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Emissions have time and location specific impacts in most real-world situation, implying that first-best tax rates will differ from one emitter to the next. However, since transaction rates can probably prevent the use of such a fist-bet tax system, it is more uncertain to argue that optimal-feasible tax systems generally is better than specific command and control solutions. Furthermore, in some cases, an equi-proportionate reduction of emissions or total suppression of emission is more effective than any optimal-feasible version of emission taxes.

Rent capture policies for tradeable emission permits are examined to determine their efficiency and their impact on 'clean' and 'dirty' firms. These policies include a profit, an input, an output, and an emission permit rental charge. Results show that short-run emissions trading results of heterogeneous companies are distorted by input and output charges. Moreover, the policies are ranked depending on the pollution technology available.

We construct a twocountry model where pollution from production is transmitted across borders. Pollution abatement is undertaken by both private producers and the public sector. We characterize Nash optimal levels of the policy instruments in the two countries: emission taxes and funds allocated for public abatement activities. We examine the implications of a number of multilateral policy reforms. One of our findings is that the magnitude of the beneficial effect of a reform depends on the scope of the reform; if it is restricted to a subset of policy instruments, then the efficacy of environmental policy reform can be greatly undermined.