Abstract
We develop a general two-country model with oligopolistic interdependence in which the firms make their output and emission decisions simultaneously. In this framework, we examine the effect of unilateral and multilateral reforms of emission taxes and abatement subsidies on global emission levels. We find that an increase in abatement subsidies — either unilateral or multilateral — unambiguously reduces global emission levels. In the presence of sufficient asymmetry in pollution intensities between the two countries, a unilateral or equiproportional multilateral increase in emission taxes can increase global emission levels. However, a multilateral increase of emission taxes of the concertina type unambiguously reduces global emission levels.