Statement-I: Carbon markets are likely to be one of the most widespread tools in the fight against climate change.
Statement-II: Carbon markets transfer resources from the private sector to the State.
Which one of the following is correct in respect of the above statements?
- A. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
- B. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
- C. Statement-I is correct but Statement- II is incorrect
- D. Statement-I is incorrect but Statement-II is correct.
Answer: A
Explanation
Statement I is correct. Carbon markets, which facilitate the trading of carbon credits, have indeed become a prominent and increasingly widespread mechanism globally for incentivizing greenhouse gas emission reductions. Their adoption is growing, with a significant portion of global emissions now covered by some form of carbon pricing. Statement II is also correct. In carbon markets, entities that emit carbon beyond a certain cap must purchase allowances or credits. The revenue generated from the sale of these allowances, or from carbon taxes, often flows to the government (the State), effectively transferring financial resources from the private sector to public coffers. This transfer of resources provides a financial incentive for emission reduction and funds climate initiatives. Statement II explains a key mechanism by which carbon markets (Statement I) operate as a tool against climate change. This question tests knowledge of climate policy instruments and their economic implications.