<p>This paper evaluates emission taxes, absolute standards, and tradable emissions policies in vertically related markets with downstream pollution. Using a three-stage game, we explore the impact of these three policies on economic and environmental outcomes when downstream firms engage in cross-ownership. The paper finds that (i) when downstream firms enhance their output coordination by increasing their equity share with each other, the environmental quality increases regardless of the government’s chosen policy. (ii) Emission taxes reduce the input price and increase industry output. (iii) Under emission taxes, Downstream firms’ profit is relatively higher, whereas upstream firms’ profit is relatively lower. (iv) Emission taxes result in greater consumer and society benefits than absolute standards and tradable emissions. The latter two environmental regulations yield equivalent economic and environmental outcomes. (v) Environmental damage is relatively lower under both absolute standards and tradable emissions. Our study shows that while emission taxes provide greater benefits to consumers and downstream firms by fostering abatement, increasing output, and enhancing welfare, absolute standards and tradable emissions are equally effective in reducing environmental damage while ensuring higher upstream profits. Our results have welfare implications for the choice of environmental policies between taxes, standards, and permits in vertical markets with downstream cross-ownership.</p>