1. Introduction

Climate change mitigation and food security are two main challenges of human society in the 21^st century. The Intergovernmental Panel on Climate Change (IPCC) stated in a special report on climate change and land that mean air temperatures have already risen by 1.53 degrees Celsius since the pre-industrial period affecting every country on every continent, especially the developing ones. To slow down the greenhouse gases in the atmosphere causing climate change, the United Nations Framework Convention on Climate Change (UNFCCC) signed in 1992 and Kyoto protocol adopted in 1997 subsequently came into force in the year 2005. Under the Kyoto protocol, carbon trading is a voluntary and mandatory emission trading market for assisting in the reduction of CO₂ levels in the atmosphere. Generally, there are two types of carbon trading markets viz., regulatory compliance market and voluntary markets. The companies and governments that are required by law to account for their GHG emissions use the regulatory compliance market such as EU emission trading scheme, Kyoto protocol market.  It is governed by mandatory carbon reduction regimes at the national, regional, and international levels. However, the trade-in carbon credits occur voluntarily on the voluntary market. The private sector buys the majority of voluntary carbon credits. The most common reasons for purchasing carbon credits are corporate social responsibility and public relations^[1]. Examples of the Voluntary markets include VERRA, VERTIS. Furthermore, relative to the voluntary sector, which had a size of USD 5.5 billion in 2019, the overall regulatory enforcement market has high liquidity (>US$170 billion). The Kyoto Protocol includes several market-based mechanisms, but the clean development mechanism (CDM) in which developed countries can 'sponsor' the greenhouse-gas reduction project in a developing country is the primary strategy for reducing atmospheric greenhouse gas concentrations. The concept of carbon trade seems a win-win situation as greenhouse gas emissions can be reduced while economic benefits can be achieved in some countries. Besides CDM, the initiatives like United Nations REDD (Reducing the Deforestation and Forest Degradation Emissions), REDD⁺ (i.e., conservation and sustainable management of forests, and enhancement of C stocks, on top of REDD) and REDD⁺⁺ (i.e., low carbon (C) emission or low C footprint land-use systems through eco-agricultural practices on top of REDD⁺) programme have been adopted.

Agroforestry is not a new concept, having been practised on agricultural lands in India for thousands of years^[2] for various purposes such as food, fodder, fruit, firewood, medicinal trees, bio-fertilizer, Non-timber forest products (NTFP), shelter, and so on^[3]. Agroforestry encompasses a wide range of practices, from basic ways of shifting planting to complex hedgerow intercropping systems, as well as the various merits of the tree, stands ranging from widely scattered Faidherbia albida (Acacia) trees in Sahelian millet fields to the high-demanding multi-storeyed home gardens of the humid tropics. Agroforestry is a brilliant approach that combines centuries of knowledge with modern science in a system, as well as the concept of thinking of small scale farmers to achieve potentially large and transformative outcomes^[4] .

2. Why Carbon trading in Agroforestry?

Agroforestry is a diverse system that can be found almost anywhere. Zoomer et al.^[5] estimated that 10.1 million km² of agricultural land (46 per cent of all agricultural land globally) had more than 10 % tree cover. In addition, agroforestry is particularly common in Asia, C-America, and S-America, where it covers more than half of the land area. In India, According to Dhyani et al. ^[6], the area under agroforestry is estimated to be 25.31 million hectares or 8.2 per cent of the total reporting geographical area of the country. Furthermore, approximately 79.2% of the country's total geographical area is highly or moderately suitable for the incorporation of agroforestry^[7]. Aside from its widespread use, agroforestry has recently gained traction as a strategy for climate mitigation through sequestering carbon and reducing greenhouse gases emission^[8]. Agroforestry systems have been identified as having the highest potential for carbon sequestration by 2040 among all land uses studied in the IPCC's Land-use, Land-use Change, and Forestry (LULUCF) report 2000. Furthermore, in addition to the ecological benefits, agroforestry has the potential to have a wide range of economic co-benefits, potentially alleviating hunger while increasing food security. As focusing solely on carbon offsets without considering co-benefits can undermine the Kyoto Protocol's original target of carbon offsetting. Simultaneously, the financial cost of the agroforestry C project is significantly lower than that of other projects.

3. Status of Agroforestry practices in the Carbon trading market

Agroforestry systems have been prioritized for carbon trading based on the efficiency of particular land use in reducing emissions or capturing carbon by storing it. In the carbon market, especially the regulatory compliance market (clean development mechanism), agroforestry comes under the scope of the Afforestation/ Reforestation (A/R) sector.  Unfortunately, only a small percentage of A/R projects (only 0.8 per cent of total projects) are approved under the CDM; among these, only one project, “Improving Rural Livelihoods through Carbon Sequestration by Adopting Environment-Friendly Technology-Based Agroforestry Practices – India,” is located in India that too voluntarily withdrawn due to socio-economic and financial disputes. Furthermore, more than 70% of CDM projects are located in the two developing countries of China and India. Despite the high liquidity in the regulatory compliance market, voluntary markets are a relatively low-cost offsetting option for agroforestry projects due to low transaction costs. Therefore, most of the carbon projects in agroforestry registered under the voluntary carbon market such as The N’hambita Community Carbon Project and Connecting the Ikalahans to Voluntary Carbon Market. Furthermore, 29 countries, including India, identified agroforestry systems as a climate change adaptation strategy, while 23 countries identified agroforestry as a mitigation strategy in their Intended Nationally Determined Contributions (INDCs) under the UNFCCC^[9].

4. Constraints

Despite its widespread presence (46 per cent of agricultural land), agroforestry is still subject to constraints when it comes to carbon trading. For starters, there are significant barriers to establishing woody perennials, which frequently prevent farmers, particularly small-scale subsistence farmers, from implementing agroforestry systems. Furthermore, diverting agricultural land from annual production to plant trees may not generate enough income for the household for five or more years is an economic barrier that many farmers cannot overcome. However, these constraints can be described from the perspective of the farmer and project i.e. agroforestry land use.

4.1 Farmer’s perspective

Financial constraints, labour scarcity, land scarcity, household size, off-farm income, gender, and road access are the major issues that farmers face when transitioning from monocropping to agroforestry. Simultaneously, due to the higher heterogeneity and complexity of the agroforestry systems, the time of financial return varies greatly. For example, improved fallows can last one to two years, whereas indigenous AGF systems can last decades. Furthermore, carbon credit payments from agroforestry projects are small in comparison to the income generated by tree products^[10]. In general, farmers will receive approximately $ US 77 over a period of 25 years, which is a very meagre amount. Other constraints faced by farmers include a lack of a clear institutional framework, payment disputes, a lack of farmer knowledge, and constitutional changes that can lead to policy changes (political instability). Furthermore, farmers' expectations are raised initially as they hear about higher returns, but they are later disappointed due to low revenue generated or no overall benefit compared to mono-cropping.

4.2 Project (Agroforestry land-use) perspective

The major issue is that the UNFCCC still does not define agroforestry systems. However, agroforestry can sometimes meet the definition of a forest (a minimum land area of 0.05-1.0 ha, with tree crown cover (or equivalent stocking) of more than 10-30 per cent, and trees with the potential to reach a minimum height of 2-5 metres at maturity in situ). However, only a few agroforestry systems meet this criterion, while the majority does not. A project involving smallholder tree crops such as teak or acacia (production species) would also have a different survey design than a project involving mixed fruit tree crops or a very complex homestead agroforestry system. The impact of new carbon-sequestration agroforestry projects will vary depending on the contract, the carbon market, and the location of the new project. Furthermore, the use of carbon credits in agroforestry projects for farmers in developing countries is poorly understood by farmers and organisations seeking to develop new agroforestry projects.

One of the major disadvantages of developing agroforestry as afforestation and reforestation (A/R) projects using CDM methods as well as in voluntary carbon market is the handling of the risk of non-permanence of carbon sequestration benefits^[1], as well as the high transaction costs associated and highly complex rules. There are at least five types of transaction costs involved in establishing carbon credit projects in agroforestry namely search and negotiation costs, approval costs, project management costs, monitoring costs, and enforcement and insurance costs which can be as high as $ US 500,000 (mostly more than two-third of project cost). Furthermore, if there are many individual smallholder farmers or greater flexibility offered to farmers in terms of species selection or tenure of tree retention, the transaction cost rises. Unfortunately regulatory C market accepts only A/R practices, excluding soil C-sequestration projects. Additionally, there are times when trade-offs must be made between environmental goals and poverty alleviation. As environmental conservation is sometimes overlooked to alleviate poverty.

4.3 Issue agroforestry projects face under CDM or Voluntary markets

• Heterogeneous, small and isolated nature of agroforestry system. Moreover, different agroforestry systems will have a different survey design. A project with mixed fruit tree crops or very complex agroforestry homestead gardens will have a different survey design than one with poplar or acacia.
• In agroforestry, there is a problem with the permanence component of CDM. Since carbon cannot be stored indefinitely in agroforest tree biomass as well as soils and CO₂ collected during forest growth is released during harvest.
• There are mixed and conflicting findings since a balanced framework is needed to meet farmers' short-term needs while still considering the long-term aspects of AGF projects.
• Lack of scientifically robust and valid monitoring, reporting and verification (MRV) system for agroforestry landscape.
• Moreover, despite the enormous potential of agroforestry as a climate change mitigation and adaptation strategy, only 29 countries, including India, have identified agroforestry systems as an adaptation strategy, whereas only 23 countries have identified agroforestry as a mitigation strategy in their Intended Nationally Determined Contributions (INDCs)^[9]. Simultaneously, India's National Agroforestry Policy was adopted in 2014, but still, agroforestry was not considered as a mitigation strategy.

5. Opportunities

The Kyoto Protocol does not provide enough incentives for this process to be applied on a wide scale, because of the opportunity costs associated with land and transaction costs. The possibility of halting deforestation, encouraging food stability, enhancing environmental conditions and soil organic carbon, and providing carbon offsets are all reasons for developing countries to be optimistic about the CDM and emerging carbon financial markets. Furthermore, if 630 million hectares of unproductive cropland and grassland could be converted to agroforestry by 2040, with a carbon sequestration capability of 586,000 Mg C yr^{-1 [11]}, create an additional income of more than 35,000 $ US yr^-1 at 5 $ US per carbon emission reduction.

6. Future Recommendations

In future, one of the most important aspects should be to raise awareness among the farmers about the carbon credit market and the risks involved by implementing capacity-building projects at least one year before the start of the project. However, reducing the transaction costs for the agroforestry projects remains the major goal in the future which can be achieved through the following ways

• Collaborative contracts rather than individual contracts
• Strengthening local institutional capacity and collaborating with intermediary organizations, other agencies, and projects to obtain expertise and resources
• Development of accessible approaches for representation of lands with agroforestry landscape
• Need for low cost, scientifically robust and approved protocols (MRV) for monitoring the agroforestry carbon offset
• Use of the innovative Internet technologies (including Web‐GIS), infrastructure and geospatial tools and technologies including multi‐resolution, multi‐spectral optical Earth Observation satellite data and airborne or space‐based Lidar data for supporting all aspects of agroforestry carbon offset projects development and implementation.

7. Conclusion

The potential of agroforestry to reduce GHG emissions has been underestimated by decision-makers in the global strategy on climate change adaptation. Despite the ambitious plans and programmes, there is a lot of confusion about how agroforestry will be accounted for carbon trading by different countries and programmes. Moreover, for bio-carbon projects in agroforestry to provide multiple benefits, it will be necessary to learn from previous project experiences as they unfold the real ground situation. Carbon trading should be attractive only in places where agroforestry systems have a viable economic opportunity even without potential carbon credits.

Entry adapted fro the  Carbon trading in Agroforestry