Abstract: Global warming has been one of the most important issues around the world, and environmental regulation has been an important tool to control carbon emission for government. Under the assumption that a host-country enterprise and a foreign enterprise produce differentiated products, a three-stage game model is constructed to examine how the organization of environmental R&D-independent environmental R&D and environmental R&D cartel affects environmental regulation. By backward induction, equilibriums are got. With these equilibriums, levels of environment R&D (and reduction of carbon emission), environmental regulation and welfare are compared between different R&D strategies respectively. It's found that the more enterprises expend on environmental R&D, the lower the emission tax will be, and if carbon emission can cause more serious damage to environment, government will set higher emission tax and enterprises will be committed to more environmental R&D. By assigning several specific values to key variables, it's further found that environmental R&D cartel is dominant to independent environmental R&D in general. However, the possibility that environmental R&D cartel is dominant to independent environmental R&D will be lower as degrees of product differentiation and environmental R&D spillover between enterprises decrease. So, this paper not only contributes to the strategic choice for both foreign enterprise and host-country enterprise, but also contributes to policy making for government.

Key words: independent environmental R&D, environmental R&D cartel, product differentiation, environ- mental regulation, game model