  This paper proposes and analyzes a stationary equilibrium model for a
competitive industry which endogenously determines the carbon price necessary
to achieve a given emission target. In the model, firms are identified by their
level of technology and make production, entry, and abatement decisions.
Polluting firms are subject to a carbon price and abatement is formulated as an
irreversible investment, which entails a sunk cost and results in the firms
switching to a carbon neutral technology. In equilibrium, we identify a carbon
price and a stationary distribution of incumbent, polluting firms, that
guarantee the compliance with a certain emission target. Our general
theoretical framework is complemented with a case study with Brownian
technology shocks, in which we discuss some implications of our model. We
observe that a carbon pricing system alongside installation subsidies and tax
benefits for green firms trigger earlier investment, while higher income taxes
for polluting firms may be distorting. Moreover, we discuss the role of a
welfare maximizing regulator, who, by optimally setting the emission target,
may mitigate or revert some parameters' effects observed in the model with
fixed limit.
