Lobbying for carbon permits in Europe

• Published in: Recherches économiques de Louvain Vol. 80; no. 1; pp. 61 - 87
• Main Author: Hanoteau, Julien
• Format: Journal Article
• Language: English
• Published: De Boeck Université 01-01-2014
• Subjects: Allocation of power; Carbon emissions; Economics and Finance; Emissions trading; Europe; Humanities and Social Sciences; Lobbying; Political behaviour; Political power; Rule-making power; emissions trading; Lobbying; permits allocation
• ISSN: 0770-4518; 1782-1495
• DOI: 10.3917/rel.801.0061

Using cross-sector and cross-country data, this paper evidences that rent seeking influenced the allocation of CO2 emission permits in the two first phases of the European emissions trading scheme. Industry lobbies effectively used the 'job loss' and 'competitiveness' arguments, as unemployment proxy variables significantly impacted the allocation in both phases, and carbon intensity influenced it in the second phase. The countries that adopted a partial auction scheme also gave relatively more permits and in particular to the politically more powerful sectors. This suggests a compensation mechanism and supports the assumption of a political tradeoff between the quantity of permits issued and the decision between free grant and auction. It also confirms that the initial allocation is not neutral in the presence of special interest lobbying. Reproduced by permission of Bibliothèque de Sciences Po