Tagline: South Asia’s farmlands appear to emerge as the region’s most valuable climate assets as carbon markets expand. Yet, without robust frameworks, the promise of rural carbon finance risks bypassing the communities it once aimed to empower

Over the past few years, carbon markets have evolved from mere environmental mechanisms into genuine and credible financial systems. Globally, voluntary carbon credit transactions surpassed $2 billion in 2025, reflecting an increasing appetite for investors in nature based climate solutions. However, South Asia: home to vast carbon-rich agricultural land, remains largely absent from this financial transformation.

Agriculture: A force that contributes to 20% of South Asia’s GDP and employs over 50% of the workforce, is among the most exposed sectors to climate change. Extreme heat, soil degradation and erratic monsoons are eroding productivity and household income. Ironically, the same farmlands that suffer most from emissions can also generate substantial monetary value through carbon and ecosystem credits, given the right ecosystem.

Carbon Credits Very Low

Climate credit markets allow verified reductions or removals of greenhouse gas emissions to be monetized as tradable instruments. In South Asia, such credits could stem from regenerative farming, agroforestry or improved soil management. A joint study by FAO and ADB, Agri-Carbon Markets and Smallholder Integration in Asia-Pacific, estimates that these sustainable land use projects could generate well over 350 million tonnes of C02 equivalent credits annually across the subcontinental region by 2030. Despite this, the region's current contribution to the global voluntary carbon transaction is less than 1%

According to a research study by Morgan Stanley, Carbon Credits 2.0: From Commodities to Climate Assets, carbon markets are shifting from compliance-driven exchanges to sophisticated financial asset classes. Market credibility-underpinned by transparent measurement, reporting, and verification (MRV) systems now determines valuation and liquidity.

This insight holds special relevance to South Asia, where limited institutional capacity and fragmented landholds undermine investor confidence. Verified projects, such as Verra-registered Soil Carbon Initiative in Madhya Pradesh, demonstrate the upside: credits from rigorously audited programs trade between $8 and $10 per tonne, compared to the general rate of $3-$4 per tonne for unverified offsets. The price gap illustrates how credibility functions as a trust premium, mirroring some trends of the green bond market.

Integrating Carbon Finance 

Governments across South Asia are beginning to integrate carbon finance into climate and fiscal strategies. India’s Carbon Credit Trading Scheme (2023), enacted under the Energy Conservation Act, envisions a unified carbon market encompassing both industrial and voluntary credits. Bangladesh’s Climate Fiscal Framework (2024) formally recognizes carbon reading as a potential revenue stream for adaptation funding, while Sri Lanka’s Climate Prosperity Plan links ecosystem restoration to carbon credit generation. However, implementation remains uneven.

The World Bank Carbon Pricing Dashboard (2024) finds that no South Asian economy has fully achieved MRV alignment with international standards and thus without any credible industries and transparency from government investor confidence will remain constrained.

The participation of smallholders, small farmowners and landowners who manage most of the region’s farmland, is critical in this infrastructure. Yet challenges of scale, verification, and ownership persist. That being said, innovative models are beginning to bridge the gap. For example, India’s EKI Energy Services and Bangladesh’s GCF backed Livelihood Carbon Fund are pioneering blockchain based aggregation platforms that use satellite data to monitor soil carbon, lowering transaction cost and ensuring traceability

Institutional Inertia

If scaled effectively, FAO projects that climate credit markets could generate $5-7 billion in annual rural income across South Asia by 2030. But the system's integrity will determine if it becomes another speculative carbon bubble or a sustainable pathway towards climate finance.

South Asia’s climate finance story reflects a familiar paradox: abundant potential constrained by institutional inertia. Carbon credit can reprice the region’s natural capital, transforming rural landscapes into financial assets. Yet credibility, governance, and inclusivity will define their success. For now, Morgan Stanley observes “ The next phase of carbon finance will depend less on how much carbon is captured, and more on how credibly it is counted”. For millions of farmers across South Asia, that credibility is the difference between surviving climate volatility and profiting from combating it.

References:

FAO & Asian Development Bank: “Agri-Carbon Markets and Smallholder Integration in Asia-Pacific.”(2024):https://www.adb.org/publications/agri-carbon-markets-and-smallholder-integration-asia-pacific

Morgan Stanley Research: “Carbon Credits 2.0: From Commodities to Climate Assets.” (2024) https://www.morganstanley.com/articles/carbon-credits-2-0-climate-assets

World Bank: “Carbon Pricing Dashboard.” (2024): https://carbonpricingdashboard.worldbank.org

Verra Registry Data: “Verified Carbon Standard (VCS) Project Database.” (2024) https://registry.verra.org

Government of India: “Carbon Credit Trading Scheme under the Energy Conservation Act.” (2023):https://powermin.gov.in/en/content/carbon-credit-trading-scheme-energy-conservation-act

Bangladesh Ministry of Finance: “Climate Fiscal Framework.” (2024):https://mof.gov.bd/site/page/Climate-Fiscal-Framework

Sri Lanka: “Climate Prosperity Plan 2024–2030.” (2024) : https://www.climateprosperity.lk

UNEP: “South Asia Climate Finance Landscape Report.” (2024): https://www.unep.org/resources/report/south-asia-climate-finance-landscape

IMF: “Regional Economic Outlook for South Asia: Climate Vulnerability and Adaptation.” (2023):https://www.imf.org/en/Publications/REO/Issues/2023/10/16/Regional-Economic-Outlook-South-Asia

Reuters: “South Asia’s Farmers Eye Carbon Credit Revenues Amid Verification Challenges.” (2024):https://www.reuters.com/business/environment/south-asia-farmers-eye-carbon-credit-revenues-verification-challenges-2024-06-12

(The writer is a student at Delhi Public School, Noida, India. Views expressed are personal. He can be reached at mrigankswork@gmail.com )