Q. Consider the following statements regarding carbon tax:
1. It is a type of pigouvian tax.
2. The cap-and-trade system of carbon tax aims to prevent carbon leakages from nations without a carbon price.
Which of the statements given above is/are correct?
Answer: A
Notes:
Explanation:
Statement 1 is correct: A carbon tax is a type of penalty that businesses must pay for excessive greenhouse gas emissions. The carbon tax is a type of Pigouvian tax.
Statement 2 is incorrect: Cap-and-trade system: It is a market-based approach to reducing GHG emissions, where a government sets a limit (cap) on total emissions and allows companies to buy, sell, or trade emission permits within that cap. The carbon border adjustment mechanism (CBAM), it is an eco-tariff on embedded carbon, aiming to prevent carbon leakage from nations without a carbon price.
Source: TH
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