Allocation, allocation, allocation! The political economy of the development of the European Union Emissions Trading System

Misato Sato, Ryan Rafaty, Raphael Calel and Michael Grubb

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The European Union's pioneering carbon Emissions Trading System, the EU ETS, has inspired countries around the world to launch their own CO 2 markets. This paper analyses the evolution of the EU ETS from a political economy perspective, emphasizing the interaction of economic principles and political interests at pivotal moments, and showing how each compromise changed the scope for future design choices. We focus on the allowance allocation issue, which provides a window into the complex tug-of-war between economic efficiency and the politics of distribution. Our account highlights the dynamic nature of CO 2 market reform, and provides lessons that can help inform the design of more stable and effective CO 2 markets in the future. This article is categorized under: Climate Economics > Economics of Mitigation The Carbon Economy and Climate Mitigation > Policies, Instruments, Lifestyles, Behavior.

Keywords: allowance allocation; carbon pricing; emissions trading; EU ETS; industry lobby; political economy; ES/N016971/1; ES/R009708/1; Grant recipient(s): MISATO SATO); Horizon 2020 Framework Programme (GrantNumber(s): GEMCLIME-2020 GA number 681228; Grant recipient(s): MISATO SATO) (search for similar items in EconPapers)
JEL-codes: J1 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2022-09-01
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published in Wiley Interdisciplinary Reviews: Climate Change, 1, September, 2022, 13(5). ISSN: 1757-7780

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