Allocation, allocation, allocation! The political economy of the development of the European Union Emissions Trading System
Open accessAbstract
The European Union's pioneering carbon Emissions Trading System, the EU ETS, has inspired countries around the world to launch their own CO 2 markets. This paper analyses the evolution of the EU ETS from a political economy perspective, emphasizing the interaction of economic principles and political interests at pivotal moments, and showing how each compromise changed the scope for future design choices. We focus on the allowance allocation issue, which provides a window into the complex tug‐of‐war between economic efficiency and the politics of distribution. Our account highlights the dynamic nature of CO 2 market reform, and provides lessons that can help inform the design of more stable and effective CO 2 markets in the future. This article is categorized under: Climate Economics > Economics of Mitigation The Carbon Economy and Climate Mitigation > Policies, Instruments, Lifestyles, Behavior
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At a local level, politicians can rarely ignore a company threatening to cut jobs and relocate while demanding exemptions from, or compensation for, climate policy.
“Companies will almost always fight efforts by government to extract revenue from their sector, and at a local level, politicians can rarely ignore a company threatening to cut jobs and relocate demanding exemptions from, or compensations for, climate policy (46).”
From Carbon Leakage, Consumption, and Trade (2022) · cites this paper as [46]
Companies will almost always fight efforts by government to extract revenue from their sector.
“Companies will almost always fight efforts by government to extract revenue from their sector, and at a local level, politicians can rarely ignore a company threatening to cut jobs and relocate demanding exemptions from, or compensations for, climate policy (46).”
From Carbon Leakage, Consumption, and Trade (2022) · cites this paper as [46]
Free allocation is neither simple nor free; it is actually very costly and makes it much harder or even impossible to achieve the objective of deep decarbonization.
“Thus, free allocation is neither simple-as demonstrated by the tortuous evolution and endless negotiations of allocation approaches in the EU ETS (46) and other systems-nor free. It is actually very costly and makes it much harder or even impossible to achieve the objective of deep decarbonization.”
From Carbon Leakage, Consumption, and Trade (2022) · cites this paper as [46]
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- Authors
- Sato, M., Rafaty, R., Calel, R., & Grubb, M.
- Affiliations
- London School of Economics and Political Science (GB)
- University of Oxford (GB)
- Georgetown University (US)
- University College London (GB)
- Corresponding author
- Sato, Misato
- Venue
- WIREs Climate Change
- Publisher
- Wiley
- Published
- 2022-08
- Volume
- 13
- Issue
- 5
- ISSN
- 1757-7780 (ISSN-L)
- 1757-7799
- OpenAlex
- W4289527048
- Cited by
- 59
- References
- 95
- Citations by year
- 2026: 12 · 2025: 19 · 2024: 16 · 2023: 9 · 2022: 3
- FWCI
- 9.45
- Type
- journal article
- Language
- en
- Open access
- hybrid
- doi.org
- Licence
- Locations
- Wiley Interdisciplinary Reviews Climate Change (publishedVersion, cc-by)
- London School of Economics and Political Science Research Online (London School of Economics and Political Science) (acceptedVersion)
- London School of Economics and Political Science Theses Online (London School of Economics and Political Science) (submittedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- UCL Discovery (University College London) (submittedVersion)
- Funders
- Economic and Social Research Council (ES/N016971/1)
- Centre for Climate Change Economics and Policy, University of Leeds (ES/R009708/1)
- Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science
- H2020 Environment (681228)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Climate Change Policy and Economics
- Social Sciences › Law › EU Law and Policy Analysis
- Social Sciences › Political Science and International Relations › European Union Policy and Governance
- Keywords
- EU Emissions Trading System, carbon pricing, allowance allocation, political economy of climate policy, climate policy design, climate change mitigation
About these checks
Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
Statistics and arithmetic are recomputed, not judged.
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