Carbon Trading and Carbon Markets: Global and Indian Context

TOPIC CLASSIFICATION

Subject: Environment & Ecology - Climate Change Mitigation
Sub-topic: Carbon Trading - Emissions Trading Schemes (ETS), Carbon Credits, Clean Development Mechanism (CDM), Article 6 of Paris Agreement, India's Carbon Market
Mains GS Paper-III: Environment - climate change policies, international environmental conventions, market-based mechanisms.

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EXAMINER REASONING

Carbon trading is a market-based mechanism that puts a price on carbon - a favourite topic for UPSC because it tests understanding of both economics and environment. Prelims tests: Kyoto Protocol mechanisms (CDM, JI, IET), terminology (carbon credit, carbon offset, carbon tax, ETS), India's current status. Mains demands: (a) the architecture of carbon markets - compliance vs. voluntary markets, (b) India's proposed Carbon Credit Trading Scheme (CCTS) , (c) Article 6 of Paris Agreement - how cooperative approaches work, (d) the debate on carbon border adjustment mechanisms (CBAM), (e) comparison of carbon tax vs. cap-and-trade. The examiner's framing is: "Can carbon markets truly deliver emission reductions or are they a distraction?"

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Core Concept

What are Carbon Markets?

Carbon markets are trading systems where carbon credits (permits to emit a certain amount of CO₂) are bought and sold. The goal is to **reduce emissions by putting a price on...