop a Kerala Green Bond Initiative
A state-level carbon registry should be developed to catalogue
forest carbon assets, facilitate carbon credit trading, and ensure transparency
in Kerala’s carbon market. This registry can integrate with national carbon
credit mechanisms, allowing the state to position itself as a major player in
nature-based climate solutions. Additionally, a Kerala Green Bond Initiative
can be introduced to attract domestic and global investors, raising capital for
large-scale afforestation, sustainable forestry, and carbon sequestration
projects. These bonds can help finance the transition to a low-carbon economy
while offering attractive returns for investors focused on sustainability.
.2.
Engaging Private Sector Participation
Kerala can actively engage the private sector by creating public-private
partnerships (PPPs) that facilitate corporate investments in afforestation,
biodiversity conservation, and sustainable agroforestry projects. Companies
with net-zero commitments can be incentivized to purchase Kerala’s carbon
credits through a state-managed carbon exchange, helping industries offset
their emissions while contributing to local environmental sustainability.
Potential buyers of Kerala’s carbon credits include Tech
& IT firms (e.g., Infosys, TCS) looking to enhance their sustainability
profiles, hospitality & eco-tourism sectors seeking carbon-neutral
operations, and manufacturing & logistics industries aiming to balance
their environmental impact.
To ensure practical implementation, the state must identify specific
areas for afforestation under PPP models. Given Kerala’s increasing land-use
pressures from road network expansion, urbanization, and developmental projects,
afforestation commitments should focus on:
Degraded forest patches and buffer zones around existing
protected areas to enhance biodiversity corridors, Riparian zones along
Kerala’s rivers and backwaters, restoring ecological functions while providing
natural flood mitigation, and Hillside plantations in selected non-forest
revenue lands to prevent soil erosion and maintain watershed health.
Additionally, increasing human-wildlife conflicts resulting
in casualties and fatalities pose a growing concern. Any afforestation
initiative must be designed to reduce habitat fragmentation and mitigate
human-wildlife interactions, ensuring a balance between conservation and
community safety. Integrated solutions such as wildlife corridors,
community-managed buffer zones, and compensation mechanisms for affected
populations should be incorporated into the afforestation strategy.
Projected Economic Gains for
Kerala
As mentioned earlier, if Kerala successfully integrates its
forest carbon into structured trading mechanisms, it stands to gain Carbon
credit revenue at $50 per tonne = ₹3.13 lakh crore, and an annual carbon
offset revenue (at 1% sequestration rate) = ₹30,710 crore
Conclusion:
Kerala stands at a historic crossroads where it can choose
to lead India’s climate finance revolution. By harnessing its vast forest
carbon reserves, Kerala can achieve climate mitigation, economic resilience,
and sustainable development. The time for inaction has long passed—Kerala must
move swiftly to convert its natural wealth into a financial asset that secures economic
stability and environmental justice for future generations.
Carbon is no longer just an environmental concern—it is an
economic opportunity waiting to be seized. As the world accelerates toward
net-zero, Kerala must not remain a spectator but take its rightful place in the
global carbon economy. The time for action is now.
