Subsidizing R&D and installment of carbon abatement in open economies

The European Union and Norway have both proposed tougher unilateral emission reduction targets than what is required by the Kyoto protocol. According to some setting tough unilateral targets will lead to faster technological development, which again will influence other countries willingness to participate in emission reductions. Moreover, it is often argued that going ahead with tough emission target leads to industrial development. However, the emission reduction target proposals are vague about the pol icy measures which will be required. In this research project we will study different policy options that all aim to influence the speed of technological development and diffusion of climate friendly technologies. Our emphasis is on the relationship betwe en climate policy, national abatement costs and strategic industrial motives. In particular we ask: 1) What roles are the different zero-emission energy technologies likely to play in the future European energy market? and 2) Given that new zero-emission energy technologies both has export potential and may imply lower national abatement cost, how and to what extent should subsidies to technological development be used?