Modeling study: Linking carbon markets with an allowance exchange rate yields environmental, economic dividends

Carbon markets have become a critical policy tool to combat climate change. They allow firms that emit greenhouse gases to buy and sell the right to pollute, which gives the firms flexibility while also reducing carbon emissions at the lowest cost. A patchwork of dozens of markets exists around the world, often with drastically different prices for carbon credits. In a new paper, a University of Massachusetts Amherst resource economist demonstrates that linking fragmented carbon markets with an exchange rate has the potential to be a significant step toward forming a global climate policy.

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