Regional coordination of European environmental policies

Over the last years the European Union (EU) has implemented ambitious climate and energy targets for 2020, i.e. the 2020 Climate and Energy Package (Package), to become a highly efficient, low carbon economy. The Package assigns binding renewable energy sources (RES) target for each EU member countries. Indeed costs to reach Package's targets vary among EU countries, given heterogeneity among regions and different instruments implemented to spur RES deployment. The aim of our paper is to provide a policy tool for EU policy makers in the negotiation process that assigns achievable quantitative targets according to which countries are not inclined to deviate from the agreement.We compute potential extra costs that may arise when some EU countries fail to reach the assigned objective within the Package with reference to RES target. More generally, our simulation model is an instrument that allows EU policy makers to assess incentives that countries might have to participate or not to the environmental agreements. Our analysis shows that partial participation to the Package produces inefficiencies by rising costs for other participating countries to the environmental agreement. Finally, we propose a new policy mechanism based on progressive sanctions for countries that do not meet their national targets, which are proportional to the monetary value of the penalty they impose to the rest of the EU countries with their opportunistic behavior.