The recent decision by Verra, the leading standard-setting organization for the voluntary carbon market, to reject 37 rice cultivation projects in China has drawn significant attention from global environmental and agricultural sectors.
The recent decision by Verra, the leading standard-setting organization for the voluntary carbon market, to reject 37 rice cultivation projects in China has drawn significant attention from global environmental and agricultural sectors.
Verra’s unprecedented action, based on the failure of these projects to meet rigorous standards of transparency and integrity, highlights an issue of critical importance for developing countries, particularly Pakistan. As a major rice-producing nation, Pakistan stands at a crossroads where it can either seize the opportunity to develop a robust carbon credit system or risk falling into the same pitfalls that led to Verra’s rejection of the Chinese projects.
The rejection of these projects underscores the necessity of ensuring that carbon credits are grounded in verifiable and transparent methodologies, principles that Pakistan must adopt if it aims to become a credible player in the global carbon market.
Rice cultivation, particularly in countries like Pakistan, contributes significantly to methane emissions, a greenhouse gas with far greater warming potential than carbon dioxide. Alternate Wetting and Drying (AWD) techniques, which reduce methane emissions by intermittently draining rice fields, offer a viable solution.
The major lesson from Verra’s action is the importance of additionality and accurate baseline-setting -- two concepts deeply embedded in public policy literature related to environmental governance. Additionality refers to the principle that carbon reduction projects must provide emission reductions that would not have occurred in the absence of the project. Without a clear demonstration of additionality, carbon credits are meaningless, merely providing a financial incentive without actual environmental benefit. Pakistan must take note of this when formulating its own carbon credit frameworks.
From a public policy perspective, developing integrity-based carbon credits aligns with the broader literature on environmental regulation, which emphasizes the need for transparent governance and robust institutional frameworks. Theories of policy diffusion suggest that countries like Pakistan can learn from both the successes and failures of carbon credit systems in other regions. Verra’s decision points to the failure of governance structures in ensuring compliance with established standards.
In Pakistan’s case, this offers a valuable learning opportunity to build a more transparent and accountable system. If Pakistan were to implement strict measures, particularly in monitoring, reporting and verification (MRV) procedures, it could avoid the flaws that led to Verra’s rejection. Public administration literature also underscores the significance of building local capacity -- particularly among verification bodies, or VVBs -- which played a critical role in the Chinese projects' downfall. For Pakistan, investing in the technical and institutional capacity of its verification bodies is not just a regulatory necessity but an economic imperative.
Pakistan’s rice cultivation system offers a vast, untapped potential to contribute meaningfully to carbon markets. The agriculture sector contributes nearly 20 per cent of Pakistan’s GDP, and rice, being one of the key staples, holds not just economic value but also significant environmental potential in terms of methane reduction. But as highlighted in the case of China, the environmental benefits are only real if the emission reductions are measurable, verifiable, and additional.
Verra’s rejection of the AMS-III.AU methodology -- a system that was being used to reduce methane emissions through water management -- should act as a cautionary tale. The methodology’s flaws in accurately quantifying emission reductions and overstating project areas led to the invalidation of carbon credits issued under the scheme.
For Pakistan, adopting or developing more robust and scientifically sound methodologies could help it secure a stronger foothold in the carbon markets. Drawing from environmental economics literature, the creation of credible carbon credits would also yield ancillary benefits, such as enhancing Pakistan’s agricultural sustainability, improving water use efficiency, and fostering technological innovation.
The global carbon market is increasingly focused on integrity, and Pakistan’s success will depend on its ability to integrate best practices from around the world into its national policies. Public policy literature highlights the critical role of governance in environmental markets, stressing that poorly regulated markets lead to inefficiencies, market failures, and, in worst-case scenarios, fraud.
The Chinese projects’ failure was in part due to the inadequate governance of both the project proponents and the VVBs tasked with ensuring the projects' credibility. Pakistan, therefore, needs to ensure that its institutional and governance frameworks for carbon credits are not only well-designed but also well-enforced. This aligns with the broader principles of New Public Management (NPM), which advocate for transparency, accountability, and performance-based regulation in public institutions. A policy framework rooted in these principles would enhance Pakistan’s credibility and potentially make it a more attractive destination for international climate finance.
In addition to institutional reforms, Pakistan must also consider the socio-economic implications of developing integrity carbon credits, particularly for its rural rice-farming communities. Public policy literature on sustainable development stresses that environmental interventions must be inclusive and equitable, ensuring that local communities benefit from global environmental goals.
Carbon credit systems that are solely focused on generating financial returns for large-scale actors often fail to provide meaningful benefits to the smallholder farmers who are at the heart of agricultural production. Pakistan has the opportunity to design a system where small and medium-scale farmers can participate in carbon credit projects, fostering both environmental sustainability and rural development. Policies that encourage community engagement, provide technical training, and ensure equitable distribution of carbon revenues could transform Pakistan’s agricultural landscape while contributing to global climate goals.
Pakistan’s rice sector presents a significant opportunity to contribute to global climate action through the development of integrity carbon credits. By embedding transparency, accountability, and rigorous methodologies into its carbon credit frameworks, Pakistan can not only protect its environmental assets but also position itself as a leader in the carbon markets. Drawing from both public policy and environmental governance literature, Pakistan can learn from global best practices, avoid the pitfalls of weak governance, and foster a sustainable, equitable, and credible carbon credit system.
As Pakistan navigates the complexities of establishing a credible carbon credit system, the ultimate goal should extend beyond the voluntary carbon market to include participation in the compliance market. The compliance market, governed by international regulatory frameworks, offers higher financial returns and greater environmental impact but demands a level of rigor and integrity that goes beyond voluntary standards.
By initially focusing on high-quality, integrity-based carbon credits in the voluntary market, Pakistan can build the necessary institutional capacity, technical expertise, and stakeholder trust required for this transition.
The experience gained and the credibility established in the voluntary market will serve as critical stepping stones, enabling Pakistan to meet the stringent requirements of compliance markets such as the European Union Emissions Trading System (EU ETS). This progression not only aligns with global climate objectives but also positions Pakistan as a responsible and forward-looking participant in the global efforts to combat climate change.
The writer has a doctorate in energy economics and serves as a research fellow at the Sustainable Development Policy Institute (SDPI).
He tweets @Khalidwaleed_ and can be reached at: khalidwaleed@sdpi.org
