We develop a model to investigate the impact of patent policies and emission taxes on green innovation. In the absence of green consumers, the introduction of patents results in a paradox whereby increasing emission tax beyond a certain threshold leads to a discrete increase in the emission level, which may be avoided by reducing the patenting cost. In the presence of green consumers, this paradox is restricted to an intermediate range of tax rates. Higher emission taxes increase green investment, and a stricter patentability requirement is effective at reducing emissions, only if the fraction of green consumers is sufficiently small.

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