Industry lobbying and the political economy of GHG trade in the European Union

The European Union (EU) has committed itself to meet an 8% greenhouse gas (GHG) reduction target level following the Kyoto agreement. In September 2003 the EU member states has agreed on the Directive for establishing a scheme for GHG emission allowance trading within the European Union. This directive is the outcome of a policy process started by the EU Commission and its Green Paper from March 2000. The main industrial stakeholders all had the opportunity to comment on the Green Paper and from their positions we will analyse how far they are winners or losers compared to the final directive proposal. Comparing the initial Green Paper proposal (before lobbyism) to the final directive (after lobbyism) gave us a unique possibility for measuring the effect of lobbyism. Here, we find that the dominant interest groups indeed influenced the final design of an EU GHG market. This industrial rent-seeking most prominently leads to a grandfathered permit allocation rule like the one found in the US tradeable permit systems.