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?

Answer: B. Both statements are correct but Statement-II is NOT the correct explanation for Statement-I. Statement-I: Carbon markets are likely to be a widespread tool in the fight against climate change. CORRECT. Under the Paris Agreement's Article 6, market-based mechanisms (cap-and-trade systems, voluntary carbon markets, internationally transferable mitigation outcomes) are expected to play a major role. EU ETS, California cap-and-trade, China's national ETS and India's planned Carbon Credit Trading Scheme exemplify this. Statement-II: Carbon markets transfer resources from private sector to the State. CORRECT but PARTIAL. In a cap-and-trade scheme, the government auctions allowances generating state revenue (so resources flow private-to-state). However, in CAP-AND-TRADE the dominant flow is among PRIVATE FIRMS trading with each other; the state-private transfer is secondary. Statement-II is a true observation but it is NOT why carbon markets are an effective climate tool. The actual mechanism is price-signal-driven emission reduction across firms. So II is correct but does not explain I. Source: Paris Agreement Article 6 / UNFCCC documents on carbon markets.