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Profit-enhancing emissions taxes in near-zero-emissions industries

Author

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  • Hirose, Kosuke
  • Ishihara, Akifumi
  • Matsumura, Toshihiro

Abstract

Motivated by the recent global trend toward realizing net-zero-emissions societies, we investigate the relationship between emissions tax rates and firm profits in oligopolistic markets. Our results indicate that when equilibrium emission levels are close to zero, a marginal increase in the tax rate raises firms’ profits, except in monopoly markets. This effect arises because stringent environmental regulation increases marginal costs and softens competition, allowing firms to expand their markups. We further show that this result is robust to cost heterogeneity. Our findings also highlight the importance of considering environmental and competition policies jointly.

Suggested Citation

  • Hirose, Kosuke & Ishihara, Akifumi & Matsumura, Toshihiro, 2026. "Profit-enhancing emissions taxes in near-zero-emissions industries," Energy Economics, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:eneeco:v:160:y:2026:i:c:s0140988326003403
    DOI: 10.1016/j.eneco.2026.109461
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    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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