Enabling financing and investments for a sustainable climate transformation 2024
Short description
The project examines which financial payment models can most effectively and equitably reduce emissions from agriculture in developing countries. Through a large-scale field experiment with 3,000 farmers in India, different incentive schemes are compared to identify what works best in practice.
In most developing countries, agriculture accounts for 25% to 45% of greenhouse gas emissions. Yet agrifood systems receive only 4% of global climate finance (World Bank, 2023b). This presents a major opportunity to use financial instruments to incentivise low-emission farming.
However, there is limited evidence on which financing models most effectively reduce emissions and their impact on equity. In partnership with the International Rice Research Institute, the World Bank, Kerala Agriculture University and the Government of Kerala, this project addresses this gap by investigating how to design effective financial tools to incentivise agricultural emissions reduction.
Using a randomized experiment with 3,000 farmers in Kerala, India, the study compares four payment models: (1) flat payments per hectare; (2) performance-based payments tied to verified reductions; (3) a hybrid model combining flat and performance payments; and (4) flat plus group-based bonuses linked to collective outcomes. A control group provides a benchmark. Novel technology directly measures emissions and spillovers.
The project has three parts: Part 1 evaluates the impact on emissions and their cost-effectiveness; Part 2 examines effects on equity, farmer welfare with a focus on different social groups; Part 3 explores spillovers and co-benefits such as water savings. The project will generate insights for structuring climate finance to achieve greater environmental effectiveness and equity.