The effects of climate change are starting to have an economic impact on developing economies. The heavy use of fossil fuels and the high investments costs required to utilize renewable energy sources in electricity generation exacerbates this problem by limiting entry of renewable energy sources. Unlike subsidies, implementing an optimal taxing policy on conventional energy sources can mitigate the competitive disadvantage of renewable source in terms without placing a steeper financial burden on the government. The main objective of this project is to determine an optimal taxing strategy that minimizes social costs due conventional energy sources and the optimal pricing strategies implemented by competing firms where the incumbent firm uses conventional energy sources and the entrant firm introduces renewable energy sources. The demands rates for both services does not only depend on the price levels but also on the consumers awareness of the environmental impacts due to conventional energy sources. This project shows that implementing an optimal taxing strategy raises the prices of fossil fuel energy therefore minimizing the pricing disadvantage that renewable energy utilities face. Using a three player Stackelberg differential game model where the policy maker is the leader and two competing utilities are the followers, an optimal pricing path and taxing policy are derived for the utility firms and the policy maker respectively.