The effect of emission taxes and abatement subsidies on market structure

Emission taxes and abatement subsidies are considered to be efficient measures for environment protection. The purpose of this paper is to quantify their effects on industry output, firm output and on the number of firms in the industry. Three types of market structure are under discussion: perfect competition, oligopoly and a dominant firm with a competitive fringe. It turns out that emission taxes and abatement subsidies affect the structure of the polluting industry in opposite ways while the effects on industry's emissions are similar in direction but different.