Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
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.

How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
56%
got it right
PROVENANCE & STUDY PATTERN
Full view
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

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.
Statement 2
Do carbon markets transfer financial resources from the private sector to the state/government (for example via auctioning of emissions allowances)?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 21: Sustainable Development and Climate Change > Low-Carbon Economy > p. 604
Presence: 4/5
“A low-carbon economy refers to an economy that causes a minimal output of GHG emissions into the atmosphere, particularly carbon dioxide. In this economy, carbon trading is an effective component. Under the Kyoto Protocol climate agreement, carbon credits are utilised in market-oriented system of carbon trading. It permits countries and companies to sell their carbon credits for money.”
Why this source?
  • Explicitly states carbon credits under the Kyoto system can be sold for money, establishing that carbon permits have monetary value and are traded.
  • If permits/credits carry monetary value and are sold, money flows are created that could be directed to purchasers or sellers depending on market design.
Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > Emission tradinsl'cap-and-trade', > p. 326
Presence: 3/5
“• Emission permit is known alternatively as carbon credit. For each Annex I country, the protocol has assigned a fixed amount of carbon emission in the agreement. This amount is actually the amount of emission which is to be reduced by the concerned country.• On the other hand, it implies that the country was permitted to emit the remaining amount. This emission allowance is actually one kind of carbon credit.• The total amount of allowance is then”
Why this source?
  • Defines emission permits/allowances as carbon credits and describes assigned allowances, making clear governments or countries can allocate tradable emission rights.
  • Allocation of a fixed amount of allowances creates a tradable asset that can be transacted for money.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 14: Infrastructure and Investment Models > Coal Mines (Special Provisions) Act 2015: > p. 428
Presence: 4/5
“Under captive mining, Govt. auctions the coal mines for different sectors like steel/power etc and the winners of the bid can use that coal only for their specific projects in that sector.• The proceeds/money coming from the auction process will be disbursed to the respective state governments.”
Why this source?
  • Shows that when the government auctions a public right (here, coal mines), proceeds from the auction are disbursed to state governments, demonstrating auctioning as a mechanism to move private payments to the public treasury.
  • By analogy, auctioning emission allowances would similarly channel bid payments from private bidders to government accounts.
Pattern takeaway: UPSC is shifting from static treaty facts (years, cities) to functional analysis (economic implications, resource transfer). You must analyze environmental policies as fiscal tools.
How you should have studied
  1. Bullet 1. [THE VERDICT]: Conceptual Trap + Shankar IAS (Ch 24) & Nitin Singhania (Ch 21).
  2. Bullet 2. [THE CONCEPTUAL TRIGGER]: 'Climate Finance' and 'Market-Based Instruments' under the Mitigation Strategies syllabus.
  3. Bullet 3. [THE HORIZONTAL EXPANSION]: Memorize the 'Pricing' siblings: Carbon Tax vs. Cap-and-Trade, Carbon Border Adjustment Mechanism (CBAM), Internal Carbon Pricing, and Article 6 (Paris Agreement) mechanisms (ITMOs).
  4. Bullet 4. [THE STRATEGIC METACOGNITION]: Don't just read definitions. Ask the 'Cui Bono' (Who benefits?) question. In a Carbon Tax or Auctioned Permit system, who collects the money? (The State). Who pays? (The Private Sector). This economic logic solves Statement II.
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Carbon markets as a market-based mitigation tool
💡 The insight

Carbon trading functions as a market mechanism to reduce greenhouse gas emissions by creating tradable credits and permits.

High-yield for UPSC because questions probe policy instruments for climate mitigation and international mechanisms; links to topics on climate finance, international agreements, and domestic policy design. Understanding this enables candidates to evaluate economic incentives vs regulatory approaches in syllabus and essay questions.

📚 Reading List :
  • Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > Partnership for Market Readiness > p. 345
  • Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 21: Mitigation Strategies > Developing countries > p. 284
  • Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > z. Flexible Market Mechanisms > p. 325
🔗 Anchor: "Are carbon markets projected to be among the most widely used policy tools globa..."
📌 Adjacent topic to master
S1
👉 Article 6 / international rules for carbon markets
💡 The insight

International governance (Article 6) establishes rules and operational details that shape cross-border carbon trading.

Important for Mains and current-affairs answers on Paris Agreement implementation and global climate governance; connects to negotiations, double counting issues, and transfer of credits. Mastery helps answer questions on treaty mechanisms and reform of market instruments.

📚 Reading List :
  • Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > Article 6 (refer COP zr) > p. 336
  • Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > Partnership for Market Readiness > p. 345
🔗 Anchor: "Are carbon markets projected to be among the most widely used policy tools globa..."
📌 Adjacent topic to master
S1
👉 Flexible market mechanisms (Kyoto model) & emissions permits
💡 The insight

Kyoto-style market mechanisms use permit trading to allow countries to meet targets cost-effectively by buying/selling emissions allowances or credits.

Useful for comparatives between command-and-control vs market-based policies in UPSC; ties into environmental economics, international commitments, and national mitigation strategies. Enables analysis of policy efficiency, equity, and implementation challenges.

📚 Reading List :
  • Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > z. Flexible Market Mechanisms > p. 325
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 21: Sustainable Development and Climate Change > Low-Carbon Economy > p. 604
🔗 Anchor: "Are carbon markets projected to be among the most widely used policy tools globa..."
📌 Adjacent topic to master
S2
👉 Emission allowances (carbon credits) as tradable permits
💡 The insight

Emission permits are defined as carbon credits and represent tradable rights to emit which can be bought or sold for money.

High-yield for questions on climate policy and market instruments — knowing that allowances are tradable explains how market transactions create monetary flows. Connects to international agreements (Kyoto) and domestic allowance schemes; useful for essay/GS mains and policy analysis.

📚 Reading List :
  • Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > Emission tradinsl'cap-and-trade', > p. 326
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 21: Sustainable Development and Climate Change > Low-Carbon Economy > p. 604
🔗 Anchor: "Do carbon markets transfer financial resources from the private sector to the st..."
📌 Adjacent topic to master
S2
👉 Auctioning as a government revenue mechanism
💡 The insight

Government auctions of public rights convert private bids into public revenue, with proceeds disbursed to state coffers.

Core fiscal-policy concept relevant to privatisation, resource allocation and revenue mobilisation. Helps answer questions on how market mechanisms can raise public funds (e.g., auctions of spectrum, mines, or potentially emissions allowances).

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 14: Infrastructure and Investment Models > Coal Mines (Special Provisions) Act 2015: > p. 428
  • Geography of India ,Majid Husain, (McGrawHill 9th ed.) > Chapter 17: Contemporary Issues > Privatisation > p. 84
🔗 Anchor: "Do carbon markets transfer financial resources from the private sector to the st..."
📌 Adjacent topic to master
S2
👉 Carbon trading as a market-based climate instrument
💡 The insight

Carbon trading under treaties like Kyoto permits selling of carbon credits in a market-oriented system, creating financial transactions around emissions.

Essential for understanding climate governance and economic instruments in environmental policy. Useful across GS papers (economy, environment) and for evaluating policy options (cap-and-trade vs taxes).

📚 Reading List :
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 21: Sustainable Development and Climate Change > Low-Carbon Economy > p. 604
  • Environment, Shankar IAS Acedemy .(ed 10th) > Chapter 24: Climate Change Organizations > Emission tradinsl'cap-and-trade', > p. 326
🔗 Anchor: "Do carbon markets transfer financial resources from the private sector to the st..."
🌑 The Hidden Trap

Carbon Border Adjustment Mechanism (CBAM). Since UPSC asked about domestic carbon markets transferring resources, the next logical step is international trade defenses where carbon costs are equalized at the border (EU's specific tool).

⚡ Elimination Cheat Code

The 'Public Trust' Heuristic. Ask yourself: Who owns the atmosphere? The State (as trustee of the commons). If a private entity wants to use/pollute this public asset, they must pay the owner. Therefore, the flow of resources MUST be Private -> State (via auctions/taxes). This logic validates Statement II immediately.

🔗 Mains Connection

Fiscal Policy (Economy). View Carbon Markets not just as 'Environment' but as 'Non-Tax Revenue' for the government. Just as spectrum auctions transfer private money to the State, auctioning 'pollution rights' does the same.

✓ Thank you! We'll review this.

SIMILAR QUESTIONS

IAS · 2025 · Q34 Relevance score: 2.42

Consider the following statements : Statement I : Article 6 of the Paris Agreement on climate change is frequently discussed in global discussions on sustainable development and climate change. Statement II : Article 6 of the Paris Agreement on climate change sets out the principles of carbon markets. Statement III : Article 6 of the Paris Agreement on climate change intends to promote inter-country non-market strategies to reach their climate targets. Which one of the following is correct in respect of the above statements?

IAS · 2024 · Q96 Relevance score: 1.04

Consider the following statements : Statement-I : The European Parliament approved The Net-Zero Industry Act recently. Statement-II : The European Union intends to achieve carbon neutrality by 2040 and therefore aims to develop all of its own clean technology by that time. Which one of the following is correct in respect of the above statements ?

IAS · 2025 · Q50 Relevance score: 0.83

Consider the following statements : Statement I : Activated carbon is a good and an attractive tool to remove pollutants from effluent streams and to remediate contaminants from various industries. Statement II : Activated carbon exhibits a large surface area and a strong potential for adsorbing heavy metals. Statement III : Activated carbon can be easily synthesized from environmental wastes with high carbon content. Which one of the following is correct in respect of the above statements?

IAS · 2024 · Q1 Relevance score: 0.21

Consider the following statements : Statement-I : The atmosphere is heated more by incoming solar radiation than by terrestrial radiation. Statement-II : Carbon dioxide and other greenhouse gases in the atmosphere are good absorbers of long wave radiation. Which one of the following is correct in respect of the above statements ?

IAS · 2024 · Q22 Relevance score: 0.02

Consider the following statements : Statement-I : Many chewing gums found in the market are considered a source of environmental pollution. Statement-II : Many chewing gums contain plastic as gum base. Which one of the following is correct in respect of the above statements ?