Consider the following statements: Statement-I: Carbon markets are likely to be one of the most wide

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?

Accepted Answer

Statement 1 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. Several countries and territories have started carbon trading programs. Carbon trading is adapted from cap and trade, a regulatory approach that successfully reduced sulfur pollution in the 1990s. Carbon markets have at last become one of the most widespread tools in the fight against climate change. By the end of 2021, more than 21% of the world’s emissions were covered by some form of carbon pricing, up from 15% in 2020. Statement 2 is correct: Ever more businesses have to pay regulators for the right to release a tonne of carbon dioxide into the atmosphere. Investors are getting interested too: trading on these markets grew by 164% last year, to €760bn ($897bn). Like taxes, carbon markets transfer resources from the private sector to the state. 83% of NDCs submitted by countries mention their intent to make use of international market mechanisms to reduce GHGs. Also, the World Bank estimates that trading in carbon credits could reduce the cost of implementing NDCs by more than half - by as much as $250 bn by 2030. So, carbon markets will likely be an effective tool against climate change. Hence, statement 2 is the correct explanation of statement 1.