Costs assessments of European environmental policies

The evolution of energy production in the European Union (EU) is going through a big change in recent years: the incidence of traditional fuels is diminishing gradually for increasing renewable energy sources (RES), due to international concerns over climate change and for energy security reasons. The aim of this paper is to construct a simulation model that identifies and estimates costs that may arise for a community of negotiating countries from opportunistic behavior of some country when defining environmental policies. In this paper, the model is applied specifically to the new 2030 Framework for Climate and Energy Policies (COM(2014) 0015) (EC, 2014 [11]) on the promotion of RES that commits EU governments to a common goal to increase the share of RES in final consumption to 27% by 2030. Costs faced by EU countries to achieve the RES target are different due to their endowment heterogeneity, the availability of RES, the diffusion process of cost improvements and the different instruments to support the development of the RES technologies. Given the still undefined participation agreement to reach the new overall RES target by 2030, we want to assess the potential cost penalty induced by free riding behavior. This could stem from some EU country, which avoids complying with the RES Directive. Our policy simulation exercise shows that costs increase more than proportionally with the non-participating country size, measured with GDP and CO2 emissions. Furthermore, we provide a model to analytically assess the likelihood each EU country may have to behave opportunistically within the negotiation process of the new proposal on EU RES targets (COM(2014) 0015).