Equilibrium pollution taxes in a two industry open economy

This paper involves strategic implications of environmental policy in case of two international oligopolies when countries take part in an internation al environmental agreement and have agreed on national target levels for a global pollutant, This set-up permits an analysis of the design of optimal emission taxes across domestic producers. By differentiating taxes between industries with different abatement cost, demand, and number of domestic fi rms, governments are in a position to raise national net foreign rents. It is argued that a single national emission trading programme encompassing al l domestic producers cannot provide the equivalent strategic policy design, (C) 2001 Elsevier Science B.V. All rights reserved. JEL classification. F1 ; Q2; C7.