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
Statement I is correct: Carbon markets are trading systems in which carbon credits are sold and bought. Companies or individuals can use carbon markets to compensate for their greenhouse gas emissions by purchasing carbon credits from entities that remove or reduce greenhouse gas emissions. One tradable carbon credit equals one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas reduced, sequestered or avoided. Carbon markets, including compliance and voluntary markets, are widely recognized as effective tools for reducing greenhouse gas emissions. They incentivize emission reductions by allowing entities to trade carbon credits, making them a key mechanism in global climate action.
Statement II is correct: Carbon markets help reduce green-house gas emissions by assigning value to carbon and creating a market for trading carbon credits, which represent the right to emit a certain amount of greenhouse gases. They enable more efficient allocation of emission reduction efforts and facilitate the exchange of allowances between public and private entities, of-ten involving financial transactions. Carbon markets can generate revenue for governments through mechanisms like the sale of emission allowances in compliance markets. However, this is not their primary purpose, as carbon markets primarily facilitate trading between private entities to reduce emissions efficiently.