Consumers are represented by a single average consumer whose utility in every period depends on their consumption of leisure and 26 different consumer goods. The representative consumer determines consumption of leisure and the different goods so that welfare is maximised, defined as the present value of utility defines welfare in the economy. Consumer goods are specified at a detailed level with a view to capture important substitution possibilities. Energy goods transport fuel, heating oil and electricity are specified and different polluting and environmentally friendly forms of transport can replace own car use. Own car use can also avoid climate emissions by investing in new vehicle types with alternative technologies. The modelling of these choices is explained in the next section. Households can borrow from and save in the international finance markets where they, by assumption, face a given interest rate, reflecting that the economy is small and open. Financial savings are endogenously determined, subject to a non-ponzi game restriction that prevents foreign net wealth from exploding in the long run.
