UPSC Prelims 2011 · Question 55 of 100

UPSC Prelims 2011 question on Carbon Credits

Regarding “carbon credits”, which one of the following statements is not correct?

  1. The carbon credit system was ratified in conjunction with the Kyoto Protocol
  2. Carbon credits are awarded to countries or groups that have reduced greenhouse gases below their emission quota
  3. The goal of the carbon credit system is to limit the increase of carbon dioxide emission
  4. Carbon credits are traded at a price fixed from time to time by the United Nation Environment Programme
Show answer

Answer: D. Carbon credits are traded at a price fixed from time to time by the United Nation Environment Programme

Analysis

Incorrect Statement: Carbon credits are traded at a price fixed from time to time by the United Nations Environment Programme

This statement is incorrect because carbon credit prices are not fixed by UNEP. They are traded like commodities, and their prices are determined by market demand and supply.

Statement by statement

1. Carbon credit system was ratified in conjunction with the Kyoto Protocol — Correct
The Kyoto Protocol introduced market-based mechanisms to reduce greenhouse gas emissions. Carbon credits became an important tool under this framework.

2. Carbon credits are awarded to countries or groups that reduce emissions below their quota — Correct
If an entity emits less than its permitted limit, it can earn carbon credits. These credits may be sold to others who exceed their emission limits.

3. The goal is to limit the increase of carbon dioxide emissions — Correct
Carbon credits create a financial incentive to reduce greenhouse gas emissions and fight climate change.

4. Carbon credits are traded at a price fixed by UNEP — Incorrect
UNEP does not fix the price of carbon credits. Their price depends on carbon markets, supply-demand conditions, regulations and trading platforms.

Extra UPSC info

1 carbon credit = permission to emit 1 tonne of CO₂ equivalent.
Carbon credits emerged from the Kyoto Protocol framework.
Clean Development Mechanism (CDM) allowed developed countries to invest in emission-reduction projects in developing countries.
Credits under CDM are called Certified Emission Reductions (CERs).
Article 6 of the Paris Agreement deals with international carbon markets.
India has moved towards a domestic Carbon Credit Trading Scheme through amendments to the Energy Conservation Act.

How to crack it

Carbon credits are market-based instruments for reducing emissions. Their prices are determined by market forces, not by UNEP.

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