Green firm, brown environment

Abstract

We develop a theoretical model to examine the implication of a monopolist’s environmental consciousness, which induces it to adopt cleaner technology or to internalize negative environmental externalities of production or both, for the environment. Results show that greater environmental concern of the monopolist may damage the environment more, despite leading to lower emission intensity. This is true regardless of whether consumers value green production or not. This paper also draws implications of technology standard and emission tax as instruments for environmental regulation. This paper provides a theoretical underpinning of the rebound effect in production by showing that the voluntary pro-environmental compliance behavior may not always mitigate the rebound effect. This suggests that a regulator should be cautious while designing regulatory mechanisms.