�exible mechanisms, and low industrial exposure to global competition,will increase environmental ambitiousness. The Linking Directive opened up forusing CDM already from the start of the EU ETS in 2005. In line with the ﬁrst partof this proposition, we expected that credits from CDM projects would be includedin the NAPs and would result in greater willingness to take on ambitious measures– in the next round meaning decreased incentives for measures in the speciﬁc EUarea. Hence, we assumed that an important explanation of implementation wouldbe found at international level, particularly in the climate regime and the ﬂexiblemechanisms of the Kyoto Protocol.However, the EU states did not use CDM credits for compliance purposes forthe 2005–07 pilot phase – partly because of low availability related to low capacityof the CDM Executive Board, partly because they did not have incentives to ‘useup’ such credits before the 2008–12 Kyoto commitment period. Moreover, a formallink was lacking, as the global allowance registry had not started functioning yet. Inthe second phase, however, the planned substantial use of CDM has already showntendencies to inﬂuence ambition-levels in the way we expect, seen for instance inthe case of Germany. Furthermore, this planned increase may call into question thelevel of abatement to be expected within the EU itself. The Commission has thusimposed restrictions on the use of JI and CDM credits and a number of NAPs haveso far been adjusted on this basis. This means that the ﬂexible mechanisms under theclimate regime is about to become a signiﬁcant factor for understanding the overalllevel of ambitiousness and not least the EU-internal incentive effects ﬂowing fromthe ETS.We also explored the impact of exposure to international competition onambitiousness. Since the relevant industries included in the EU ETS (except forsteel) are not signiﬁcantly exposed to global competition, taking into account suchcompetition is not likely to increase our understanding of ambitiousness very much.However, industrial opposition can still shed light on the problems of achievingscarcity in the market. Industry in the UK, Germany, Spain and Poland lobbied tomaximize their allocations under the EU ETS. As these countries represent differentregions of the EU, similar lobby activities probably also took place in most of thethen 21 other EU countries.Analytical ImplicationsOur ﬁrst observation is that the three explanatory perspectives have, as expected,had differing explanatory power in the different policy phases. The EUinstitutional perspective emerges as most important in the policy initiation phase.The European Commission acted as a truly entrepreneur in this phase, by initiatingthe EU ETS, build independent knowledge and craft support for the system. Therewould not have been any EU ETS, had it not been for the entrepreneurial role
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played by the Commission’s BEST group – at least not within the same shorttime-frame and in the same content and form. The second perspective, whichwas based on the interests and preferences of the member-states, proved mostimportant for explaining the outcome in the decision-making phase. The diversityof the positions of member-states led to a basically decentralized EU ETS thatprovided each member-state with signiﬁcant autonomy in the important processof allocating emission allowances to industry. The third perspective, based onthe international climate regime, proved valuable for understanding all threephases, by drawing our attention to the interaction between external and internalexplanatory factors. The EU ETS is unlikely to have been adopted without theKyoto Protocol.Where do these observations leave us with regard to the three explanatoryapproaches that formed the point of departure for the speciﬁc explanatory perspectivesthat have structured this study? As noted in Chapter 2, intergovernmentalism andmulti-level governance cannot be tested empirically in any strict sense, becausecentral claims are difﬁcult to operationalize. This study supports the complementarynature of these approaches, while also pointing up the need for a third approach,emphasizing the international institutional context. This ﬁnding may appearsomewhat surprising in light of the insigniﬁcant attention given to the internationalinstitutional context in the literature on EU (environmental) policy making. Thiscase shows that the climate regime has been crucially important for explainingoutcomes not only in the initiation phase, but also in the decision-making and theimplementation phases.The impact of the international climate regime is particularly interesting, as thistook place before the Kyoto Protocol formally entered into force and became legallybinding for the EU. It is reasonable to assume that the main reason can be found inthe ﬁrm EU expectation that the Kyoto Protocol would gain enough ratiﬁcationsto be able to enter into force. As international environmental agreements grow innumber and depth, the relationship between the EU and international regimes willprobably become increasingly important for understanding the development andimplementation of EU environmental policy.That said, however, it is clear that the EU ETS stands out as a prime exampleof multi-level governance that encompasses four identiﬁable levels of policycompetencies: (1) non-state actors in the form of private companies have beendesignated the role as the key operators within the system; (2) the member-statesallocate emission allowances, (3) EU institutions oversee the common legal emissionstrading framework; ﬁnally (4), the EU ETS is linked to the ﬂexible mechanisms atthe heart of the Kyoto Protocol.This study also gives support to the assumption that supranational institutions, asactors, have had an independent impact on the EU ETS that clearly surpasses theirrole as agents of national governments. Moreover, the EU as an institutional arenahas affected the outcome to the extent that the two biggest member-states were notable to control the collective outcome. Finally, the outcome would most likely havebeen different in the absence of non-state actor inﬂuence at EU level. Under qualiﬁedmajority, national arenas are not the sole channel for non-state actor inﬂuence at EUlevel and states do not ‘keep the gate’ between national and international politics. On
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the basis of strong industrial opposition, Germany generally opposed the EU ETS,but had to accept the system due to the qualiﬁed majority rule. Under unanimity,industrial pressure might well have motivated Germany to block the adoption of thedirective. Conversely, the chemical industry managed to stay out of the EU ETS atleast partly due to effective lobbying directly at EU level. This case illustrates theimportance of being sensitive also to non-state actor inﬂuence at the EU level.The second observation is related to the concept of leadership and theentrepreneurial role of the European Commission. This is particularly interesting inlight of Moravcsik’s critique of entrepreneurial leadership in the EU: ‘Why shouldgovernments, with millions of diverse and highly trained professional employees,massive information-gathering capacity, and long standing experience withinternational negotiations at their disposal, ever require the services of a handfulof supranational entrepreneurs to generate and disseminate useful information andideas?’(Moravcsik 1999b, 273). Our study has clearly shown that governmentssometimes need exactly that – a ‘handful’ of Commission entrepreneurs. The EUETS indicates that there are at least three conditions for the Commission to playthis role, given its exclusive right to initiate legislation: incentives, knowledge, andsupport from non-state actors.The Commission took the initiative to emissions trading because it had incentivesto do so. These incentives came partly from the fact that emissions trading was a costeffective way of complying with Kyoto commitments, and partly from the failureto get an energy/carbon tax adopted. As to the second condition, the Commissioncould, and had to, build up independent knowledge, as the EU member-states knewvery little about emissions trading. This gave the Commission asymmetrical controlover information. This observation is in line with our earlier emphasis on domesticuncertainty, disagreement and preferences that are not ﬁxed as facilitators ofentrepreneurial leadership. Third, the Commission was able to craft support amongnon-state actors – industry representing the target groups and ENGOs.The Commission did not act alone. This case actually shows the signiﬁcance ofmulti-level leadership, as differing types of leadership were exercised at differentlevels of decision-making by different types of actors. Previous work on leadershipin relation to international (environmental) regimes has mainly focused on thecriteria that distinguish leadership from other behaviour, and different types ofleadership, distinguished by the mechanism through which leadership is exercisedand the capabilities required to succeed (Underdal 1991; Young 1991; Malnes 1995;Skodvin and Andresen 2006). Types of leadership have also been related to differentpolicy phases, but not to different levels of society, as the focus has mainly beenon negotiating parties. The case of the EU ETS shows that leadership at a range oflevels across state and non-state actors may be needed to realize common goods.The oil major BP stood out an important corporate leader, adopting an internalemissions trading system to achieve a 10 per cent reduction in emissions. As this10 per cent reduction goal was achieved, BP’s leadership role can be describedas leadership by unilateral action based on a combination of a ﬁrst-move strategyand demonstration that emissions trading works in practice (Underdal 1991). Thecapability required to exercise this role is that BP is one of the largest private oilcompanies in the world. When a multinational oil company that makes its living from
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two of the main causes of anthropogenic climate change – oil and gas – implementedemissions trading on a voluntary basis, it became difﬁcult for other companies andindustry federations to dismiss the EU ETS.At the level of nation-states, the USA played the role as an intellectual leader thatproduced the intellectual capital to affect the perspectives of others (Young 1991).The emissions trading idea originally came from the USA, the ﬁrst country to applythis policy instrument to reduce pollution. According to Vis (2006a, 40), one reasonwhy the EU ETS was agreed so quickly is simply that emissions trading happensto be a good idea. Lessons from the US sulphur dioxide trading programme weresystematically put to use in the design of the EU ETS.At EU level, the European Commission acted as an entrepreneurial leader. TheCommission managed to ﬁnd the means to achieve the common goal: the Kyotocommitments. Entrepreneurial leadership is related to negotiating skill and ability todevelop integrative solutions (Underdal 1994; Young 1991). The Commission – or,more precisely a key group of persons within the Commission (the BEST group)– took the initiative, built up knowledge, and crafted support for the EU ETS. Thiswas made possible by various factors including the formal role of the Commissionas the body with exclusive right to initiate legislation within the EU.The ﬁnal observation is that what happens in the initiation and decision-makingphases will have important consequences for implementation. In Chapter 2, wediscussed how institutional arrangements established in an early phase may beimportant for outcomes at later stages. This assumption has previously been relatedto access and participation: to what extent are those responsible for implementationinvolved in developing the ends and means at earlier stages? In this study, we havefocused on the link between the initial degree of harmonization and implementation.Here we have found that the relatively low level of environmental ambitiousnessin the ﬁrst round of national allocation plans can be traced back to a decentralizedallocation system, reﬂecting the fact that the member-states had signiﬁcant inﬂuencein the decision-making phase. The dilemma is that the more the member-statescontrol the allocation of allowances, the higher legitimacy of the system – but lowerthe very ambitiousness of the system. Conversely, the less member-states can controlallocation, the lower the legitimacy – but, easily, higher the level of environmentalambitiousness.The tension between legitimacy and ambitiousness is not static but may changeover time. The results from the almost-complete second NAP round indicate thatthe Commission is less generous in its acceptance of NAPs than in the ﬁrst round.This may indicate a deliberate strategy aimed at establishing high autonomy andlegitimacy ﬁrst, and then gradually an increase in the level of ambition, accompaniedby a reduction in autonomy. This strategy may well work, as it resonates with earlierwork on the importance of the dynamic, step-wise development of internationalinstitutions and recent ﬁndings pointing to the importance of legitimacy in theimplementation, compliance and effectiveness of international environmentalregimes (Young and Zürn 2006).In addition to legitimacy and ambitiousness, the robustness and stability ofinstitutions is frequently emphasized in the literature. As noted in Chapter 2, therapid adoption of the EU ETS seems particularly puzzling in light of the assumption
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that it takes time for actors and institutions to change, adapt and adjust to new waysof dealing with ‘old’ problems. Institutional cooperation is generally hard to changeonce collective norms, behavioural regularities and convergent expectations havedeveloped. The point here is that none of the EU environmental policy regularities,norms and expectations included emissions trading. It was rather the converse: theEU opposed emissions trading as a policy instrument during the Kyoto negotiationsfor tactical, practical and ethical reasons.Without dismissing this historic-institutionalist perspective, emphasizing thatinstitutions are conditioned by the past and institutional developments tend to bepath-dependent, it seems as if the EU carbon/energy tax triggered a sort of ‘negative’path dependency. Ever since the early 1990s, the Commission had been workingfor a common and highly structured carbon/energy tax as the core climate policyinstrument. Due to the requirement of unanimity and persistent opposition fromsome member-states, it became clear around the time of the Kyoto Protocol that theEU energy/carbon tax would not materialize in its intended form. The EU ETS thusfulﬁlled a need to break the deadlock. In this way, the EU ETS was also conditionedby the past.The Road AheadIt is too early to draw any meaningful implications concerning the EU ETS at thisstage, beyond the crucial importance of the relationship between legitimacy andambitiousness determined by the level of harmonization between EU institutionsand member-states. The consequences of the EU ETS for actual reductions of CO2cannot be judged yet. The critical test will be the extent to which, over time, the EUETS leads to signiﬁcantly more reductions in greenhouse gases than would havebeen the case in the absence of the system. This will require counterfactual analysiswhere the presumed causal agent, the EU ETS, is removed.As indicated in Chapter 3, the further development of the ETS was to be discussedin a review report submitted to the Commission by the end of June 2006. However,as has been the case with several other deadlines within this process, no suchreport was on the table by that deadline. A Communication was then put forwardin November 2006, launching a prolonged consultation process which will involvespeciﬁc revision proposals in the course of 2007.1 An important forum for the reviewprocess will be the European Climate Change Programme Working Group on theReview of the ETS. This will be a multi-stakeholder consultative process in which
1 European Commission (29 November 2006), COM(2006)725 ﬁnal, Communicationfrom the Commission to the Council and to the European Parliament on the Assessment ofNational Allocation Plans for the Allocation of Greenhouse Gas Emission Allowances in theSecond Period of the EU Emissions Trading Scheme, Accompanying Commission Decisionsof 29 November 2006 on the National Allocation Plans of Germany, Greece, Ireland, Latvia,Lithuania, Luxembourg, Malta, Slovakia, Sweden and the United kingdom in Accordancewith Directive 2003/87 (Brussels).
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experts from the EU Commission, member-states, academics, industry and ENGOcommunity work together, and submit a report by 30 June 2007.2In Chapter 2, we discussed how coverage, allocation of allowances, complianceand enforcement, external links, and harmonization are core ETS design issues. As ofthis writing (May 2007), the state of affairs with regard to signals about the revisionsof these central design elements can be summed up as below. We distinguish betweenprobable changes to the EU ETS Phase II (the Kyoto commitment period, 2008–12)and Phase III (2013–20). The EU ETS is legally committed to continue after 2012,as no end date is speciﬁed in the Directive. As main Phase II design elements werealready settled in the 2003 ET Directive, the main (but not sole) focus in the reviewprocess is on changes set to take effect in Phase III:•
•
•
As to coverage, only one signiﬁcant change seems likely in Phase II: theinclusion of air transport in the system. In December 2006, the Commissionput forward a proposal to include emissions from ﬂights within the EU from2011 on, and subsequently all ﬂights from and to EU airports from 2012 on.3In Phase III, coverage will probably increase. The inclusion of more transportsector activities will continue. In April 2007, the EU Commission ﬂoated theidea of including shipping companies. More gases will also be included, withprobable candidates including methane from coal mines, N2O from ammoniaproduction, and PFCs from aluminium production. It is also likely that carboncapture projects will be approved and integrated as a relevant measure in theETS.With regard to the allocation of allowances, as was noted and discussed inChapters 3 and 6, the Commission has already introduced a more centralizedmodel for allocations than what was set out in the 2003 Directive. As PhaseII allocation will soon be ﬁnished, no major formal changes seem likely forthis phase. As can be recalled, already the ET Directive established a 10 percent limit on the allocation of allowances by other means than for free forPhase II. However, for Phase III allocations, there will probably be markedchanges. Handing out allowances for free is bound to be signiﬁcantly reduced.It is interesting to note that in March 2007 EU Energy Commissioner AndrisPiebalgs suggested no allowances for free at all in Phase III.4 Furthermore, afurther harmonization of allocation methodologies will probably take place.In addition, a possible single EU-wide ETS emissions cap is on the agenda.As to compliance and enforcement, further harmonization and streamliningof the reporting, monitoring and veriﬁcation procedures and systems willprobably be carried out in Phase II. The streamlining process will includefurther clariﬁcation of key concepts within the system such as ‘installation’ and
2 Ibid., 6, 11.3 European Commission (20 December 2006), COM(2006)818 ﬁnal, Proposal for aDirective of the European Parliament and of the Council Amending Directive 2003/87/ECso as to Include Aviation Activities in the Scheme for Greenhouse Gas Emission AllowanceTrading within the Community (Brussels).4 Argus Media (6 March 2007), ‘Auctioning of Allowances to Increase in EU ETSPhase 3’, Argus Media Limited.
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‘new entrants’. As to Phase III, a possible EU legal framework (a Regulation)for reporting and monitoring, as well as a single EU emissions registry, areon the agenda.With regard to links to trading systems outside of the EU, Norway will linkup to the EU ETS in 2008. Further candidates for linking either in Phase IIor (most likely) Phase III include Switzerland and New Zealand, as well asregional schemes in the USA, like the ‘Regional Greenhouse Gas Initiative’(RGGI, with nine northeastern and mid-Atlantic states, set to start in 2009)and a possible California ETS (set to start in 2012).
In March 2007, new climate-energy commitments were presented by the EU headsof government. A binding unilateral EU commitment to cut GHGs by at least 20per cent by 2020 compared with 1990 levels was adopted (30 per cent if otherdeveloped countries made comparable efforts and economically more advanceddeveloping countries made adequate contributions) followed by an ambition thatdeveloped countries should aim at collective cuts in emissions of 60–80 per cent by2050. In addition to the EU ETS, this target should be reached by more renewables,more biofuels, more energy efﬁciency and not least a strategic energy technologyplan for strengthening research into renewables, energy efﬁciency and low-carbontechnologies.The EU ETS and these new commitments show that the EU is now increasinglymatching ambitious rhetoric with practice and will continue to play an important rolein international climate policy beyond 2012. Based on the strong relationship betweenthe EU ETS and the Kyoto Protocol, the experience gathered by implementingthe scheme will become important for the international discussions on futurecommitments within the framework of the Protocol. In addition, how the linkingbetween the EU ETS and other ET schemes develops will affect the emergenceof a global carbon market and the architecture of a future climate regime that mayinclude important emitters that are not part of the Kyoto Protocol. A possible moreforceful re-entering of the USA in global climate politics after the 2008 election isa key determinant both for the development of international carbon markets and theoverall success of climate change mitigation ahead.
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