Regulators have been concerned with the impact of environmental regulation on the profitability of regulated firms: there have been numerous grants and subsidy programs to reduce the cost of emission control equipment. Intuitively, there should be a monotonically increasing relationship between profits and the amount of subsidization. However, we show that this may not be so since regulation may establish a collusive outcome amongst oligopolistic competitors. The role of the subsidization policy may then be seen as the following: given Cournot players, the regulator may subsidize the emission control device to prevent the industry from reaching a profit superior outcome.