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?
Answer & explanation
Answer: (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
Carbon markets put a price on each tonne of emissions and are spreading fast, from the EU's emissions trading system to India's Carbon Credit Trading Scheme (2023). When governments auction emission allowances, money does flow from companies to the State, but that revenue is a by-product; markets are popular because pricing carbon makes polluters cut emissions where it is cheapest.
- ✓ Statement-I Emissions trading and carbon-credit markets are among the most widely adopted climate policy tools; India notified its own Carbon Credit Trading Scheme in June 2023 to put a price on a tonne of CO2-equivalent.
- ✓ Statement-II Where allowances are auctioned, companies pay the government: EU ETS auctions raise revenue for national budgets and climate funds. This transfer is not why carbon markets are used, so Statement-II does not explain Statement-I.
Remember · Carbon market = cap (or intensity target) + tradable permits/credits → carbon gets a price. Auctioned permits raise public revenue. India: Carbon Credit Trading Scheme, 2023 (BEE administers).
Sources
- Economic Survey 2023-24, Ch 6, Indian Carbon Market ↗ “The regulations on the Carbon Credit Trading Scheme (CCTS), also called the Indian Carbon Market, were notified by the Ministry of Power on 28 June 2023.”
- European Commission, EU ETS: Auctioning ↗ “Auctioning of allowances in the EU ETS raises revenues for national budgets, the Innovation Fund, the Modernisation Fund and starting in 2026, the Social Climate Fund.”
Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·