This letter presents a methodology for an integrated energy–air quality model in a cost and impact trade-off framework, applicable at the regional scale. ETEM (the Energy Technology Environmental Model) minimizes the energy cost at a given level of sectoral emissions. An efficient, reduced-order Eulerian air quality model (TAPOM-Lite) simulates some consecutive days where the meteorological conditions are favorable to the occurrence of an ozone episode. A health impact function has been developed to perform the feedback from ozone concentrations to the energy cost. The decomposition optimization problem is solved using an Oracle-based technique. We report on an implementation for the Grand Duchy of Luxembourg, varying the parameters of the impact function.