Carbon Credit Programme

The announcement of a ₹20,000 crore allocation for a carbon credit programme in the Union Budget 2026 has created significant public debate and confusion. A major point of misunderstanding is whether this fund is intended for industrial carbon capture technologies or whether it is designed to generate a new income stream for farmers through carbon credits.

Official Intent: Focus on Industrial Decarbonisation

The allocation is closely linked to the development and deployment of Carbon Capture, Utilisation and Storage (CCUS) technologies. These technologies are designed to reduce emissions from large industrial sources by capturing carbon dioxide before it is released into the atmosphere.

The programme primarily targets hard-to-abate industrial sectors, which include steel, cement, power generation, refineries, and chemicals. These sectors are categorised as hard to decarbonise because their emissions are deeply embedded in their production processes and cannot be eliminated entirely through renewable energy adoption alone.

The key objective of the ₹20,000 crore allocation is therefore to support large-scale infrastructure and research for CCUS deployment in these industries.

Understanding CCUS Technology

CCUS refers to a process in which carbon dioxide emitted from industrial activities is captured at the source, transported through pipelines or other systems, and either stored underground or utilised in industrial applications.

This approach is designed to reduce net emissions from large industrial facilities by preventing carbon dioxide from entering the atmosphere in the first place.

Why Agriculture Is Not Included in CCUS

Agriculture has been explicitly excluded from CCUS-based strategies in official frameworks. This is because agricultural emissions differ fundamentally from industrial emissions.

Agricultural greenhouse gases such as methane and nitrous oxide are produced through biological processes in livestock, rice cultivation, and fertiliser use. These emissions are diffuse in nature and do not originate from a single point source like an industrial chimney, making them unsuitable for direct carbon capture technologies.

Instead, agriculture is associated with Carbon Dioxide Removal (CDR) approaches. These include practices such as soil carbon sequestration, agroforestry, biochar application, and regenerative agriculture, which focus on absorbing carbon from the atmosphere rather than capturing emissions at the source.

Source of Confusion Around Carbon Credits

A major reason for public confusion is the use of the term “carbon credits,” which is applied in multiple contexts. In agricultural systems, carbon credits often refer to payments made to farmers for increasing soil carbon storage or adopting climate-friendly practices under voluntary carbon markets.

In contrast, the carbon credit framework linked to the Budget allocation refers to industrial emission reduction achieved through CCUS technologies.

This overlap in terminology has led to the perception that the programme may directly benefit farmers, even though the policy design is aimed at industrial sectors.

The Counter-Narrative: Farmers as Beneficiaries of Carbon Credits

Emergence of the Farmer-Focused Carbon Credit Narrative

Alongside the official industrial interpretation of the ₹20,000 crore allocation, a parallel narrative has gained traction in public discourse. This perspective suggests that the Budget could enable farmers to earn income through carbon credits by adopting sustainable agricultural practices.

This idea has become popular because it aligns with two broader trends: growing environmental awareness and the need for rural income diversification. The concept of “climate-friendly farming” is increasingly seen as a way to combine sustainability with economic benefit for farmers.

Link to Voluntary Carbon Markets

The farmer-centric narrative is partly influenced by the expansion of voluntary carbon markets, where agriculture and forestry-based projects already generate carbon credits.

In these markets, farmers and landowners can potentially earn credits by:

• Increasing soil organic carbon

• Practising agroforestry

• Adopting regenerative agricultural methods

• Improving land management practices

Several private companies and some state-level initiatives are already experimenting with such models, where farmers are incentivised financially for carbon sequestration activities.

However, these voluntary market mechanisms are entirely separate from the government’s CCUS-focused Budget allocation.

Root Cause of Confusion: Policy Language

A major reason for the misunderstanding is the use of the broad term “carbon credit programme” in the Budget document. While the term is technically correct in a general climate-policy sense, it does not clearly distinguish between industrial carbon capture and agricultural carbon sequestration.

The Department of Science and Technology (DST) roadmap provides a precise framework focused on industrial sectors, but the Budget language is more general. This lack of specificity has led many stakeholders, particularly in the agricultural sector, to assume that they may also be beneficiaries.

Policy Implications and Opportunities

Need for Clear Communication

The current confusion highlights the need for clearer communication from the government regarding the scope and objectives of the programme. A more precise explanation is necessary to ensure that stakeholders understand that the allocation is intended for industrial decarbonisation.

Clear communication is important to prevent unrealistic expectations, especially among rural communities and agricultural stakeholders.

Potential for Agricultural Carbon Markets

At the same time, the debate highlights a significant policy opportunity. India has a vast agricultural base with strong potential for carbon sequestration through soil management and nature-based solutions.

A dedicated agricultural carbon credit framework could:

• Provide additional income streams for farmers

• Encourage climate-friendly farming practices

• Contribute meaningfully to national climate goals

However, such a system would require separate funding mechanisms, monitoring systems, and regulatory frameworks distinct from CCUS infrastructure programmes.

The Way Forward: Multi-Sector Climate Strategy

The situation highlights the need for a comprehensive and multi-sectoral approach to climate policy. Industrial decarbonisation through CCUS is essential because heavy industries such as steel, cement, and power generation are major contributors to emissions and cannot be decarbonised easily through renewable energy alone.

At the same time, agriculture has an important role to play in carbon removal through ecosystem-based approaches such as soil carbon sequestration and agroforestry.

Conclusion

The debate surrounding the Union Budget 2026 reflects both confusion and opportunity. While the ₹20,000 crore allocation is clearly directed toward industrial decarbonisation through CCUS, the emergence of a farmer-focused narrative highlights growing interest in agricultural carbon markets.

Going forward, it is essential to clearly separate these two domains while supporting both through appropriate policy frameworks. Industrial CCUS and agricultural carbon sequestration serve different purposes but are both important for India’s long-term climate strategy.