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Prepared by: Tetra Tech (Carolina Barreto, Mark Wood, Annika Ritcher, Ethiopia Haileyesus)
Peer reviewed by: GOGLA (Carlos Sordo, Anne Waburi, Susie Wheeldon)
The global rise of voluntary carbon markets presents a unique opportunity for sustainable energy and agricultural companies to reduce costs to better serve low-income populations while decreasing food waste and increasing incomes for smallholder farmers. When we began researching this topic with the University of Nebraska, we expected to find that private companies could leverage carbon credit revenues to make solar pumps and irrigation systems more affordable for smallholder farmers and to attract new funding to replace subsidies and keep the business commercially viable. But the complexities in carbon markets pose significant challenges, and instead we found that most companies aren’t yet able to use them to the fullest.
Understanding these challenges is crucial because carbon markets serve a vital global purpose beyond pricing. They are essential for enabling cross-border climate mitigation and adaptation funding—an indispensable function, given that resilience is a global challenge demanding global solutions. They can also incentivize behavioral change and internalize the true costs of pollution. It is urgent that governments and investors work together to bring down the costs and complexity of participating in the carbon market so that its benefits reach those who need them most—in the case of solar water pumps, smallholder farmers in the most vulnerable parts of the world.
Solar water pumps are crucial for modern irrigation, with over 1 million deployed globally for agricultural purposes. People adopt them because they need cost-effective water management solutions and are increasingly aware of the technology’s benefits. This is particularly evident in areas with unreliable grid electricity and high fuel costs, which has led many countries to launch programs to accelerate the deployment of solar water pumps and appropriate irrigation systems. In Sub-Saharan Africa, solar water pumps have been instrumental in improving water access for agriculture. A recent survey found that 87 percent of respondents observed improvements in their farming practices compared to traditional methods after adopting solar water pump-powered irrigation systems. Furthermore, there were widespread reports of increased confidence, enhanced production of an increasingly diversified range of crops, higher earnings, and increased food security. Solar water pumps can help smallholder farmers adapt to climate change when facing drought or water table drops; they can also increase resiliency to weather hazards or other climate issues. In addition, solar water pumps enhance farmers’ eligibility for crop and climate insurance and will enable companies to secure asset-based financing in the future as the sector matures.
To capitalize on carbon markets, projects must adhere to specific standards set by carbon programs such as Verra and Gold Standard, or UN mechanisms such as the Clean Development Mechanism (CDM), which is now being replaced by the Paris Agreement Crediting Mechanism, introduced under Article 6.4 of the Paris Agreement. In particular, a project’s carbon impact needs to be calculated using standardized methodologies. For solar-powered irrigation systems, key methodologies include the CDM methodologies AMS-I.B. and AMS-I.A, which allow projects to claim credits based on the displacement of fossil fuels—in this case, from greenhouse gas–intensive water pumping. AMS‑I.A covers on‑site (captive) electricity generation by the user and credits the emissions avoided by that on‑site generation, while AMS‑I.B covers energy‑efficiency improvements and fuel‑switching (e.g., replacing diesel pumps with solar) and credits the fossil fuel displaced.
(In addition, solar water pump powered irrigation activities may be able to claim carbon impacts if biomass carbon stock increases on irrigated land, assuming better irrigation potential due to solar pumping, but there are currently no examples of this.)
There are currently only a handful of carbon projects deploying solar-powered water pumps that are certified or are undergoing certification under Verra or Gold Standard. The list shows evidence of interest in the carbon market throughout the world—the projects range from solar pump-powered drip irrigation in Morocco to micro-irrigation systems for bananas in India to solar pumps throughout Qinghai Province in China. Methodologies and installation sizes vary significantly, showcasing the flexibility and diversity in carbon credit generation.
A couple have seen strong success: for instance, SunCulture in Kenya has successfully issued over 54,000 carbon credits through its solar-pump irrigation project, while VNV Advisory in India has issued nearly 17,000 credits for solar pumps used by salt farmers. Others, however, have run into hurdles getting off the ground, and the majority of the seven carbon projects pursuing solar-powered irrigation have not yet issued any credits at all. The challenges involved in navigating the carbon accreditation process deter most companies from entering the market, despite widespread interest.
The challenges are manifold. High upfront costs for carbon certification and ongoing operational expenses can deter or even prevent smaller projects from entering the carbon market. The costs of certification depend on factors such as the carbon standard selected as well as project size and type. They typically cover project development and management costs, carbon standard fees, and validation and verification body (VVB) fees. In addition, some countries have introduced fees and mandatory benefit-sharing with host communities and the government itself, sometimes quite substantial. This illustrates a need for donors to support carbon policy in host countries that attracts rather than stifles investment. This is especially relevant as Article 6 becomes operational, placing the burden on host country governments to put frameworks in place that meet UNFCCC participation requirements.
Additionally, concerns about over-crediting and the integrity of carbon credits have led to increased scrutiny of carbon markets. Projects must implement robust monitoring and verification systems to ensure transparency and credibility. Analysis of carbon projects using solar pump–powered irrigation highlights significant discrepancies in how carbon credits are determined, with annual emission reductions per installed pump capacity varying widely—from 1.9 to 21.5 tons of carbon dioxide per kilowatt. This variability is largely due to differing estimates of diesel displacement, as some projects assume much higher displacements based on their baseline fossil fuel consumption and operational hours. Many projects establish baseline emissions by surveying potential users to estimate fossil fuel consumption, which can introduce biases and inaccuracies. Furthermore, the rebound effect—where increased efficiency leads to higher usage—can result in over-crediting, as project systems may operate more frequently than their fossil fuel counterparts, potentially putting additional stress on water resources and negating the impacts. The concept of a “suppressed demand baseline” further complicates the carbon accounting process, allowing projects to claim emissions reductions even when no fossil fuel–powered systems were previously in place.
These challenges are underscored by the fact that the methodology AMS-I.A. failed to obtain approval under the Core Carbon Principles of the Integrity Council for the Voluntary Carbon Market (ICVCM). These principles are emerging as a critical new quality benchmark in carbon markets. While AMS-I.B. has not yet undergone ICVCM assessment, it faces similar methodological challenges and may risk rejection for comparable reasons. Updated methodologies under the Paris Agreement Crediting Mechanism are expected to introduce stricter calculation and monitoring requirements. This will likely lead to lower emission reductions credits for solar-powered irrigation system projects, but it will also enhance overall credibility and market confidence in the resulting carbon credits.
Integrating solar pump–powered irrigation systems into carbon markets holds significant potential to improve agricultural productivity and reduce greenhouse gas emissions by facilitating financing for such ecosystems. By addressing the challenges of carbon certification and fostering a supportive policy environment, stakeholders can unlock the full benefits of these systems, ultimately contributing to sustainable development and climate resilience.
To enhance the viability of solar irrigation systems in carbon markets, we recommend several strategies that stakeholders acting synergistically can adopt to increase investments in carbon finance:
Solid data and modeling also make it easier for companies to enter the carbon market. Tetra Tech has developed a demand model for solar water pump–powered irrigation, a user-friendly financial tool that lets users put in pump, crop, and location parameters to estimate carbon credits generated under different scenarios. It also quantifies how these credits can reduce the capital cost of pump installation. This tool enables potential investors to assess their future return on investment, creating confidence in the market opportunity. Pairing private sector innovations like this with government and donor support can help companies vault the hurdles to market entry—crowding in investment, driving up returns for investors, and accelerating meaningful climate action.
Tetra Tech’s demand model was preliminarily validated using real data from three solar water pump companies—Simusolar, Claro Energy, and Atmosfair—who provided valuable insights into the practical challenges and opportunities faced by industry players and investors. For more information, contact Carolina.Barreto@tetratech.com and Ethiopia.Haileyesus@tetratech.com.
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