According to the European Climate and Energy package Latvia together with other European Union Member states has to decrease the share of renewable energy sources in the final gross energy consumption, to increase energy efficiency and to reduce the greenhouse gas emissions by 2020. Although today Latvia has the second highest share of renewable energy sources in the final energy consumption among all Member states and has a relatively comfortable situation to meet its Kyoto reduction target as the economy has declined considerably in the beginning of 90ies, the 2020 targets set for Latvia are ambitious and reaching them will be possible only if sustainable, well-considered long-term energy and environmental policy are implemented. The main objective of this research is to create preconditions for development of “green energy” region by using regional planning policy instruments in order to reach objectives of Latvian energy policy in the framework of the European Union. In order to select appropriate policy measures, two methodologies have been assessed and developed by the author: 1) System dynamics simulation model for assessment and forecasting the use of primary energy sources in district heating sector in Latvia. The objective of the model is to represent the structure of the Latvian district heating system and to look for alternatives (three different policy instruments) that could lead Latvia to the implementation of its renewable energy policy goals by focusing on energy efficiency improvement and the use of renewable energy sources, and by replacing currently widely-used natural gas installations with wood fuel installations. 2) Optimization model for reduction of CO2 emissions in the region in order to find such a permissible level of CO2 emissions and environmental tax in the region that is possible to reach with minimal overall costs and maximal income from avoided tax payments. The model has been tested on two different Latvian regions – former Limbaži and Ogre districts by using data of concrete combustion installations located in the regions. This research study has different target groups, among all: the Latvian state and local governments, energy utilities, district heating companies, investors and scientists.