Self-Imposed Carbon Taxes

Guillermo Marshall and Alvaro Parra ()
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Alvaro Parra: University of British Columbia, Sauder School of Business

Working Papers from Dalhousie University, Department of Economics

Abstract: Why have firms chosen to self-impose a carbon tax where governments have failed to act? We provide an answer to this question by highlighting a novel mechanism in which a firm can use a self-imposed carbon tax to relax the intensity of price competition with its rivals, making it a profitable strategy. The mechanism we highlight does not depend on the self-imposed carbon tax shifting demand or yielding marketing benefits (e.g., making the firm’s products more attractive to consumers because they are considered “green†). We discuss implications for market efficiency and the interaction of this mechanism with opportunities to invest in emission abatement technology.

Pages: 27 pages
Date: 2026-05-27
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