Building and enhancing climate policy ambition with transfers: allowance allocation and revenue spending in the EU ETS

ABSTRACT

Sustaining and increasing climate policy ambition in the presence of heterogeneous interests and potential veto players is a key challenge for climate governance. We examine the conceptual and empirical significance of transfers to balance heterogeneous interests and build support for raising climate policy ambition in the development of the EU Emissions Trading Scheme (ETS). We provide insights into how to strategically sequence ‘brown cushioning’ and ‘green push’ policy incentives within the EU ETS to deliberately incentivize transformative change among actor constituencies towards decarbonization endogenously. The analysis demonstrates the significance of preventive and compensatory buy-in, via allowance allocation and revenue spending design, for the introduction and each major reform of the scheme. Given the potential for a substantially increasing value distributed within the EU ETS, future policy options should aim to strengthen the scheme’s inherent incentives towards decarbonization and to prevent an increasing structural divide among EU member states.

KEYWORDS:

• Climate policy and politics
• EU Emissions Trading Scheme
• allowance allocation
• strategic transfer design
• constituency building
• decarbonization

Acknowledgments

We thank: the interviewees for their time, efforts and openness; Ottmar Edenhofer, Dallas Burtraw, Brigitte Knopf, Nicolas Koch, Michael Jakob, David Klenert and Michael Pahle for valuable feedback; early commentators at the 2016 Berlin Conference on Transformative Global Climate Governance, the 2016 Prague ECPR General Conference and the Resources for the Future research seminar; three anonymous reviewers and EP editor Anthony Zito for very helpful comments and suggestions. The argument also profited from discussions during the EU ETS dialogue forum run by the European Climate Foundation and MCC held in Berlin in February and March 2017.

Disclosure statement

No potential conflict of interest was reported by the authors.

Interviewees*

1. Former head of a directorate-general at a German ministry, Berlin, 04.11.2016.

2. Director of a German industry association, Berlin, 15.12.2016.

3. Head of division at a German ministry, Berlin, 05.01.2017.

4. Expert on EU ETS at a German ministry, Berlin, 05.01.2017.

5. Academic expert on European and Polish climate and energy policies, Berlin, 07.03.2017.

6. Expert on EU ETS at a global environmental NGO, Berlin, 08.03.2017.

7. Expert on energy and climate policies at a German industry association, Berlin, 09.03.2017.

* The first author conducted all interviews, lasting a minimum of one hour, in person.