Welfare Implications of EU Effort Sharing Decision and Possible Impact of a Hard Brexit

In this paper, we evaluate the recent developments of European climate policy from the perspective of the 2050 European commitments with regards to GHG emissions reduction. We use a non-cooperative meta-game approach for assessing European burden-sharing issues. We analyze the European Effort Sharing Decision proposed in July 2016 and evaluate its cost per member states. We simulate several other policy options regarding this sharing decision with the aim to stress the main policy implications of the new proposal. Considering the Brexit referendum that took place June 23, 2016 in the United Kingdom, we analyze different possible scenarios of British participation in European climate policy. We show that Brexit could have a significant negative impact on the United Kingdom’s climate-policy cost and a relatively positive effect on the remaining twenty-seven EU member states.