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.
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?"
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 carbon — making pollution costly and clean alternatives competitive.
Types of Carbon Markets:
| Type | Description | Example |
|---|---|---|
| Compliance Market | Created by mandatory national/regional cap-and-trade systems | EU ETS, California Cap-and-Trade, China National ETS |
| Voluntary Market | Companies/organisations buy carbon credits voluntarily to offset emissions | Verra (VCS), Gold Standard (GS), CORSIA (aviation) |