Promoting renewables and discouraging fossil energy consumption in the European Union

The European Union (EU) identified some positive and negative externalities related to energy production and consumption when adopting its Renewable Energy and Climate Change Package. Given these externalities, Cathrine Hagem derives in a new Discussion Paper the optimal combination of policy instruments. Thereafter, she explores the second-best outcome, given constraints on the use of some policy instruments, due to political considerations and international regulations.