Consider the following statements: 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?
Explanation
The Assertion is Correct: Carbon markets, such as Cap-and-Trade systems and voluntary offset markets, are recognized under the Paris Agreement (Article 6) as essential market-based tools to incentivize emission reductions by putting a price on carbon.
The Reason is Correct: Carbon markets often involve the transfer of resources from the private sector to the State, especially when governments auction emission allowances or permits, thereby generating public revenue from private emitters.
Statement-II is not the correct explanation for Statement-I because the widespread adoption of carbon markets is driven by their ability to achieve climate targets at the lowest economic cost through market flexibility, rather than the specific fiscal mechanism of transferring funds to the State.