December 19, 2010

New Rules, New Politics, Same Actors: Explaining Policy Change in the EU ETS

by Andrés 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. 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.

Drew, A.J. (2010). "New Rules, New Politics, Same Actors: Explaining Policy Change in the EU ETS." Grantham Research Institute on Climate Change and the Environment Working Paper No. 29, Oct 2010.