Profiting from Regulation: The Effects of Emissions Standards on Abatement R&D

Johanna-Sophia Hardt, Heidrun C. Hoppe-Wewetzer and Felix Klapper

No 20341, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper explores the impact of emissions standards on a firm’s output and abatement R&D investment decisions in a duopoly model, extending the work of Amir et al. (2023). It is shown that high upper limits on total emissions remove the firms’ incentives to invest in abatement R&D. This helps firms to coordinate on profit-increasing output levels relative to unregulated markets. Moreover, subsidies for abatement R&D may hurt firms, but improve welfare when the regulation is strict enough.

Keywords: Environmental regulation; Cournot (search for similar items in EconPapers)
JEL-codes: L13 Q55 Q58 (search for similar items in EconPapers)
Date: 2025-06
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