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Public Interest vs. Interest Groups: Allowance Allocation in the EU Emissions Trading Scheme

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  • Anger, Niels
  • Böhringer, Christoph
  • Oberndorfer, Ulrich

Abstract

This paper presents a political-economy analysis of allowance allocation in the EU Emissions Trading Scheme (EU ETS). A common-agency model suggests that a politicalsupport maximizing government considers the preferences of sectoral interest groups besides public interest when allocating emissions permits. In the stylized model, industries represented by more powerful lobby groups face a lower regulatory burden, which for sufficiently high lobbying power leads to an inefficient emissions regulation. An empirical analysis of the first trading phase of the EU ETS corroborates our theoretical prediction for a cross-section of German firms, but also shows that the political-economy determinants of permit allocation depend on firm characteristics. We find that large carbon emitters that were heavily exposed to emissions regulation and simultaneously represented by powerful interest groups received higher levels of emissions allowances. In contrast, industrial lobbying power stand-alone or threats of potential worker layoffs did not exert a significant influence on the EU ETS allocation process. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 08-023.

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Date of creation: 2008
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Handle: RePEc:zbw:zewdip:7295

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Keywords: Emissions trading; interest groups; regression analysis;

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References

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  1. Oates, Wallace E. & Portney, Paul R., 2003. "The political economy of environmental policy," Handbook of Environmental Economics, Elsevier, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 8, pages 325-354 Elsevier.
  2. Anger, Niels & Oberndorfer, Ulrich, 2008. "Firm performance and employment in the EU emissions trading scheme: An empirical assessment for Germany," Energy Policy, Elsevier, Elsevier, vol. 36(1), pages 12-22, January.
  3. Eric Nævdal & Richard Brazee, 2000. "A Guide to Extracting Information from Environmental Pressure Groups," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 16(1), pages 105-119, May.
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  5. Fredriksson, Per G., 1997. "The Political Economy of Pollution Taxes in a Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 44-58, May.
  6. Christoph Böhringer & Andreas Lange, 2005. "Economic Implications of Alternative Allocation Schemes for Emission Allowances," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 107(3), pages 563-581, 09.
  7. Löschel, Andreas & Lange, Andreas & Hoffmann, Tim & Böhringer, Christoph & Moslener, Ulf, 2004. "Assessing Emission Allocation in Europe: An Interactive Simulation Approach," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 04-40, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Peter Cramton & Suzi Kerr, 2002. "Tradeable Carbon Permit Auctions: How and Why to Auction Not Grandfather," Papers of Peter Cramton 02eptc, University of Maryland, Department of Economics - Peter Cramton, revised 06 May 2002.
  9. A. Ellerman & Barbara Buchner, 2008. "Over-Allocation or Abatement? A Preliminary Analysis of the EU ETS Based on the 2005–06 Emissions Data," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 41(2), pages 267-287, October.
  10. Sonja Peterson, 2006. "Efficient Abatement in Separated Carbon Markets: A Theoretical and Quantitative Analysis of the EU Emissions Trading Scheme," Kiel Working Papers 1271, Kiel Institute for the World Economy.
  11. Gebhard Kirchgässner & Friedrich Schneider, 2002. "On the Political Economy of Environmental Policy," CESifo Working Paper Series 741, CESifo Group Munich.
  12. Julien A. Hanoteau, 2003. "Lobbying for Emissions Allowances: A New Perspective on the Political Economy of the US Acid Rain Program," Rivista di Politica Economica, SIPI Spa, SIPI Spa, vol. 93(1), pages 289-314, January-F.
  13. Dijkstra, Bouwe R., 1998. "A two-stage rent-seeking contest for instrument choice and revenue division, applied to environmental policy," European Journal of Political Economy, Elsevier, vol. 14(2), pages 281-301, May.
  14. Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, Elsevier, vol. 69(1), pages 1-16, July.
  15. Anger, Niels & Böhringer, Christoph & Lange, Andreas, 2006. "Differentiation of Green Taxes: A Political-Economy Analysis for Germany," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 06-03, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Citations

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Cited by:
  1. Böhringer, Christoph & Rosendahl, Knut Einar, 2009. "Strategic partitioning of emission allowances under the EU Emission Trading Scheme," Resource and Energy Economics, Elsevier, Elsevier, vol. 31(3), pages 182-197, August.
  2. Strunz, Sebastian & Gawel, Erik & Lehmann, Paul, 2014. "Towards a general "Europeanization" of EU Member States' energy policies?," UFZ Discussion Papers 17/2014, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
  3. Mizrach, Bruce, 2012. "Integration of the global carbon markets," Energy Economics, Elsevier, Elsevier, vol. 34(1), pages 335-349.

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