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UPSC Prelims 2011 · Environment · Rules for the Planet
Regarding "carbon credits", which one of the following statements is not correct?
- (a) The carbon credit system was ratified in conjunction with the Kyoto Protocol
- (b) Carbon credits are awarded to countries or groups that have reduced greenhouse gases below their emission quota
- (c) The goal of the carbon credit system is to limit the increase of carbon dioxide emission
- (d) Carbon credits are traded at a price fixed from time to time by the United Nations Environment Program.
Show the answer and explanation
Answer: (d) Carbon credits are traded at a price fixed from time to time by the United Nations Environment Program.
This is the incorrect statement: carbon credit prices are set by the market, not fixed by UNEP.
The idea
One offset credit represents a verified reduction or removal of one tonne of CO₂ equivalent; an allowance permits emissions. It is a tradable good. Like any good in a market, its price moves with supply and demand. No agency fixes it.
Project cuts or removes emissions → Reductions or removals are verified → One tonne CO₂e becomes one offset credit → Sold to someone offsetting emissions → Many buyers and sellers → the market sets the price
The trap
UNEP sounds like an authority over carbon. It has no role in fixing credit prices.
Also know
Kyoto units, each equal to one tonne of CO₂ equivalent: CER from the Clean Development Mechanism, ERU from Joint Implementation, AAU for emissions trading between countries with targets. The first Kyoto period (2008–12) asked developed countries for an average cut of about 5% below 1990 levels; the Doha Amendment added a second period (2013–20).
🔒 Carbon credit = 1 tonne CO₂e; price set by supply and demand.