A research and development project managed by the World Agroforestry Centre in India provides a glimpse of what a REALU carbon scheme might look like on the ground. ‘Enabling Smallholders to Improve their Livelihoods and Benefit from Carbon Finance’ is already attracting considerable interest from public and private sector carbon buyers.

“Smallholders in India, especially in the tribal areas, face many problems,” explains Pal Singh, the World Agroforestry Centre’s Regional Coordinator for South Asia. “Their farms are often small, many are poorly educated, they are disorganised and find it difficult to negotiate or even get loans. In addition, they are particularly vulnerable to climate change. In the areas where we have chosen to work, extension services are also very poor.”

In collaboration with national agricultural research centres in Andhra Pradesh, Rajasthan, Orissa and Uttarakhand, Singh and his colleagues identified four ‘grids’, several kilometres square, each with around 1000 farming families. They began by conducting baseline studies of carbon stocks, using methodologies accepted by the Kyoto Protocol’s Clean Development Mechanism (CDM), and held a series of meetings with local communities, at which they described a range of activities that they could undertake to either reduce their carbon emissions or sequester carbon. These range from installing energy-efficient stoves to adopting conservation farming practices, from planting fruit trees to improving irrigation systems.

“It is entirely up to the families to choose what to do. We simply provide technical advice and some of the basic materials that they need,” explains Singh. “We explained to them from the beginning that this is not a cash handing-over exercise, but that the activities they undertake will help them to improve their farming practices and – very importantly – their incomes.”

Later, it is hoped, the project will also provide the communities with sales for the carbon they sequester. In each area, ‘producer companies’, owned by the local farmers, have been established and these will eventually be in charge of marketing carbon. It is too early to say how much carbon the grids will sequester, and precisely how profits will be shared, but the project has already attracted the attention of prospective buyers.

A French company, Danone, has said it would like to buy carbon from such projects. The International Finance Corporation (IFC) has expressed interest in buying carbon in order to offset some of the emissions from pulp mills whose construction it is currently funding. A cement company in Mumbai has contacted Singh with an order. The initial funding for the project came from the Indian government, but other donors are now expressing an interest in expanding the project to other areas.

Carbon schemes, whether established under the voluntary arrangements or under the CDM, must show ‘additionality’; in other words, the sellers must be able to prove that the carbon would not otherwise have been saved or sequestered. “If we hadn’t established this project, nothing would have happened in these areas,” explains Singh, “and if we can make carbon projects work here, in these poor and neglected tribal areas, we can make them work anywhere.” REALU could soon become a reality over much larger areas in India.

How much should carbon cost?

The carbon market is potentially worth billions of dollars, and many believe it could be used not only to sequester carbon, but help poor farmers improve their incomes. But how much should they be paid? “If voluntary carbon schemes are overgenerous, then everybody will want to join, and the schemes will be unaffordable,” says Olu Ajayi, a World Agroforestry Centre scientist based in Malawi. “However, if they are paid too little, this could lead to exploitation, with farmers dropping out of the schemes.”

In a research project involving 177 farmers, Kelsey Jack of Harvard University and Ajayi compared two different ways of setting carbon prices. The first involved a ‘reverse auction.’ The farmers’ opportunity costs of tree planting were revealed by asking them what price they would like to be paid for planting trees which sequester carbon on a half acre piece of land. Farmers who bid lower prices, and were therefore willing to invest in tree planting at lower cost, won the contract. Those who bid higher than the ‘clearing price’, which was determined by the funds available, were rejected by the scheme. In this case, 37% of the farmers were accepted, and paid the clearing price, even when it was higher than their bid. The clearing price was then offered to another group of farmers, 99.5% of whom accepted it.

Both groups were given the same number of trees, the same technical support and the same contract. Jack and Ajayi then compared the performance of the two groups. Farmers who had bid in the reverse auction had a higher tree survival rate than those in the other group, and showed a higher level of compliance with their contract. “This study shows that organisations establishing trees for carbon schemes shouldn’t just pick an arbitrary figure,” says Ajayi. “They should aim to assess the opportunity costs of joining the schemes, in terms of land lost to crops, labour and so on, as revealed by the farmers themselves.” There is, however a trade-off. Although the reverse auction identifies farmers who will show the highest levels of compliance, it may potentially cost more.

A reality check

“It is often implied that small-scale farmers could benefit from the carbon market,” says World Agroforestry Centre scientist Eike Luedeling, “but the rate at which they can sequester carbon will depend on the environment in which they find themselves.”

In 2010, Luedeling studied the carbon sequestration potential of parkland agroforestry in the West African Sahel. The aim was to find out how much carbon could be sequestered and whether it could attract small-scale farmers into the carbon market. The answer to these questions was: not much and probably not.

Using ecological niche modelling and drawing on previous research, Luedeling found that the Sahelian parkland has the potential to sequester about 20 tonnes of carbon per hectare over 50 years. Across the entire Sahel this would amount to a considerable quantity of carbon, but only 0.4 tonnes per hectare per year. Assuming a price of US$10–US$30 per tonne of CO2, farmers could expect to earn US$15–US$44 per hectare per year, without factoring in the transaction costs of setting up, registering and monitoring carbon deals.