Consider the following statements
Statement-1: 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-1 and Statement-II are correct and Statement-II is the correct explanation for Statement-1
(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-1
(c) Statement-I is correct Statement-II is incorrect
(d) Statement-1 is incorrect Statement-II is correct
The answer is (c).
Statement-1 is correct. Carbon markets are likely to be one of the most widespread tools in the fight against climate change. They allow companies to trade emissions allowances, which gives them an incentive to reduce their emissions.
Statement-II is incorrect. Carbon markets do not necessarily transfer resources from the private sector to the State. In fact, in some cases, they can actually benefit the private sector. For example, companies that reduce their emissions can sell their surplus allowances to other companies, which can generate revenue.
The correct explanation for Statement-1 is that carbon markets can help to reduce emissions by giving companies an incentive to do so. This can be done by setting a cap on emissions and then allowing companies to trade allowances. Companies that can reduce their emissions below the cap can sell their surplus allowances to other companies that are unable to reduce their emissions as much. This creates a financial incentive for companies to reduce their emissions.