UPSC CSE Prelims 2023

The correct Answer is Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I.

Explanation

Carbon markets are mechanisms designed to reduce greenhouse gas emissions by assigning a price to carbon and enabling trading of emission allowances or carbon credits.

• Statement I: Correct.
  Carbon markets are considered an important policy instrument for addressing climate change. By putting a price on carbon emissions, they encourage industries and businesses to reduce emissions and adopt cleaner technologies.
• Statement II: Correct.
  Carbon markets can involve financial transfers from private sector entities to governments, particularly when emission allowances are auctioned or carbon taxes are imposed. In such cases, companies pay for emission permits, leading to a transfer of resources to the state.

However, the effectiveness and spread of carbon markets arise primarily from their ability to create economic incentives for emission reduction, not merely from resource transfers to governments. Therefore, Statement II does not explain Statement I.

Key Takeaway: Carbon markets are widely used climate policy tools that create economic incentives to reduce emissions, though they may also involve financial transfers when emission permits are purchased.