Question 53 from UPSC CSE 2023 - Environme nt

Question

Consider the following statements:
1. Carbon markets are likely to be one of the most widespread tools in the fight against climate change.
2. Carbon markets transfer resources from the private sector to the State.
Which one of the following is correct in respect of the above statements?

IASCODEX · Accepted Answer

Correct Option: A. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

Strategy: - Recognize carbon markets as a key tool in climate action, widely implemented across jurisdictions -- validating Statement 1.
- For Statement 2, focus on how carbon pricing or trading collects revenues, often via licenses or permits, channeling money from private entities to the State. This resource transfer (through permit purchases or taxes) is an inherent mechanism in carbon market systems.
- Since these markets are government-regulated and payments flow to the State as part of climate policy, Statement 2 directly explains how carbon markets function as widespread climate fighting tools. Option A fits both correctness and explanatory linkage.

Key Info: ## Understanding Carbon Markets

A carbon market is a system where credits representing the right to emit a tonne of carbon dioxide (CO2) or its equivalent in other greenhouse gases are bought and sold. Carbon credits are typically used to either offset emissions or to comply with regulatory limits under schemes like 'cap-and-trade.'

### Types of Carbon Markets
*   **Compliance (Regulatory):** Such as the EU Emissions Trading System and California's cap-and-trade.
*   **Voluntary:** Where companies or individuals offset emissions by buying credits generated from projects like afforestation or methane capture.

Governments use carbon markets to incentivize emission reductions by placing a price on carbon. Permits or allowances are issued, and emitters must acquire them to operate. The proceeds from selling allowances are often collected by the State, which may reinvest them in climate or social welfare projects. In this process, resources flow from the private sector (buyers of permits) to the public sector (holder/issuer of permits, i.e., the State). By the end of 2021, mandatory carbon pricing or market programs covered over a fifth of global CO2 emissions. Over 80 countries have indicated market mechanisms in their Nationally Determined Contributions (NDCs) under the Paris Agreement.

Carbon markets are widely considered effective in incentivizing emission reductions and accelerating investments in greener alternatives. They also encourage innovation, as companies that reduce emissions more efficiently can profit by selling excess permits. Many independent analyses, including World Bank assessments, find that carbon markets, if well-designed, can reduce the overall social and financial cost of decarbonization on a global scale.

IASCODEX · Answer

Option B: Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

IASCODEX · Answer

Option C: Statement-I is correct but Statement-II is incorrect

IASCODEX · Answer

Option D: Statement-I is incorrect but Statement-II is correct

Consider the following statements: Carbon markets are likely to be one of the most widespread tools in the fight against climate change. Carbon markets transfer resources from the private sector to the State. Which one of the following is correct in respect of the above statements?

Consider the following statements:

Carbon markets are likely to be one of the most widespread tools in the fight against climate change.

Carbon markets transfer resources from the private sector to the State.
Which one of the following is correct in respect of the above statements?