Location of Repository

Two directives, two politics?: prospects for the EU ETS

By Andres J. Drew

Abstract

The allocation rules for phase one EU ETS emissions permits demonstrates that energy generators were lobbying winners because they successfully blocked differential treatment from energy intensive industries, who cannot pass-on real or nominal costs of permits to consumers. The application of public choice theory predicted free allocations to industry, but failed to anticipate windfall profits for energy generators. In phase three, the reverse is true; energy intensive industries successfully established differential rules. These rules provide them with free allocations while most energy generators will be subject to 100 per cent auctioning. Public choice theory also failed to predict these changes. This paper presents the argument that a shift in Wilson’s Typology from client to interest group politics explains this change in allocation rules. This dynamism in Wilson’s Typology is demonstrated by comparing the positions of industry associations representing energy generators and energy intensive industries with the two directives before and after consultations, which facilitates the identification of lobbying winners and losers. The EU ETS case study is fertile ground for testing regulatory theories that explain shifts away from clientelist policies and towards more optimal policy equilibriums. This paper provides both a theoretical framework and empirical evidence for how emissions trading policy can be improved, despite rent-seeking, once it clears the legislative hurdle

Topics: K Law (General)
Publisher: Department of Law, London School of Economics and Political Science
Year: 2010
OAI identifier: oai:eprints.lse.ac.uk:32896
Provided by: LSE Research Online

Suggested articles

Preview

Citations

  1. (General Interest) 129 Source: Adapted from Hood,
  2. (2004). 11/2010 20 also strengthened by the EII’s divisions in Tables Four and Five and the frequency of AEII press releases after Directive One was legislated (more than 10 were issued after
  3. (2009). 140 COP-15 coincided with the date for final list adoption of industries at risk of carbon leakage by the commission in
  4. (2009). 143 Resources For the Future, ‘A Side by Side Look at House and Senate Climate Bills’
  5. (2009). 143 Resources For the Future, ‘A Side-by-Side Look at House and Senate Climate Bills’
  6. (2009). 144 Commission interviews; Patashnik, n 55 above, ch 2;
  7. (2008). 2009/29 amending Directive 2003/87/EC so as to Improve and Extend the Greenhouse Gas Emission Allowance Trading Scheme of the Community [2009] OJ L140/63; Euractiv.com, ‘Mixed Reactions as Parliament Approves EU Climate Deal’
  8. (1998). 45 n 18 above; Falkner, ibid; A. Michaelowa ‘Climate Policy and Interest Groups A Public Choice Analysis’ doi
  9. (1998). 45 n 18 above; Falkner, ibid; A. Michaelowa ‘Climate Policy and Interest Groups-A Public Choice Analysis’ doi
  10. (2005). 59 Policy entrepreneurs are characterised as: well educated, understanding complex ideas, having high social status and opinion
  11. (2005). 59 Policy entrepreneurs are characterised as: well-educated, understanding complex ideas, having high social status and
  12. (1975). 65(1) The American Economic Review 139.
  13. (2008). 87 Commission interviews; EndsReport, ‘Compromise EU Climate Package Hurried Through Brussels Summit’
  14. (2008). 91 Industry interviews; Grabovsky, n 42 above, 351; J.D.C.D. Larragan, ‘Too Much Harmonisation? An Analysis of the Commission's Proposal to Amend the EU ETS from the Perspective of Legal Principles’ doi
  15. (2009). Adding to the findings of Markussen
  16. (2005). AEII,‘The Impact of EU Emission Trading Scheme (ETS) on Power Prices: Remedial Action Urgently Needed 10
  17. (2010). American Power Act. Discussion Draft. 111th Cong., 2nd sess.
  18. (2005). Anxiety Prevails as Windfall Benefits Power Companies’ (European Voice,
  19. (2006). Building a Global Carbon Market
  20. (2008). Business and Emissions Trading from a Public Choice Perspective Waiting for a New Paradigm to Emerge’ doi
  21. (2008). Business and Emissions Trading from a Public Choice Perspective-Waiting for a New Paradigm to Emerge’ doi
  22. (2009). Carbon Adjustment and Free Allowances: Responding to Competitiveness and Leakage Concerns
  23. (1995). Carbon Leakage from Unilateral Environmental Tax Reforms in Europe, doi
  24. (2007). Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (Cambridge: doi
  25. (2009). coincided with the date for final list adoption of industries at risk of carbon leakage by the commission in
  26. (2006). Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee for the Regions: Building a Global Carbon Market –Report Pursuant to doi
  27. (2006). Contribution to the EU Energy Strategic Review Urgent Measures are Required to Improve the Functioning of Electricity and Gas Markets: The Alliance of Energy Intensive Industries Proposes a Set of
  28. (2006). Contribution to the EU Energy Strategic Review Urgent Measures are Required to Improve the Functioning of Electricity and Gas Markets: The Alliance of Energy-Intensive Industries Proposes a Set of
  29. (2002). Controlling Global Warming: Perspectives from doi
  30. (1991). Counterfactuals and Hypothesis Testing in Political Science’ doi
  31. (2009). Drew Two Directives, Two Politics 37 APPENDIX THREE INTERVIEWS Industry Interview 1: Representative of the Bryman Partnership:
  32. (1989). Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders’ doi
  33. (2007). Economics, Report on Modelling the Macroeconomic Competitiveness Impacts of EU Climate Change Policy (London: Oxford Economics,
  34. (2010). Emission Trading System (EU ETS) Stakeholders' Contributions for the Review Process of the EU ETS (publication subject to agreement)’ (2007) at http://ec.europa.eu/environment/climat/emission/list_review.htm (last visited 20
  35. (2007). Emissions Trading and Business doi
  36. (2007). Emissions Trading and Business (New York: Physica-Verlag,
  37. (2000). EURELECTRIC carried out ET simulations in 1999 and
  38. (1994). Explaining Economic Policy Reversals (Buckingham:
  39. (2006). False Confidences: Forecasting Errors and Emission Caps in CO2 Trading Systems’ doi
  40. (2007). Freeze: How Business has Shaped the Global Warming Debate in Congress’
  41. (2010). Getting a Deal on Climate Change: Obama’s Flexible Multilateralism’
  42. (2009). Green with Envy: The Tension Between Free Trade and Capping Emissions’
  43. (2002). Greenhouse Gas Emissions Trading in Europe: Conditions for Environmental Credibility and Economic Efficiency’ (Task Force Report no 43, Brussels: Center for European Policy Studies,
  44. (2000). Greenhouse Gas Emissions Trading Within the European Union’
  45. (1998). Impact of Interest Groups on EU Climate Policy’ doi
  46. (1969). Information and Efficiency: Another Viewpoint’ doi
  47. (2008). Innovation Processes in Governance: The Development of ‘Emissions Trading’ as a New Policy Instrument’ doi
  48. (2004). Intensive Industries Call Upon EU Decision Makers to Pay More Attention to the Impact of Emissions Trading
  49. (2004). Intensive Industries Call Upon EU Decision-Makers to Pay More Attention to the Impact of
  50. (2005). Intensive Industries Reject the Inclusion of Aviation in the Emission Trading Scheme’
  51. (2009). Interaction Between EU Carbon Trading and the International Climate Regime: Synergies and Learning’ doi
  52. (1991). Interest Groups and Political Time: Cycles in America’ doi
  53. (2009). Interview 2: Official at Directorate B - Industrial Policy and Economic Reform: Directorate-General for Enterprise and Industry,
  54. (2009). Interview 2: Official at Directorate B Industrial Policy and Economic Reform: Directorate General for Enterprise and Industry,
  55. (2009). Interview 2: Representative of the Environmental Analyst Team,
  56. (2009). Interview 3: Executive at doi
  57. (2009). Interview 3: Official at Unit for market based instruments including Greenhouse gas emissions trading: Directorate General for the Environment,
  58. (2009). Interview 3: Official at Unit for market based instruments including Greenhouse gas emissions trading: Directorate-General for the Environment,
  59. (2009). Interview 4: Official at Unit A1 Economic Analysis, Impact Assessment, Evaluation and Climate Change: Directorate General Energy and Transport,
  60. (2009). Interview 4: Representative for Strategy and Sustainable Development,
  61. (2009). Interview 5: Representative of EEF: the Manufacturers' Organisation,
  62. (2008). Issues Behind Competitiveness and Carbon Leakage: Focus on Heavy Industry’ (IEA Information Paper, Paris: International Energy Association,
  63. (2008). Joskow ‘The European Union's Emissions Trading System in Perspective’
  64. (1982). Legislation and Liberty : A New Statement of the Liberal Principles of Justice and Political Economy (London: Routledge & Kegan Paul, doi
  65. (2008). Messages on the Emissions Trading Scheme Review’
  66. (2005). n 2 above 272; R.N. Stavins, ‘Implications of the US Experience with Market Based Environment Strategies for Future Climate Policy’ doi
  67. (2005). n 2 above 272; R.N. Stavins, ‘Implications of the US Experience with Market-Based Environment Strategies for Future Climate Policy’ doi
  68. (1985). n 25 above, 130;
  69. (2007). n 5 above, 316; Business and Enterprise Committee, ‘Energy Prices, Fuel Poverty and Ofgem’ HC
  70. (2010). n 5 above, 316; Business and Enterprise Committee, ‘Energy Prices, Fuel Poverty and Ofgem’ HC (2007-08) 293-I, at http://www.publications.parliament.uk/pa/cm200708/cmselect/cmberr/293/293i.pdf (last visited 20
  71. (2008). Paper of the Alliance of Energy Intensive Industries on “Further Guidance on Allocation Plans for
  72. (2008). Position of Energy Intensive Industries Alliance and the Alliance for a Competitive Industry for the
  73. (2008). Position of Energy Intensive Industries Alliance and the Alliance for a Competitive Industry for the EU
  74. (2010). Position paper on Benchmarking and Allocation Rules
  75. (1993). Preferences and Power in the European Community: A Liberal Intergovernmentalist Approach’ doi
  76. (2007). Production is No Benefit for the Environment,
  77. (2008). Proposal for a Directive of the European Parliament and of the Council Amending Directive 2003/87/EC so as to doi
  78. (2001). Proposal for a Directive of the European Parliament and of the Council Establishing a Scheme for Greenhouse Gas Emission Allowance Trading doi
  79. (1998). Public Choice and Environmental Regulation: Tradable Permit Systems in the United States and CO2 Taxation in Europe (Cheltenham: Edward Elgar,
  80. (2010). Pursuant to Directive 2003/87/EC of the European Parliament and of the Council, a List of Sectors and Subsectors Which are Deemed to be Exposed to a Significant Risk of Carbon Leakage’ (Decision)
  81. (2008). Reforms at Risk: What Happens After Major Policy Changes are Enacted (Princeton: doi
  82. (2008). Regulation Lite: The Rise of Emissions Trading’ doi
  83. (2006). Regulatory Capture: A Review’ doi
  84. (2007). Saving Government Failure Theory from Itself: Recasting Political Economy from an Austrian perspective’ doi
  85. (2004). Statement: Power Intensive Industries Object to Windfall Profits from
  86. (2010). Taxes’ (London: Policy Exchange,
  87. (2009). The Australian Senate voted down the CPRS Bill on December 2,
  88. (1989). The Economic Theory of Regulation after a Decade of Deregulation’ (Brookings Papers on Economic Activity, doi
  89. (2009). The Economics and Politics of Climate Change (Oxford: doi
  90. (2005). The ETS is the cornerstone of EU climate policy. Launched in 2005, it is the first cross border greenhouse gas emissions (GHG) trading scheme and regulates more than 11,500 installations or about 45 per cent of total
  91. (2005). The ETS is the cornerstone of EU climate policy. Launched in 2005, it is the first cross-border greenhouse gas emissions (GHG) trading scheme and regulates more than 11,500 installations or about 45 per cent of total
  92. (2003). The EU as Frontrunner on Greenhouse Gas Emissions Trading: How Did it Happen and Will the EU Succeed?’ doi
  93. (2010). The Logic of Collective Action and Australia’s Climate Policy’ doi
  94. (1965). The Logic of Collective Action: Public Goods and the Theory of Groups (Oxford: doi
  95. (2000). The Political Economy of International Emissions Trading Choice: Empirical Evidence’ doi
  96. (2000). The Political Economy of International Emissions Trading Choice: Empirical Evidence’ (Discussion Paper 00-19, doi
  97. (1998). The Political Economy of Market Based Environmental Policy: The U.S. Acid Rain Program’ doi
  98. (1998). The Political Economy of Market-Based Environmental Policy: The U.S. Acid Rain Program’ doi
  99. (1985). The Politics of Deregulation doi
  100. (1980). The Politics of Regulation (New York: Basic Books,
  101. (2007). The Power of Institutions State and Interest Group Activity in the European Union’ (2004) 5(4) European Union Politics 441, 443; doi
  102. (1994). The Rise of the Regulatory State in Europe’ doi
  103. (2008). The Role of Auctions in Emissions Trading’ (Climate Strategies Working Paper, Cambridge, UK: Climate Strategies,
  104. (2009). The Waxman Markey Bill was passed by the American House of Representatives on
  105. (2009). The Waxman-Markey Bill was passed by the American House of Representatives on
  106. (2008). to Commissioners for
  107. (2007). Trust, EU ETS Impacts on Profitability and Trade: A Sector by Sector Analysis (London: Carbon Trust,
  108. (1999). Understanding Regulation: Theory, Strategy, and Practice (Oxford:
  109. (2008). Watering Down the EU’s Climate Policies a Multi Pronged Corporate Attack’
  110. (2008). Watering Down the EU’s Climate Policies a Multi-Pronged Corporate Attack’
  111. (1981). What Price Incentives? Economists and the Environment doi
  112. (2008). Wilson’s Typology is a political rather than economic explanation for regulation. It complements public choice theory by providing a profile for successful rent 43 Heinzerling, n 5 above; Joskow and Schamalensee, n 5 above;

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.