I think that the correct answer would be : 
C.) Its spare grayness sets up a desolate mood
I hope that this helps you !
        
                    
             
        
        
        
Your answer would be number 2 :)
 
        
        
        
An example of such a sentence could be: I was BORED during our math class.
A participle is usually used as an adjective within a sentence. Participles are made from verbs - those are those forms used to make tenses such as present perfect, past perfect, etc. 
The word which is modified by the participle is the subject of the sentence - the pronoun I.