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This paper studies how asymmetric emissions caps affect firms' decisions on output and abatement R&D in a duopoly, building on the work of Amir et al. (2023, Env Mod. Assess). The main result is that a firm facing a zero-emissions cap chooses higher output and abatement R&D than its less strictly regulated rival and, if initial unit abatement costs are sufficiently low, may earn higher payoffs. Alternatively, the model can be considered as a duopoly in which one firm receives an R&D subsidy.

(joint work with Rabah Amir)