Previous Year Question
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?
Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
Statement-I is correct but Statement-II is incorrect
Statement-I is incorrect but Statement-II is correct
Correct Answer: C
Detailed Solution
Carbon markets are trading systems in which greenhouse-gas emission allowances or carbon credits are bought and sold.
Generally, one carbon credit represents a reduction or removal of one metric tonne of carbon-dioxide-equivalent emissions.
Carbon markets place an economic value on emissions and encourage companies and other entities to reduce them.
They help entities reduce emissions where the cost of emission reduction is comparatively lower.
Thus, carbon markets can assist in achieving climate targets in a more cost-effective manner.
Many countries and regions have developed emissions-trading or carbon-credit systems.
Article 6 of the Paris Agreement provides a basis for voluntary cooperation among countries and international carbon-market arrangements.
Therefore, Statement-I concerning carbon markets becoming a widespread tool in the fight against climate change is correct.
The transfer of resources in carbon markets does not occur only from the private sector to the state.
Carbon credits may be traded among private companies, project developers, governments or entities from different countries.
When a government auctions emission allowances, the state may receive revenue, but this is not a necessary feature of every carbon market.
In voluntary carbon markets, many transactions take place between private entities, and the payment does not go to the state.
Therefore, transferring resources from the private sector to the state is not a general or defining feature of carbon markets. Hence, Statement-II is not correct.
The credibility of a carbon market requires additionality, permanence, prevention of leakage, avoidance of double counting, and effective measurement, reporting and verification.