(1) Overview

There is now overwhelming evidence that global warming takes place and human activities at least partially contributes to global warming, see IPCC (2001). Accordingly, there is currently great interest in analysing optimal public policies for climate change mitigation, both price-based and quantity-based instruments, see Sandmo (2004) for an overview. Further, Stern (2007), chapter 16, argues that research and development must play an important role for making emission reductions as economical as possible. Accordingly, the set of policies applied must give firms economic incentives to reduce emissions by investing in research and development. IPCC (2001), chapters 3 and 9, also notes that among the industries polluting the most are the energy industry, the transportation industries and the manufacturing industries. The current paper argues that (at least) three aspects related to these industries are important for analysing potential for emission reductions. First, these industries are best described as oligopolistic, either on a world-wide basis or nationally. Second, firms in these industries are in many instance private entities, or regulated according to economic principles. Third, these industries are also characterised by having several sectors i