The Political Economy of Climate Change Policy in the EU: Auction and Grandfathering
AbstractBased on the political support function model by Hillman (1982), we consider the choice of policy instruments in environmental regulation. More specifically, we extend the Hillman model so that it can incorporate the connection between the relative strength of lobby groups, the chosen level of regulation and the choice of instrument to facilitate the achievement of this level. We apply this model to explain the shift from auction to grandfathered emission trading in the EU. When explaining this shift in policy, we focus on climate change policy and the three main interest groups, namely industry, consumers and environ-mentalists. From a pure economic point of view, taxation or auctions are clearly preferable to grandfathering. However, from our political economy model, the opposite conclusion might emerge, suggesting the counter-intuitive result that grandfathering, compared to taxation and auction, might give a stronger pres-sure to increase the emission target level.
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Bibliographic InfoPaper provided by University of Southern Denmark, Department of Environmental and Business Economics in its series Working Papers with number 51/03.
Length: 38 pages
Date of creation: Nov 2003
Date of revision:
Political support function; political economy; environmental regula-tion; lobbyism; rent-seeking; taxation; auction; grandfathering; emission trad-ing; European Union; interest groups; industry; consumers; environmentalists;
Find related papers by JEL classification:
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H4 - Public Economics - - Publicly Provided Goods
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