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

31 Pages Posted: 17 Apr 2008 Last revised: 14 Aug 2008

See all articles by Niels Anger

Niels Anger

ZEW – Leibniz Centre for European Economic Research

Christoph Böhringer

University of Oldenburg - Economic Policy; Centre for European Economic Research (ZEW)

Ulrich Oberndorfer

ZEW – Leibniz Centre for European Economic Research

Date Written: 2008

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 political support 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.

Keywords: Emissions trading, interest groups, regression analysis

JEL Classification: Q58, P16, C10

Suggested Citation

Anger, Niels and Bohringer, Christoph and Oberndorfer, Ulrich, Public Interest vs. Interest Groups: Allowance Allocation in the EU Emissions Trading Scheme (2008). ZEW - Centre for European Economic Research Discussion Paper No. 08-023, Available at SSRN: https://ssrn.com/abstract=1121744 or http://dx.doi.org/10.2139/ssrn.1121744

Niels Anger (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Christoph Bohringer

University of Oldenburg - Economic Policy ( email )

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany
+49 6211235200 (Phone)
+49 6211235226 (Fax)

Ulrich Oberndorfer

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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