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📌 The 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?

(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

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✅ Correct Answer: (a)

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🧑‍🏫 Classroom Explanation

Carbon markets are trading systems where carbon credits or emission allowances are bought and sold.
Entities that emit greenhouse gases must either reduce emissions or pay for the right to emit.

• By 2021, over 21% of global emissions were covered by some form of carbon pricing.
• Many countries have adopted cap-and-trade systems or carbon taxes, making carbon markets a mainstream climate policy instrument.

Carbon markets function economically similar to taxation:

• Private firms pay the State or regulators for emission permits.
• Thus, financial resources shift from the private sector to the State, which can then fund climate mitigation, adaptation, or green transitions.

Because this financial transfer creates incentives to reduce emissions, carbon markets have emerged as one of the most effective and scalable tools against climate change.

Hence, Statement II correctly explains Statement I.

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⚡ Curiosity Raiser

What if pollution itself became expensive enough to disappear? 💰🌍

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📚 Enrich Notes (UPSC Edge)

• 83% of Nationally Determined Contributions (NDCs) mention use of market mechanisms
• World Bank estimate:
  • Carbon markets can cut global mitigation costs by up to $250 billion by 2030
• Carbon pricing instruments:
  • Emissions Trading Systems (ETS)
  • Carbon taxes
  • Offset markets (voluntary & compliance)

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🕊️ IAS Monk Whisper

“When pollution has a price, responsibility finally enters the market.”