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In a durable-goods setting where emissions may occur during use or at the disposal of the good the comparison between the optimal emission tax in a period and marginal environmental damage in that period may not be relevant for environmental policy, as producers' decisions depend on the expected total emission tax per unit produced in each period and the units of the good produced in one period may cause environmental damage in future periods. Using a two-period model with imperfect competition, it is shown that there is overall underinternalization as the total expected optimal emission tax per unit produced in the first period is smaller than the expected overall marginal environmental damage from the last unit produced in that period. This occurs even if there is overinternalization of environmental damage in the first period.
