In this chapter, we compare taxes and standards as environmental policies in a duopoly model where production generates pollution. To lower their emissions, firms invest in upstream green R&D (in the presence of technological spillovers) either cooperatively or non-cooperatively, and then compete in quantities. The outcomes of the two policies are identical when firms do not cooperate in R&D; R&D cooperation under taxes always improves social welfare by increasing both abatement efforts and consumer surplus. Conversely, R&D cooperation under standards pushes firms to reduce production, which is detrimental to consumers though better for the environment and more profitable for firms.

Keywords: 

• Emission tax
• Environmental standards
• Green R&D spillovers
• R&D cooperation vs. competition