This paper develops a short-run microeconomic simulation model of the Dutch glasshouse industry in order to investigate the relation between technical efficiency and marginal abatement costs of C02 emission. The model is also used to determine the effects of an emission tax and systems of tradable and non-tradable quota for groups of firms with different rates of technical efficiency. The results show that marginal abatement costs are very responsive to changes in technical efficiency. Furthermore, it is found that firms with a low technical efficiency are faced with a higher profit reduction under different abatement policies than firms with a high technical efficiency. © 2002 Elsevier Science B.V. All rights reserved.