, growing receptivity to new ideas from theEU and more ambitious environmental commitments (Jordan et al. 2003a, 184).80Support for emissions trading would also ﬁt well with the UK’s opposition to thecommon EU carbon/energy tax. Resistance to taxes at EU level would make the UKmore receptive to alternative economic policy instruments.79 Ibid.80 This new trend is different from Britain’s traditional policy style based on a longlegacy of regulation. The UK began experimenting with voluntary agreements and marketbased instruments later than the Netherlands, Denmark and Germany (Jordan et al. 2003a,179).
90
EU Emissions Trading
Second, and perhaps most importantly, most inﬂuential domestic interestgroups and agencies supported emissions trading in 1998 (Chasek et al. 1998). Thisincluded the London-based Foundation for International Law and Development(FIELD), which helped the Commission in analysing various design options for theEU ETS. Within the government, the Cabinet Committee on the Environment, theDepartment on Environment, Transport and Regions, Her Majesty’s Treasury andthe Department of Trade and Industry all supported ﬂexibility mechanisms includingemissions trading. With regard to industry, climate policy in general and emissionstrading in particular have been developed through consultation and negotiations withthe British government. Even though parts of industry were sceptical,81 emissionstrading was supported by the strongest industrial interests, among them theConfederation of British Industry, the ACBE and BP. Even the weakened UK coallobby saw emissions trading as an instrument that might ease the impact of GHGreductions on coal use (Chasek et al. 1998). However, British ENGOs were scepticalor directly opposed to emissions trading. UK environmental pressure groups havegenerally tended to resist the adoption of market-based instruments on moral/ethicalgrounds (Jordan et al. 2003a, 183).Denmark has been one of the EU leader states with regard to voluntary agreementsand market-based instruments (Jordan et al. 2003b). Legislation on emissionstrading was drafted and discussed in May 1998. At the end of 1999, the DanishParliament (Folketing) adopted a plan for domestic emissions trading that enteredinto force in 2001, covering all electricity producers operating in Denmark exceptproducers relying exclusively on renewable energy. The number of producers andthe volume of trade were, however, fairly low in initial phases (Pedersen 2000). Toa large extent, the Danish system was developed independently of the initiation ofthe EU ETS. The Danes undersold their system, and it received scant notice outsideparticularly interested and informed circles.82 However, the Commission’s GreenPaper on emission trading explicitly referred to the Danish system as an example ofa domestic system for emissions trading.83 The Commission could thus add Denmarkas a dedicated supporter to the idea of emission trading.The Netherlands, generally regarded as an innovative force and key player in EUenvironmental policy, has been characterized as a kind of theoretical frontrunner withregard to tradable permits in Europe (Zito et al. 2003). As early as in 1983, the Dutchgovernment sent a delegation to the USA to explore the idea of tradable permits(ibid., 168). During the 1990s, emissions trading was discussed as a possible policyinstrument for NOx and SO2. In 1998, the Confederation of Netherlands Industry and81 ENDS Report (September 1998), ‘Energy Taxes and Emission Permits get MixedResponse from Business’, Issue 284.82 Interviews in Brussels, 12 January 2006.83 The CO2 Quota Act was part of a wider electricity reform for implementing the EUElectricity Market Directive which required notiﬁcation to the Commission under state aidrules. The Commission raised several questions in late 1999 with the effect of delayingimplementation of the Act. For example, the Commission considered grandfathering ofemission allowances to be state aid (Pedersen 2000, 224). European Commission (8 March2000), COM(2000)87 ﬁnal, Green Paper on Greenhouse Gas Emissions Trading within theEuropean Union (Brussels).
Initiating EU Emissions Trading
91
Employers and the Dutch government anticipated that ﬂexible mechanisms would beneeded to meet national commitments.84 In spring 2002, the Netherlands announcedits plans for a domestic emissions trading scheme,85 on the basis of recommendationsfrom a Trading Commission composed of representatives from government, industryand ENGOs. This Commission had a domestic perspective rather than an EU-wideone (Zito et al. 2003, 169). The recommendations of the Dutch Commission differedsigniﬁcantly from the Commission’s ET proposal. For example, the Netherlandspreferred a relative-target approach rather than an absolute-target one.Also Sweden and Ireland undertook preparatory work for establishing domesticemissions trading systems in this period (Oberthür and Tänzler 2007). Accordingly,the Commission could add these two countries as potential supporters of an EUsystem. Ireland established an Advisory Group on Emissions Trading in 1998 andSweden appointed an expert group on the ﬂexible mechanisms in the Kyoto Protocolin 1999.Opponents and indifferents The remaining EU members either opposed or wereindifferent to the idea of emissions trading. But they had to accept that internationalemissions trading formed part of the Kyoto Protocol, and their preferences on aCommunity-wide system evolved in response to various proposals put forth by theCommission.France was one of the most outspoken opponents of emissions trading. During theKyoto negotiations, strong criticism emerged against the US proposal (Tangen 1998,4; Chasek et al. 1998). However, French opposition was softened shortly after theadoption of the Kyoto Protocol, as most governmental agencies perceived emissionstrading as a fait accompli within the Kyoto Protocol (Chasek et al. 1998, 37). On theother hand, emissions trading was not of any importance to French climate policy.When France presented its National Plan to Combat Climate Change in January2000, the centrepiece was a proposal for an energy tax reform. The plan underlinedthat other policy instruments, such as emissions trading, would require agreementat EU level (ibid.). According to Szarka (2003, 112), France adopted a ‘wait and seeapproach’ to initiatives from the Commission, and emissions trading did not makeany impact until the adoption of the EU ETS.Emissions trading did not ﬁt with traditional French policy style. France is oftenconsidered to have a ‘strong’ central state based on intervention and command-andcontrol approaches (Schjølseth 1999, 60). For example, it has resisted liberalizationof the energy sector and privatization of energy companies. This top-down styleis, however, combined with a pragmatic bottom-up style of implementation – a‘dual policy style’ (Szarka 2003). ‘New’ environmental policy instruments such asvoluntary agreements thus have a long history in France. With regard to economicpolicy instruments, France has traditionally viewed taxation as most appropriate; itsupported efforts to introduce a carbon/energy tax in the EU.84 ENDS Daily (8 January 1998) ‘Dutch Industry Worried by Environmental Plan, Issue219; ENDS Daily (23 June 1999) ‘Netherlands Allocates Climate Commitments’, Issue 558.85 ENDS Daily (16 April 2002), ‘Netherlands Backs CO2 Emissions Trading’, Issue1197.
92
EU Emissions Trading
Various ministries and agencies, however, had differing positions on emissionstrading (Chasek et al. 1998). The Ministry of the Environment and the Ministry ofForeign Affairs were most sceptical, whereas the Ministry of Economics and Financeand the Ministry of Industry were most supportive. After Kyoto and several studiesconcluding that emissions trading could be beneﬁcial for France, the Ministry of theEnvironment became more supportive. In addition, industry, including Elf Aquitaineand the Unions, preferred emissions trading rather than taxes. French ENGOsworking on climate change opposed emissions trading. However, environmentalawareness in general (on climate change in particular) has been less pronounced inFrance than in Northern Europe (Schjølseth 1999, 60).France relies highly on carbon-free nuclear energy. In the mid-1990s, nuclearenergy provided over 80 per cent of the country’s electricity generation and 40per cent of its primary energy production (ibid., 59). In 1990, France had one ofthe lowest CO2 emissions per capita in the industrialized world. Accordingly, thereduction target for France in the EU Burden-sharing Agreement was ﬁxed at themodest level of zero per cent. Whereas this energy-economic situation should pointtowards relatively high abatement costs and support for cost-effective emissionstrading, it has been argued that this made emissions trading less attractive, as itwould lead to higher uncertainty over diversiﬁcation of energy sources (Szarka2003, 112). For example, strict caps on emissions could make the introduction ofgas-power stations more difﬁcult.Like France, Germany opposed emissions trading prior to the Kyoto Protocol(Chasek et al. 1998; Wurzel et al. 2003). Germany’s opposition was rooted in broadbased consensus among governmental agencies, industry and ENGOs, stemmingmainly from the view that climate policy should be based on domestic reductionsof GHGs (Chasek et al. 1998, 28). After Kyoto, Germany accepted the fact thatemissions trading formed part of the Protocol. Emissions trading had been discussedin academic circles since the 1970s, and the Federal Ministry for the Environmenthad made some half-hearted efforts to introduce emissions trading in the 1990s(Wurzel et al. 2003, 129). Nevertheless, Germany did not establish a working groupon emissions trading until October 2000 – and that came in response to the initiativeof the European Commission (Watanabe 2005). According to Wurzel et al. (2003,127), the Ministry for the Environment and the Ministry for Economics and Labourused the threat of an imposed EU emissions trading directive to set up the workinggroup. Imposition of emissions trading on Germany could not be ruled out underthe qualiﬁed majority procedure. The German Emission Trading Group, with broadrepresentation from ENGOs, industry and federal and regional government, wasdeeply split among different industry sectors (Bang et al. 2004). Emissions tradinglacked broad social acceptance. Germany would become the most severe obstacle toadopting a binding EU ETS in the decision-making phase (see Chapter 5).German climate policy developed within an interministerial working groupinvolving ten ministries and chaired by the BMU – the Federal Ministry for theEnvironment, Nature and Nuclear Safety, to give its full title. Shortly after the KyotoProtocol, the BMU commenced work on formulating a new position on emissionstrading under Article 17 of the Kyoto Protocol (Chasek 1998, 31). This process led tothe establishment of the working group on emissions trading in 2000. Traditionally,
Initiating EU Emissions Trading
93
Germany has relied on command-and-control based technology standards inenvironmental policy. In climate policy, Germany refrained from a domestic taxregime because that could create competitive disadvantages for German industry.86Voluntary agreements with industry became the most important policy instrument inGerman climate policy.The ﬁrst voluntary agreement between the German government and industry wasmade in 1995 and then revised in 1996 and 2000. It covered about 80 per cent ofCO2 emissions from the industry and energy sector. The ﬁrst revision was due tosevere shortcomings and criticisms, in particular from ENGOs. For example, the20 per cent reduction target was related to a base year set to 1987 – three yearsbefore the reuniﬁcation of Germany. This goal could be reached solely by energyefﬁciency improvement in the new Länder. The baseline was thus changed to 1990in the 1996 agreement (Watanabe 2005). Still, the agreement was criticized for beingunambiguous and vague (Wurzel et al. 2003, 130). In essence, German industry wasnot obliged to undertake costly investments to reduce emissions of GHGs.The agreement was updated in October 2000 in the context of Germany’s ﬁfthclimate protection programme. Speciﬁc CO2 emissions per produced unit are to bereduced by 28 per cent by 2005 and by 35 per cent for all Kyoto gases by 2012.Despite these ambitious targets, even this agreement has been characterized as ‘veryconvenient’ for industry since there are no emissions targets at the company level(Michaelowa et al. 2005). This agreement shows that the German government andindustry intended to continue with voluntary agreements as the core instrumentin climate policy despite the plans of the European Commission. The voluntaryagreement was signed more than half a year after the Commission presented its GreenPaper on emissions trading. Emission trading based on caps and strict enforcementwas expected to increase abatement costs for German industry.Energy-intensive industry, the chemical industry in particular, ﬁercely opposedemissions trading and argued strongly in favour of continuing the use of voluntaryagreements. In late 200l, the chemical industry even walked out of the workinggroup on emissions trading (Wurzel et al. 2003, 128). As noted, the chemicalindustry at European level stood forth as most negative to the Commission’s GreenPaper, even if parts of French chemical industry wanted the inclusion of industrialgreenhouse gas emissions. Emissions trading was supported by a few other industriesand companies, among them banking, and the German afﬁliates of Shell and BP.After Kyoto, German ENGOs developed a quite positive stand on emissions trading(Chasek et al. 1998; Wurzel et al. 2003), which can probably be understood in lightof the preference of energy-intensive industry for ‘soft’ voluntary agreements and itsopposition to emissions trading.In the mid-1990s, Germany was among the EU members with relatively lowabatement costs (Torvanger et al. 1996, 176). Estimates show that the country’smarginal emission reduction costs of reaching the Kyoto targets are below theEuropean average, as Germany has abatement options available that have alreadybeen exploited by other EU countries (Michaelowa et al. 2005, 108). German energy86 Industry managed to get far-reaching exemption from the ‘ecotax’ introduced by theGreens and the Social Democrats which won the 1998 federal elections.
94
EU Emissions Trading
production is still heavily based on fossil fuel consumption, which opens up for lowcost reductions. In addition, reuniﬁcation with the former DDR led to the closureof energy-intensive and inefﬁcient industries. From 1990 to 1995, German CO2emissions decreased by 43.6 per cent in the eastern Länder, compared to a 2 per centincrease in the old Länder in the same period. Still, there remained a considerablepotential for low-cost reductions (Schjølseth 1999, 54-55; Hasselmeier and Wettestad2000). This energy-economic situation can help to explain why Germany insisted ondomestic measures and why it had to reduce emissions by 21 per cent according tothe EU Burden-sharing Agreement.The remaining EU members appear to have been neutral or directly indifferentto the idea of emissions trading in Europe. These countries did not plan for domesticor European ET schemes, had very little knowledge of emissions trading and did notvoice either strong support or opposition to the emerging EU ETS. The Mediterraneanstates of Greece, Portugal and Spain clearly fall into this category. None of themresponded to the Green Paper on emissions trading presented by the Commissionin 2000.Collective response to the emerging ET idea Seen from the perspective of theCouncil of Ministers’ discussion of a Community-wide strategy on climate changefrom the time of the Kyoto Protocol to the publication of the Green Paper, theimpression that the Commission sat in the driver seat is further strengthened. Withregard to policies and measures, the minutes of Council meetings in this periodshow that it was the Commission that took the initiative and set the premises fordiscussions on emissions trading.In February 1998, the Commission and the Presidency (then UK) informed theCouncil on the consequences of the Kyoto Protocol for energy. Some member-statesrequested concrete measures that should be cost-effective, whereas the majority‘looked forward to receiving the Commission’s proposal in this regard as soon aspossible’.87 The European Commission forwarded to the Council a Commissionstaff working paper on energy policy options for responding to climate change.Discussions during the spring of 1998 were based on a list of areas under studyfor possible common and coordinated policies and measures in the ﬁeld of energy.Various policy instruments were included, such as regulations and taxes.88In May, the Council welcomed an expanded list of policies and measurespresented by the Commission, including certiﬁcation, labelling and long-termvoluntary environmental agreements. Particular attention was paid to economicpolicy instruments: ‘ … the list of possible policy measures included appropriateenergy ﬁscal measures, economic incentives and other similar economic measures tohelp reduce emissions’.89 The ‘other similar economic measures’ were not speciﬁed,87 Council (16 February 1998), 6030/98, Subject: Energy and Environment: ClimateChange – the Energy Response to Kyoto. Report of Working Party on Energy on 10 February.1998. Brussels, 2.88 Council (9 April 1998), 7618/98, Outcome of proceedings of Working Party on Energyon 7 April 1998. Brussels, 8.89 Council (4 May 1998), 7988/98, Subject: Energy and Environment: Climate Change– the Energy Response to Kyoto. Report of Working Party on Energy. Brussels, 7.
Initiating EU Emissions Trading
95
but the strong emphasis on economic policy instruments probably reﬂected the factthat responsibility for climate change in the Commission had by then been taken overby economists. In the autumn of 1998, when the Council’s attention centred on theupcoming CoP in Buenos Aires, it was nevertheless the integration of environmentalconcerns into other policy areas that was emphasized, in light of the EuropeanCouncil meeting in Cardiff.90 According to Council minutes, the Council did noteven discuss emissions trading as part of EU policies and measures in 1998. Thatsame year, the Commission suggested that ‘the Community could set up its owninternal trading regime by 2005 as an expression of its determination to promote theachievement of targets in a cost-effective way’.91In the spring of 1999, the Council continued to discuss policies and measures atboth the international and the Community level. One option was the Commission’sproposal for a directive on a more pragmatic energy product tax that would foreseea gradual increase in taxation level. This proposal was a response to the failure toget the carbon/energy tax adopted, with its high rates of taxation and a high degreeof harmonization. In addition, strategies for environmental sector integration andprogrammes for energy efﬁciency and renewable energies were discussed. Moreover,the Council urged the Commission to submit further proposals on common measures.92This request must be seen in light of the trend towards rising emissions, which didnot resonate well with Kyoto commitments. The Commission then presented the1999 Communication on the implementation of the Kyoto Protocol in which theidea of an EU ETS was taken further by announcing the Green Paper on emissionstrading in 2000. At the Council meeting in October 1999, the Council welcomed theCommunication in general. Without commenting on emissions trading in particular,it called upon the Commission to strengthen and speed up its efforts in developingand implementing common and coordinated policies and measures.93In the spring of 2000, the Commission launched the European Climate ChangeProgramme and presented the Green Paper on emissions trading. The Councilresponded by welcoming that programme and noting: ‘The Council supports theapproach followed by the Commission which aims at reinforcing policies andmeasures at Community level as soon as possible and at exploring proposals fordeveloping emissions trading within the European Union’.94 The Council also90 Council (28 September 1998), 11439/98, Subject: Community Strategy on ClimateChange- Council Conclusions. Report from Permanent Representatives Committee to Council.Brussels.91 European Commission (June 1998), COM(98)353, Commission Communicationto the Council and the Parliament. Climate change – Towards an EU Post-Kyoto Strategy(Brussels), 20.92 Council (2 March 1999), 6178/99, Subject: Community Strategy on Climate Change –Council Conclusions. Introductory note from General Secretariat to Permanent RepresentativesCommittee. Brussels, 11.93 Council (13 October 1999), 11871/99, Subject: Community Strategy on ClimateChange – Council Conclusions. Information note from General Secretariat to Delegations.Brussels.94 Council (23 June 2000), 9707/00, Subject: Community Strategy on Climate ChangeCouncil Conclusions. Information note from General Secretariat to Delegations. Brussels, 6.
Table 4.2
Member-states’ positions on the emerging EU ETS
Member-stateresponses toGreen Paper
WelcomesEU ET?
Commonfor certainsectors?
Overall amount ofallowances agreedat EU level?
Allocation method Monitoring andagreed at EU level? enforcement atEU level?
Degree ofharmonization
Austria
Yes
Yes
Yes
Yes
–
Centralized
Belgium
Yes
Yes
Yes
–
Yes
Centralized
Denmark
Yes
Yes
Yes
–
Yes
Centralized
Finland
Yes
–
–
Yes
–
?
Franceb
Not clear
–
Probably
Probably
Partly
Probably centralized
Ireland
Yes
No
No
No
Partly
Decentralized
a
Italy
Yes
Yes
Partly
Yes
Yes
Centralized/Mixed
Netherlands
Yes
No
No
No
–
Decentralized
SwedenUK
YesYes
ProbablyNo
–No
YesNo
YesNo
CentralizedDecentralized
a
Italy opposed that total amount allocated to the trading sectors should be agreed at Community level, but was in favour of agreement on Community level ofthe amounts for individual sectors within each member-state.bThe Commission’s comment to the French submission was that it raised more questions than it answered.Sources: Based on European Commission (8 March 2000). COM(2000)87 ﬁnal, Green Paper on Greenhouse Gas Emissions Trading within the EuropeanUnion (Brussels); European Commission (14 May 2001), Green Paper on Greenhouse Gas Emissions Trading within the European Union: Summary ofSubmissions. Part I: Non-governmental submissions (Brussels: Peter Vis, Climate Change Unit, European Commission); and European Parliament (11 October2000), EP Report A5-0271/2000, Report on the Commission Green Paper on Greenhouse Gas Emissions Trading within the European Union. (Committee onthe Environment, Public Health and Consumer Policy. Rapporteur: Jorge Moreira Da Silva. RR\422816EN.doc).
Initiating EU Emissions Trading
97
welcomed the Green Paper on emissions trading, the consultation process, and the‘learning-by-doing’ approach. Moreover, the Council concluded: ‘Emissions tradingcould play a substantial role in the implementation strategies that are being developedwithin the European Union and complement other relevant policies and measures, inparticular as far as environmental agreements and relevant taxation are concerned’.95In other words, the Commission had a lead of almost two years in its thinking aboutwhat an EU ETS should look like compared to most EU member-states. This gavethe Commission a signiﬁcant advance of superior knowledge.We can conclude this section by noting, ﬁrst, that we have found noevidence that any of the member-states took the initiative to develop the EUETS. The Council of Ministers requested the Commission to develop commonand coordinated climate policies and measures, but emissions trading was notexplicitly discussed until 2000. Second, the Commission could not initiallyanticipate any broad based support for an EU ETS. At the time the two ﬁrstCommunications were presented in 1998 and 1999, the Commission could counton explicit support from only a few member-states. Key EU states like Franceand Germany were reluctant.Member-state Responses to the Green PaperThe Green Paper on emissions trading presented by the Commission in March 2000laid the foundations for the EU ETS. The Commission argued for a common EUframework rather than a set of national emissions trading schemes. The Green Paperdid not propose a speciﬁc regime, but aimed at initiating discussion on the level ofharmonization and various design options. As noted, the Green Paper included tenquestions to stakeholders, directed mainly towards the level of harmonization. Mostmember-states replied to the questions, although with varying degrees of elaborationand speciﬁcity, as shown in Table 4.2.Table 4.2 indicates that a slight majority of EU member-states now supportedthe idea of an emissions trading system in Europe. However, France was stillreluctant and Germany, Spain, Portugal and Greece did not respond to the GreenPaper. Germany was, as noted, deeply split on the issue and the Mediterraneanmembers did not show much interest in either the EU ETS or other climatepolicies. According to the Burden-sharing Agreement, Portugal was allowed toincrease its emissions by 27 per cent, Spain by 15 per cent, and Greece by 25 percent. That means that nine member-states were positive to a European emissionstrading system whereas six were negative or indifferent. This represented 47 votesfor – far from the 62 votes needed to create a qualiﬁed majority.96 Moreover, theUK together with the Netherlands and Ireland preferred a decentralized systembased on coordination between member-state driven schemes. With the exceptionof Denmark, none of the traditional ET supporters preferred a centralized system.
95 Ibid.96 This interpretation – that the EU was far from a qualiﬁed majority in support of an EUETS at this time – also found support in our interviews in Brussels, 12 January 2006.
98
EU Emissions Trading
In addition, few member-states were speciﬁc as to the different design options,and preferences varied signiﬁcantly among those that were speciﬁc: Denmarkand Austria preferred an absolute target approach (cap-and-trade), whereas theNetherlands preferred a relative target approach (baseline-and-credit). Concerningcoverage, Sweden preferred an upstream system, whereas others would rather havea downstream system based on power production and energy-intensive industry.As to allocation mechanisms, Austria and Denmark preferred auctioning, whileFrance favoured grandfathering. Responses to the Green Paper clearly show thatthe Commission could not count on a qualiﬁed majority in favour of any emissionstrading system at this stage. The positions of member-states on harmonization anddesign options were diverse and did not indicate any area of broad-based consensus.This implied a high level of uncertainty as to the type of system that could gain thenecessary political support in EU decision-making bodies.ConclusionWhy and how did the idea of an EU Emission Trading Scheme develop within theEuropean Union? As the EU opposed emissions trading during the Kyoto negotiations,we have been looking for changes in both internal and external explanatory factorsthat might explain the turnabout of the EU.The ﬁrst proposition put forth in this chapter was that the EU embracedemissions trading due to the Kyoto Protocol. More speciﬁcally, the EU institutionsand actors initiated the idea of emissions trading in response to the climate regime.The observations presented in this chapter are in line with expectations according tothis proposition (see Chapter 2). First of all, emissions trading had not been part ofthe EU negotiating position in Kyoto, but it nevertheless became part of the KyotoProtocol in Article 17. This means that the Kyoto Protocol had a potential to affectthe position of the EU. The same is true concerning the timetable for the developmentof the EU ETS.Second, the EU initiated emissions trading partly as a response to pressure fromthe Kyoto Protocol. References to Article 17 and the timetables were immediatelyincluded by the Commission in their 1998 and 1999 Communications on a EUstrategy to achieve the Kyoto commitments. This strongly indicates that theEuropean Commission was preparing to implement emissions trading by 2005 dueto the provisions included in the Kyoto Protocol.Third, the Kyoto Protocol provided economic opportunities. The EU clearlyhad incentives to engage in emissions trading. The Commission emphasized thesigniﬁcant cost savings in meeting the Kyoto commitments that emissions tradingcould provide, compared to individual action. Administrative experience gainedfrom a ﬁrst-mover strategy was also stressed in the various documents prepared bythe Commission in the wake of the Kyoto Protocol.Finally, the Kyoto Protocol enhanced learning by linking the active USpromotion of emissions trading to the EU Kyoto commitments, and through detailedinternational negotiations on international emissions trading. The USA had been themain architect behind the inclusion of emissions trading in the Kyoto Protocol. The
Initiating EU Emissions Trading
99
positive US experience with the sulphur dioxide emission trading scheme becameimportant for ‘selling’ emissions trading as a good idea to EU member-states,industry and the green movement. US experience was also important in making theﬁrst choices on the basic design of the EU ETS.Only to a limited extent, however, can the initiation of the EU ETS be understoodas a result of a horizontal diffusion process or of vertical legal pressure. Even thoughthe idea of emissions trading originated in the USA, the independent effect ofthe Kyoto Protocol was important. The Kyoto Protocol facilitated learning aboutemissions trading by linking the idea to international GHG reduction targets. Thisbecame particularly important when the USA withdrew from the Kyoto Protocol in2001. Initially, the EU ETS was not a result of direct legal pressure to implementthe Kyoto Protocol. The Kyoto Protocol did not require emissions trading, and theProtocol was not legally binding at this time. The Protocol nevertheless put pressureon the EU because the EU institutions and actors expected the Kyoto Protocol toenter into force and they perceived the commitments as mandatory.However, the Kyoto Protocol affected the emerging discussions on design onlyto a very limited extent. CoP-4 in Buenos Aires in 1998 showed clearly that it wouldtake a long time to develop the international rules and guidelines for emissionstrading. The international rules and guidelines were ﬁnally agreed later than theproposal for an EU ET directive. Moreover, since the EU ETS was directed atcompany actions, it required a much more complex and sophisticated design thaninternational emissions trading directed at governmental actions.The second proposition assessed in this chapter was that the EuropeanCommission changed its position and initiated the EU ETS independently of theEU member-states. This proposition was conditioned by converging and supportingpositions among non-state actors in general, and industry in particular. Also thisproposition found empirical support. The European Commission took the initiative,built up independent knowledge on design, and crafted support among internalstakeholders.Shortly after the Kyoto Protocol, DG Environment changed both personnel andposition on climate policy instruments. Ofﬁcials working on climate change in DGEnvironment who favoured command-and-control were replaced by economists whofavoured economic policy