We introduce an explicit environmental incentive into a managerial compensation contract under an emissions tax regime in the context of a Cournot duopoly with pollution externalities. We show that, depending on the effectiveness of “green” R&D, compared to a standard sales compensation contract, a manager conducts more abatement. As a consequence, the regulator sets a lower emissions tax, and social welfare is higher. Moreover, in general, firm owners earn higher profits when using the environmental delegation contract.