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Q23 (IAS/2023) Environment & Ecology › Climate Change & Global Initiatives › Carbon pricing mechanisms Official Key

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

Result
Your answer: —  ·  Correct: B
Explanation

The correct answer is Option 2.

Statement-I is correct: Carbon markets (compliance and voluntary) are increasingly adopted globally as a key policy tool to mitigate climate change. By putting a price on carbon emissions, they incentivize industries to adopt cleaner technologies, making them a widespread mechanism for global decarbonization.

Statement-II is correct: In many regulatory frameworks, such as "Cap-and-Trade" systems, the State auctions emission permits to companies. This process effectively transfers financial resources from the private sector to the State, which can then be reinvested in green infrastructure or climate adaptation.

Why Statement-II is not the correct explanation: While both statements are true, Statement-II describes a fiscal mechanism of the market, whereas Statement-I refers to its efficacy as a mitigation tool. The primary reason carbon markets are "widespread tools" is their ability to reduce emissions cost-effectively through market dynamics, not merely because they generate revenue for the State.

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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. Consider the following statements : Statement-I : Carbon markets are likely to be one of the most widespread tools in the fight against…
At a glance
Origin: From standard books Fairness: High fairness Books / CA: 10/10 · 0/10
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This question bridges Environment and Economy. It moves beyond 'What is the Kyoto Protocol?' to 'How does the money flow in a carbon market?'. It rewards candidates who understand the economic mechanics (Cap-and-Trade auctions) rather than just the environmental definitions.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Are carbon markets projected to be among the most widely used policy tools globally for mitigating climate change?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > Partnership for Market Readiness > p. 345
Presence: 4/5
“Although initially geared towards promoting market readiness for the anticipated ernergence of international carbon markets, this approach has become more flexible, providing grants and technical support for proposals for impiementation of market tools that contribute to mitigation efforls. * i-z,D”
Why this source?
  • Describes programs created to promote readiness for the anticipated emergence of international carbon markets.
  • Notes provision of grants and technical support specifically for implementing market-based mitigation tools.
Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 21: Mitigation Strategies > Developing countries > p. 284
Presence: 4/5
“• Developing countries like India and China are likely to emerge as the biggest sellers and Europe is going to be the biggest buyers of carbon credits. • Last year global carbon credit trading was estimated at $95 billion, with India's contribution at around ₹90 billion. • China is currently the largest seller of carbon credits controlling about 70% of the market share. • Carbon, like any other commodity, has begun to be traded on India's Multi Commodity Exchange.”
Why this source?
  • Documents substantial global carbon credit trading value and active participation by major economies (India, China, Europe).
  • Identifies developing countries as major sellers and advanced regions as buyers, signalling broad international market uptake.
Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > z. Flexible Market Mechanisms > p. 325
Presence: 4/5
“• This leads us to the second, the flexible market mechanisms of the KP, based on the trade of emissions permits. KP countries bound to targets have to meet them largely through domestic action-- that is, to reduce their emissions onshore.• But they can meet part of their targets through three "market-based mechanisms" that ideally encourage GHG abatement to start where it is most cost-effective-- for example, in the developing world.”
Why this source?
  • Explains the Kyoto Protocol's flexible market mechanisms based on emissions-permit trading as a way to meet targets.
  • Emphasises market mechanisms as a policy route to encourage cost-effective greenhouse gas abatement.
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