Skip to main content
Article thumbnail
Location of Repository

New rules, new politics, same actors – explaining policy change in the EU ETS

By Andres J. Drew


The allocation rules for phase one EU ETS emissions permits demonstrates that energy generators were lobbying winners because they successfully blocked differential treatment (rules) from energy intensive industries, who cannot pass-on real or nominal costs of permits to consumers. As a result, these generators benefited from windfall profits. In phase three, the reverse is true; energy intensive industries successfully established differential rules. These rules will provide energy intensive industries with free allocations while most generators will be subject to 100 per cent auctioning, thus removing the windfall profit mechanism for generators. Literature applying public choice theory to this case study predicted free permit allocations but not windfall profits for generators nor the change in allocation rules in phase three. This paper presents the argument that a shift in Wilson’s Typology from client to interest group politics best explains these changes and provides a good framework for other jurisdictions considering emissions trading reforms. 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 with high levels of rent-seeking 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: GE Environmental Sciences, JZ International relations
Publisher: Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment
Year: 2010
OAI identifier:
Provided by: LSE Research Online

Suggested articles


  1. (2009). 143 Resources For the Future, ‘A Side by Side Look at House and Senate Climate Bills’
  2. (2009). 144 Commission interviews; Patashnik, n 55 above, ch 2;
  3. (1998). 45 n 18 above; Falkner, ibid; A. Michaelowa ‘Climate Policy and Interest Groups A Public Choice Analysis’ doi
  4. (2005). 59 Policy entrepreneurs are characterised as: well educated, understanding complex ideas, having high social status and opinion
  5. (1975). 65(1) The American Economic Review 139.
  6. 74 Parliament and Council Directive (EC) 2009/29 amending Directive 2003/87/EC so as to Improve and Extend the Greenhouse Gas Emission Allowance Trading doi
  7. (2009). 81 All interviews; Gullberg, n 58 above; Wettestad, n 5 above; EndsReport ‘Trading Down to a Low Carbon Economy’
  8. (2008). 91 Industry interviews; Grabovsky, n 42 above, 351;
  9. (2010). Adding to the findings of Markussen
  10. (2005). AEII,‘The Impact of EU Emission Trading Scheme (ETS) on Power Prices: Remedial Action Urgently Needed 10 Months After Start of ETS’
  11. (2010). American Power Act. Discussion Draft. 111th Cong., 2nd sess.
  12. (2000). Answers to Green Paper from National Governments, Business, Business Associations and NGOs’
  13. (2006). Building a Global Carbon Market
  14. (2008). Business and Emissions Trading from a Public Choice Perspective Waiting for a New Paradigm to Emerge’ doi
  15. (2009). Carbon Adjustment and Free Allowances: Responding to Competitiveness and Leakage Concerns
  16. (1995). Carbon Leakage from Unilateral Environmental Tax Reforms in Europe, doi
  17. (2007). Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (Cambridge: doi
  18. (2009). coincided with the date for final list adoption of industries at risk of carbon leakage by the commission in
  19. (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
  20. (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
  21. (2002). Controlling Global Warming: Perspectives from Economics, Game Theory, and Public Choice (Cheltenham: Edward Elgar, doi
  22. (1991). Counterfactuals and Hypothesis Testing in Political Science’ doi
  23. (1989). Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders’ doi
  24. (2007). Economics, Report on Modelling the Macroeconomic Competitiveness Impacts of EU Climate Change Policy (London: Oxford Economics,
  25. (2010). Emission Trading System (EU ETS) Stakeholders' Contributions for the Review Process of the EU ETS (publication subject to agreement)’ (2007) at (last visited 20
  26. (2007). Emissions Trading and Business doi
  27. (1994). Explaining Economic Policy Reversals (Buckingham:
  28. False Confidences: Forecasting Errors and Emission Caps doi
  29. (2007). Freeze: How Business has Shaped the Global Warming Debate in Congress’
  30. (2010). Getting a Deal on Climate Change: Obama’s Flexible Multilateralism’
  31. Government failure, rent seeking, and capture: the design of climate change policy’ (2010) 26(2) Oxford Review of Economic Policy doi
  32. (2000). Green Paper Consultation (2000)75 Commission Directive One
  33. (2009). Green with Envy: The Tension Between Free Trade and Capping Emissions’
  34. (2002). Greenhouse Gas Emissions Trading in Europe: Conditions for Environmental Credibility and Economic Efficiency’ (Task Force Report no 43, Brussels: Centre for European Policy Studies,
  35. (2000). Greenhouse Gas Emissions Trading Within the European Union’
  36. (1998). Impact of Interest Groups on EU Climate Policy’ doi
  37. (1969). Information and Efficiency: Another Viewpoint’ doi
  38. (2008). Innovation Processes in Governance: The Development of ‘Emissions Trading’ as a New Policy Instrument’ doi
  39. (2004). Intensive Industries Call Upon EU Decision Makers to Pay More Attention to the Impact of Emissions Trading
  40. (2005). Intensive Industries Reject the Inclusion of Aviation in the Emission Trading Scheme’
  41. (2009). Interaction Between EU Carbon Trading and the International Climate Regime: Synergies and Learning’ doi
  42. (1991). Interest Groups and Political Time: Cycles in America’ doi
  43. (2009). Interview 2: Official at Directorate B Industrial Policy and Economic Reform: Directorate General for Enterprise and Industry,
  44. (2009). Interview 2: Representative of the Environmental Analyst Team,
  45. (2009). Interview 3: Executive at doi
  46. (2009). Interview 3: Official at Unit for market based instruments including Greenhouse gas emissions trading: Directorate General for the Environment,
  47. (2009). Interview 4: Official at Unit A1 Economic Analysis, Impact Assessment, Evaluation and Climate Change: Directorate General Energy and Transport,
  48. (2009). Interview 4: Representative for Strategy and Sustainable Development,
  49. (2009). Interview 5: Representative of EEF: the Manufacturers' Organisation,
  50. (2009). INTERVIEWS Industry Interview 1: Representative of the Bryman Partnership:
  51. (2008). Issues Behind Competitiveness and Carbon Leakage: Focus on Heavy Industry’ (IEA Information Paper, Paris: International Energy Association,
  52. (1982). Legislation and Liberty : A New Statement of the Liberal Principles of Justice and Political Economy (London: Routledge & Kegan Paul, doi
  53. (2008). Messages on the Emissions Trading Scheme Review’
  54. (2005). n 2 above 272; R.N. Stavins, ‘Implications of the US Experience with Market Based Environment Strategies for Future Climate Policy’ doi
  55. (1985). n 25 above, 130;
  56. (2008). n 5 above; Joskow and Schamalensee, n 5 above;
  57. (2008). Paper of the Alliance of Energy Intensive Industries on “Further Guidance on Allocation Plans for
  58. (2008). Position of Energy Intensive Industries Alliance and the Alliance for a Competitive Industry for the
  59. (2010). Position paper on Benchmarking and Allocation Rules
  60. (1993). Preferences and Power in the European Community: A Liberal Intergovernmentalist Approach’ doi
  61. (2007). Production is No Benefit for the Environment,
  62. (2008). Proposal for a Directive of the European Parliament and of the Council Amending Directive 2003/87/EC so as to doi
  63. (2001). Proposal for a Directive of the European Parliament and of the Council Establishing a Scheme for Greenhouse Gas Emission Allowance Trading doi
  64. (1998). Public Choice and Environmental Regulation: Tradable Permit Systems in the United States and CO2 Taxation in Europe (Cheltenham: Edward Elgar,
  65. (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)
  66. (2008). Question and Answers on the Commission's Proposal to Revise the EU Emissions Trading Scheme’ (Memorandum) MEMO/08/35,
  67. (2008). Reforms at Risk: What Happens After Major Policy Changes are Enacted (Princeton: doi
  68. (2008). Regulation Lite: The Rise of Emissions Trading’ doi
  69. (2006). Regulatory Capture: A Review’ doi
  70. (2007). Saving Government Failure Theory from Itself: Recasting Political Economy from an Austrian perspective’ doi
  71. (2004). Statement: Power Intensive Industries Object to Windfall Profits from
  72. (2009). The Australian Senate voted down the CPRS Bill on December 2,
  73. (1962). The Calculus of Consent : Logical Foundations of Constitutional Democracy (Ann Arbor: doi
  74. (2010). The Case for Carbon Taxes’ in S. Less (ed) Greener, Cheaper (London: Policy Exchange,
  75. (1989). The Economic Theory of Regulation after a Decade of Deregulation’ (Brookings Papers on Economic Activity, doi
  76. (2009). The Economics and Politics of Climate Change (Oxford: doi
  77. (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
  78. (2003). The EU as Frontrunner on Greenhouse Gas Emissions Trading: How Did it Happen and Will the EU Succeed?’ doi
  79. (2008). The European Union's Emissions Trading System in Perspective’
  80. (2010). The Logic of Collective Action and Australia’s Climate Policy’ doi
  81. (2000). The Political Economy of International Emissions Trading Choice: Empirical Evidence’ doi
  82. (1998). The Political Economy of Market Based Environmental Policy: The U.S. Acid Rain Program’ doi
  83. (1985). The Politics of Deregulation doi
  84. (1980). The Politics of Regulation (New York: Basic Books,
  85. (2004). The Power of Institutions State and Interest Group Activity in the European Union’ doi
  86. (1994). The Rise of the Regulatory State in Europe’ doi
  87. (2008). The Role of Auctions in Emissions Trading’ (Climate Strategies Working Paper, Cambridge, UK: Climate Strategies,
  88. (2009). The Waxman Markey Bill was passed by the American House of Representatives on
  89. (2008). to Commissioners for
  90. (2007). Trust, EU ETS Impacts on Profitability and Trade: A Sector by Sector Analysis (London: Carbon Trust,
  91. (1999). Understanding Regulation: Theory, Strategy, and Practice (Oxford:
  92. (2008). Watering Down the EU’s Climate Policies a Multi Pronged Corporate Attack’
  93. (1981). What Price Incentives? Economists and the Environment doi

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