Substantive clause functioning as a subject. D was clear wonder because only in D is the relative clause (“that situation” - subject and “merits”) is followed by the main verb “is”.

No other option fulfils that requirement.

B, E are incorrect for using if / whether (no choice given)

C is wrong for illogical meaning

A is passive and wordy

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Except A and D all intends wrong meanings. A is passive and D is active sentence which is preferred in Gmat.

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Q: That pollution harms the environment is self-evident; that immediate government action to combat it is merited by the situation is a matter of debate.

(A) that immediate government action to combat it is merited by the situation – passive construction- choose active if available
(B) if the situation merits immediate action by the government – clause starts with ‘if..’ but is missing a ‘then’ to complete the sentence
(C) whether to combat the situation is merited by immediate government action – missing ‘or not’ (whether…or…)
(D) that the situation merits immediate government action to combat it – complete sentence after the colon
(E) whether the government should immediately combat it is merited by the situation – seems to alter the meaning; ‘is merited by the situation’ followed by ‘is a matter of debate’ makes no sense.
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B) is out...there's no conditional here

'merited by' is bologne in A, C, E

Answer is E because it maintains parallelism. "it" refers to pollution.
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"It" has no antecedent here.

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