Moraga-González, J.L. and Padrón-Fumero, N. (2002). Environmental policy in a green market Environmental and Resource Economics, 22(3):419--447.

This paper studies the impact of some frequently-used environmental policies in a duopolistic market where purchasers are willing to pay more for less polluting goods. When consumers differ in their environmental awareness, a cleaner and a dirtier variant coexist in equilibrium. The higher the average willingness-to-pay for the good, the lower are variants' unit emissions but the higher are industrial aggregate effluents. A maximum unit emission standard reduces unit emissions of both variants, but boosts firms' sales and consequently increases industrial aggregate emissions. As a result, social welfare may be reduced. We also explore the effects of technological subsidies and product charges, including differentiation of charges.