Emission trading lobbying in the EU (anglu k.)

The Arhus School of Business M.Sc. in EU

Business & Law

Emission Trading Lobbying in the EU

Submitted by: Nerijus

Program: M.Sc. EU Business & Law

Term: Fall Semester 2004

Student ID:

E-mail: knerkus@yahoo.com

Supervisor: Gert Tingard Svendsen

Associate Professor, PhD (Econ.)

Department of Economics

Table of Contents

1. Introduction 2

1.1 Background 3

1.2 Statement of the problem 3

2. Theory (lobbyism) 4

3. Why would have interest to lobby? 5

4. Lobbying 8

4.1 The idea is debated 8

4.2 Proactive attitude helps 10

4.3 The drafting stage and implementation 10

Conclusions 13

Literature: 15

1. Introduction

Global warming is one of the most challenging threats that the

mankind has been facing for the last two decades. The Earth’s surface

temperature has reached its highest in the last millennium, the

precipitation patterns are changing, the see level is increasing, the

glaciers are melting, the extreme weather events have become more frequent

and severe.

Even though, the causes and consequences of global warming are

still disputed by some parties, in general scientists agree that it is

caused by the emission of greenhouse gasses and principally by carbon

dioxide (CO2) which stems from burning fossil fuels (coal, oil and gas). Of

course, other factors of human activities such as deforestation,

agricultural activities come in to play as well.

Unfortunately, the greenhouse gases impact is global and those

countries that suffer most have well underdeveloped industries and

contributed significantly less compared to the major rich ‘culprits’. Thus,

climate policy is very much linked to equity and international climate

process takes notice of that. So, it seems fair that major world economic

powers with the EU leadership take initiative to combat global worming.

Despite this overreaching threat, solutions to tackle the problem

are not that easy to implement. The environmental organizations and

increasingly conscious populations of states are those agents that bring up

the problem and exert the pressure on their governments to act on it by

implementing environment friendly policies. The political process reflects

these pressures in those countries where environmental awareness is high,

such as Germany and Scandinavian countries have been the forerunners in

pushing for action to be taken (Pedler, 2002). Apparently, climate

policies are not environmental policies any more – they are pure economics

as there is strong involvement industrial part. The cost at stake is of

significant importance to the industrials and societies in whole. As

industrials claim, introducing drastic environmental solutions to reduce

CO2 emission implies incurring substantial cost, thereby jeopardizing

economic growth and prosperity. So industrials take initiative – the

political reaction to introduce EU wide energy tax was massively opposed by

fossil fuel producers and many industrial groups. In this way the

bureaucratic incentive to tax was counterweighted by industrial interests

(Svendsen, 2003). To find the solution the EU Commission had launched the

Green Paper (CEU, 2001a) initiating the discussion on greenhouse emission

trading that eventually led to producing the Directive Proposal (CEU,

2001b) and the final Directive (CEU, 2001c).

1.1 Background

The first initiative to combat climate changes started in 1991 when the

EU Commission introduced first Community Strategy to limit CO2 emissions

and improve energy efficiency. The initially suggested measure was to

introduce taxation on the CO2 emissions. But it turned out rather difficult

to implement due to the strong opposition by industrials and voting rules

in the EU for the introduction of common CO2 tax (the unanimity rule for

fiscal measures, Art. 175 of the Maastricht Treaty) has failed as CO2

taxation implies fiscal character (Svendsen 2003). Thus, in response to

European Climate Change Program launched by the Commission in June 2000, a

decision to introduce a permit market, which is an integral part of the

Program, seems to be a feasible solution because it must be settled upon by

qualified majority meaning that no single member state can object the

implementation of the Directive Proposal.

According to the final Directive CO2 emission trading allows companies

to trade emission permits that have been allocated on historical basis

(grandfathered emission allowance based on the levels in 1990). The trade

takes place if cutting in CO2 emission is too costly rather than buying

permits on the market. A permit is the right to emit one tone of CO2. Once

the permit has been used, it will be withdrawn from the market in

compliance to the reduction level. The idea is that the aggregate emission

level is reduced to agreed levels, but this reduction takes place where it

cost least to do so.

According to the Kyoto protocol the EU committed itself to meet 8%

greenhouse gas reduction during the period 2008-2012 in comparison with

their levels in 1990 In practice, this implies an estimate reduction of 14%

compared to ‘business as usual” forecast (CEU, 2001b) . The Kyoto Protocol

emission trading is planed to “kick off” in 2008. For this purpose the EU

Commission has introduced the Directive establishing a framework for CO2

trading within the EU (CEU, 2001c). Together with other policies and

measures, emission trading will be an integral and major part of the

Community’s implementation strategy. The Directive is the final outcome of

the process that was initiated by the Commission when it introduced The

Green Paper and had numerous dialogs with parties concerned. This framework

should be operational in the year 2005 subsequently leading to the

reduction of CO2 emission by the year 2012.

1.2 Statement of the problem

Among other forms of allocation of CO2 quotas the Green Paper states

that auctioning-off permits is technically preferable, gives full

transparency to the emission trading, fair competition among incumbents and

new entrants. But, as it can be seen from the final Directive the optimal

solution of auctioning-off the permits was politically unattainable as it

was the case in introducing uniform CO2 tax across EU. The upshot off all

this deliberation process is that from 2005 to 2008 all Member States will

allocate 95% and 90% for the period of 2008-2013 allowances to

participating installations for free of charge. (CEU, 2001c). That is, the

core principle is chosen to be grandfathering and for auctioning allocation

is left only a marginal part. That implies that this is a clear victory of

industrials as rent gains are obvious for participants of the CO2 market.

This paper concerns the interaction between policy makers and interest

groups in the process of introducing the emission trading within EU. The

Lafarge case can be useful example of how interest group pursues its

objectives in affecting the EU legislation in the emission trade area. The

main question I will attempt to answer is how the concerned

interest group

influences the EU decision making progress and to what extent the final

Directive reflects the influence of this lobbying group.

2. Theory (lobbyism)

As institutional theory suggests, the way the interest groups act to

achieve their goals is determent by institutional set up of any political

entity, in this case EU. It can be assumed that both political and economic

agents interact towards well specified utility function, while at the same

time being constrained by the institutional setup to regulate this

interaction. In other words, the valuation of the process determining

political decision trend can be based on utility-maximizing behavioral

assumption of economics. (Svendsen, 2003, p.6) The institutional setup in

EU is highly dynamic, complex, multi-level and consensus building

orientated, and thus this complexity provides a variety of formal and

informal channels trough which the interest groups can influence the

decision making.

Lobbying in the EU institutions is not possible without thorough

understanding of how they work, what their competences are and were sources

of power and action are located. Two out of tthe three pillars on which EU

is based on are quite resistible to the influence from the interest groups.

That is: common foreign and security policy and police and judicial co-

operation in criminal matters. This intergovernmental playground featured

by the European Council or tthe Council of Ministers is relatively closed to

lobbying. The only way to influence these policies is by getting around and

exerting pressure on national government domestically or internationally.

Obviously, the EC pillar provides the greatest potential to lobby the

EU institutions because it comprises the big share of the Union’s

regulative policies including environmental. The main institutions that

attract lobbyist’s attention are: The Commission, The Council, The European

Court of Justice, The European Parliament and the Economic and Social

Committee. The magnitude of influence applied on these institutions depends

on their political powers receptiveness to initiate, draft and finally

approve and implement regulations EU wide (Cini, 2003).

My point is to make the inductive analysis how lobbying pursued by

certain interest groups fits in the theoretical framework of lobbyism

conducted aat the EU level.

3. Why would have interest to lobby?

As it has been noted, the Directive (CEU, 2003a), proposes CO2 emission

trading based on grandfathering system which was preferred by industrials

to auctioning allocation. In theory, allowing companies to trade emission

permits cuts the cost of compliance overall. If it has an emission cap, the

benefits of trading from a company’s point of view are clear, since it can

purchase a permit representing a tone of CO2 if it costs less than the

company’s own ccost of reducing a tone of CO2. So the emission cut takes

place were it cost least to so while the overall reduction of emission is

the same. According to Svendsen, in this system the winners are all

existing firms because the permit limits are granted for free on historical

levels, whereas the looses are future firms who have to by all their

permits from existing firms. The loser is also the society assuming that

proceeds raised from auctioning by governments could be redistributed in a

number of ways to enhance social welfare. It could be argued that the

grandfathering systems is detrimental to new entrants by questioning equal

distribution in Member States, by enhanced accessibility to capital as

incumbents are granted a realizable asset, by threat of exercising market

power by incumbents (CEU, 2001b),

Even more, Svendsen argues that grandfathered regulation is

economically advantageous for incumbents even compared to the situation

without any CO2 regulation, let alone compared to CO2 taxes (Svendson,

2003, p.105-106) where it claims that total reduction cost and lobbying

cost possibly be lower than the rent from grandfathering and thus, net gain

from trade.

The paper by Svendsen (Svendsen 2) also clearly indicates the potential

‘losers’ and ‘winners’ (respectively households and industrials) when

choosing between grandfathering and auctioning permits in the EU. The

result oof the analysis presented in this paper lead to a hypothesis on

rational interest group behavior in the EU and an asymmetrical political

pressure in favor of grandfathering. It is so because large group of

households have difficulties in becoming organized as net benefits for

individual household action are negative so it does not pay to get

organized and reap the total net benefits (Svendsen, 2003, p. 126).

Not all industrial sectors are supposed to participate in the CO2

market. The Commission takes view to environmental effectiveness, economic

efficiency, the potential effects on competition, administrative

feasibility and possible existence of alternatives policies and measures

(CEU 2001b). The initial participating sectors should cover approximately

45% of EU carbon dioxide emissions. Table 1 illustrates the participant

sectors that include all plants with thermal capacity of greater the 50

MWth :

Table 1: Possible industries to include in the emission trading system

|Sector |Percentage of EU 15 CO2 |

| |Emissions |

| |(EUROSTAT 1997 figures) |

|Electricity and heat production |29.9 % |

|Iron and Steel |5.4 % |

|Refining |3.6 % |

|Chemicals |2.5 % |

|Glass, pottery and building materials |2.7 % |

|(including cement) | |

|Paper and printing (including paper |1.0 % |

|pulping) | |

|Total |45.1 % |

Source: CEU (2001b)

It has to be mentioned that leaving out some sectors or smaller

emission sources within the covered sector should be covered by equivalent

policies and measures in order to avoid competitive distortions.

From the table above is clear that EU electricity producers are the

main emitters of CO2 with almost a third of total CO2 emission in the EU,

and therefore their participation is crucial to the liquidity of the market

and environmental success. The interests of the electricity producers are

mainly represented by Eurelectric. Eurelectric is clearly in favor of

grandfathered emission trading (Svendsen, 2003, p. 114-117). As it was

stated by Elsam, Danish energy producer and member of Eurelectric, the

climate change and Kyoto protocol is a fact and in the presence of already

existing national regulations (Danish CO2 cap and trade regulation) having

EU regulation is less detrimental to competition (Peter Markussen)

Iron and Steel industry is represented by the European Confederation of

Iron and Steel industries (EUROFER). As it is energy intensive sector,

enhancing energy efficiency implies increased productivity and thus,

reduced production costs. For this reason it also favors for emission

trading based on historical levels (Svendsen, 2003, p. 114-117).

International Association of Gas and Oil Producers (OGP) represents the

oil and gas industry. It is highly motivated to implement the Kyoto

Protocol as it implies gas market booming when one of the options

for

industries to reduce CO2 is to switch from coal inputs to less CO2 omitting

gas inputs. The position of gas and oil industry is identical to those

mentioned above, namely they prefer permit trade and grandfathering as the

allocation rule (Svendsen, 2003, p. 114-117).

The only industry from the table above is the chemicals that will not

participate in the emission trading system. Their motivation is that it

constrains their competitiveness and ability to grow. Besides, any

reduction for them is not economically feasible as they have already

improved efficiency through a Voluntary Energy Efficiency programme.

Besides, the insignificant emission of CO2 and vast amount of plants in

the industry (administrative burden) made the Commission to succumb and

exclude chemicals from the emission market (Svendsen, 2003, p. 114-117).

Indeed, the exclusion of chemicals in the emission reduction process can be

seen as a victory for the industries concerned (aluminum), compared to

other industries like cement which has conceptually very similar process

emission (Pedler, 2002).

The paper and pulp industry is represented by the Confederation of

European Paper Industry also favors allocation rule which is based on

common guidelines at the EU-level through grandfathering based on common

baseline. In a sense, the industry has partly lost as they initially wanted

the targets to be set by negotiation and ccompliance on a community level –

still, they are winners as the system includes grandfathering as the

allocation rule (Svendsen, 2003, p. 114-117).

Building materials comprise two industries that are cement industry and

ceramic industry represented respectively by CAMBUREU and CERAMIE-UNIE

(Svendsen, 2003, p. 114-117). The ceramic industry is the only that favors

auctioning allocation not like cement industry. Cement industry is of

particular interest for me as I want to look with greater detail how

lobbying pursued by particular company can bring substantial benefits for

it. My targeted interest group is a French Lafarge cement company which is

to be affected by policies to mitigate climate change. Cement manufacturing

is among major contributors to CO2 emissions, hence in the interests of

Lafarge which is world leader in producing constructional materials,

including ccement. The company is aware that some policies would be very

harmful to their business, others less so. Lafarge’s public affairs

objective is to get the least harmful policies (Pedler, 2002). It is

helpful to look how the company adapts to these new conditions early, how

it even might squeeze some gain out of it by lobbying for reasonable

policies and preparing the company to cut greenhouse gas emissions. I will

make an attempt to look were the company lobbying at EU level is succeeding

and what iinsight can be inferred.

4. Lobbying

Lobbying on emission trading has concentrated in Brussels and Paris as

far Lafarge is concerned. For that reason it useful to distinguish a number

of different stages in the process of passing any EU legislation and which

require different tactics to lobby. These tactics apply as much to the EU

emission trading as other issues.

4.1 The idea is debated

Interest groups do need to participate in the discussion by presenting

own arguments on issues that will have direct effect. An effective lobbyist

will start to influence the Commission before they begin drafting any

particular proposal. Among the EU institutions the Commission is the most

important to lobby for interest groups as it has wide mandate in policy

initiation within the EC pillar. Furthermore, the EU Commission highly

exposed to affection by interest groups in the process of policy

formulation. This is due the fact that EU Commission is understaffed and

clearly lacks expertise knowledge on certain aspects. Officials are

therefore happy to dialogue and receive information on issue policies,

especially if it is constructive (Pedler, R.H., 2002, p. 80). As it has

been noted, the contacts between interest take several ways. Mainly these

include :

– face-to-face meetings between Commission officials and interest groups

representatives

– conference and workshops

– permanent aand ad hock advisory committees

– telephone conversation and correspondence

When interest groups are not able to present their arguments face-to-

face is also efficient to influence opinion by providing arguments in the

form of research reports, policy documents, and briefings on matters of

interests (George, S. and I. Bache, 2001, p.296).

It is also important not to neglect relations with public, politicians,

non governmental organizations (NGO) in shaping public opinion on certain

policy matters.

The Lafarge lobbying policy is no exception here – its view is that the

way to persuade someone of its ideas is through rational argument. In turn,

getting the right results requires not only good arguments, but they must

be well presented to the right people at the right time. The company’s

executives, either at the level of Bertrand Collomb, the Chairman and CEO

of Lafarge, or others use these windows to get their messages heard.

Letters to the press, public interviews, participation in conferences and

working groups, formal position papers and other means are also part of

Lafarge lobbying activities. That helps publicity, especially some

environmental NGO, to see the merits of moving forward in to action to

reduce emission, rather continuing for their ideal solution. Lafarge’s

partnership with Worldwide Fund of Nature (WWF) which is involved in nature

conservation and hhas a strong influential presence in Brussels has helped

persuade them of the advantages of emission trading, while at the same time

showing serious intents in ensuring environmental integrity in the system.

Lafarge also have contacts with Environmental Defense, a Washington-based

NGO that has set up an initiative to encourage companies to take voluntary

measures to reduce greenhouse gas emissions linked to trading CO2. Through

the membership of the World Business Council for Sustanable development

(WBCD) and other business organizations, Lafarge also has contacts with

numerous other environmental NGOs active in the climate change debate

worlwide.

Even though a big company as Lafarge, currently employing 66 000

people, is far from being influential to debate on its own. Thus, being a

member of industry federations and other groupings play especially

prominent role in having the weight to influence meters. As has been

mentioned, the cement industry is represented by CEMBUREU, the European

cement industry federation. At the European level, another important

grouping is the European Roundtable of Industrialists (ERT). The WBCSD and

ERT are especially important since both these organizations have built

credibility from the past actions that help add weight to the messages they

give. Finally, at the national level, Lafarge is active in national cement

industries wherever they are present. Plant directors are encouraged to

develop contacts and carry

the same climate change message with local

communities and politicians. In this way, the time spend ensures that

citizens understand Lafarge’s position on environmental policies and why it

has been adopted.

4.2 Proactive attitude helps

The arguments provided by industries are quite compelling and even

accepted by some but only resisting to every measure proposal to mitigate

the climate change is a stalemate with loses eventually on both sides. The

energy tax was the main issue that hovered on EU political agenda and was a

subject of ggreat resistance by industrials. Matter a fact, the allocation

rule based on auctioning by many industries is perceived to be tantamount

to additional taxation and is countervailed by industrials as well.

In general, the European industry has taken a more proactive line.

On the other hand, the US companies still opt for planting trees and buying

Hot Air in Russia or receiving emission credits for simple forest

conservation in the Amazon basin (Pedler, R.H., 2002, p. 93). But sooner or

latter, emission of greenhouse gases will bbe constrained, so it might be

less costly to move early and be prepared, than to resist and be forced to

move later. Thus, Lafarge is realizing that by moving beyond the basic anti

tax resistance is for their own interest. They go quite explicit on

indicating which strategies should be put in place instead of energy taxes.

They advocate a system which is based voluntary or negotiated commitments

as the right way forward. That is somewhat of policy measures as indicated

in the final directive (CEU, 2003c). Of course, accepting commitments,

especially accompanied by sanctions is a bitter ‘peace of cake’ to take

upon companies. They are worried about the cost of meeting the commitments

and hope to avoid it. Thus, a prompt respond to the evolution of the debate

is important. The debate evolves in time and different levels, so the

approach must be well-matched to the circumstances. The institutions and

organizations targeted are the same as those mentioned in the first stage

only the delicate issue is how to present well matched arguments. “Moving

to early to a proactive stance can fog the message of opposition, moving

late can compromise a proactive strategy” (Pedler, 2002) Above all, hard

work in preparation future positions is essential. If this hard work is not

put in, then it will not be surprising that poor decisions are made.

4.3 The drafting stage and implementation

Here the European Commission takes the outstanding position as the

exclusive initial drafter of legislation, which is the principal source of

its influence on the Brussels scene. It aalso has important powers to re-

examine a document draft in the light of the EU Parliament’s amendments

under both the co-operation and co-decision procedure. As has been

mentioned above, the European Commission is relatively transparent as it

promotes the inclusion of affected interests groups in policy formulation.

The proactive attitude in lobbying for one’s interests comes in play again.

The key issue is to come up with well prepared arguments and gear those

arguments in to the objectives of the drafter. These arguments have to

follow all the levels starting from individual officials involved in

drafting the text then following to cabinets and finally Commissioners.

After a draft proposal leaves the Commission, lobbying efforts need to

move to the national capitals and the European Parliament where

argumentation often needs to start from the beginning ones more.

Influencing national governments is important as it might be the only way

to influence the Council. The political developments at the national level

should not be neglected if interests are to be well presented and defended.

Besides, interests groups in one member state might seek to influence

governments in other member states.

The proposal put forward by the Commission is a subject of approval by

the Council of Ministers where members are nationally elected. Thus, the

environmental ministers have worked on tthe new directive for greenhouse gas

trade in the EU. While the environmental policy falls under qualified

majority rule it is important to have national support because the weight

of the votes ensures that only measures that are supported by governments

representing a substantial majority of the Community’s population can be

passed or blocked. Therefore, owing to its importance, the EU Council is a

highly relevant contact for interests groups. However, it doesn’t happen

often that the Council and its administrative machinery, the Committee and

Permanent Representatives (COREPER) and the Council Working Groups, would

be lobbied directly (Cini, 2003). Although, influencing the Council through

the COREPER might be realized from the national interests basis. COREPER is

in charge of the preparatory work for Council meetings, and provide a link

between the European Council and national governments. The COREPER staff

will likely have good expertise in a wide range of the subjects being

legislated in Brussels. Members of Working Groups also are clearly very

important allies to have since these groups consist of national civil

servants whose role is to represent the national interests at EU level and

will naturally be inclined to represent interest essential in their own

country in proper direction as well as providing valuable intelligence

about the course of negotiations that are taking within the working groups.

To sum up, the Council keeps a close eye on the developments in the EU,

therefore a full scale lobbying campaign should involve lobbying the

bureaucrats at all Member States (Stern 19941, p.100-101)

As European Parliament does not wield much power it is less important

for industrial groups like Lafarge, although, it is getting momentum to

accumulate its influence in EU policy shaping. Until the introduction of

the Single European Act the Parliament was seen a consultative body whose

influence on the outcome of legislative proposal was minimal. The SEA has

completely changed this, and as a consequence the attitude of lobbyists to

the Parliament (Stern 1994, p.101). Based on this, I would presume that the

influence exerted by Lafarge on the parliament is not adequate.

Interestingly, as the Parliament is elected by citizens, most likely it

will be prone to support consumer and environmental organizations to gain

popularity among electorate. For this reason, some analysts perceive the

links between interests groups and Members of the European Parliament

(MEPs) as ‘coalitions of the weak’ (Cini, 2003, p.195)

Within the Parliament, the heads of the Standing Committees and the

repporteurs responsible for particular dossiers are the most important

addressees for interest groups. Lobbying the European Parliament starts

when Commission proposals are debated first by a Parliamentary Committee,

selected by the

president of the Parliament. In this stage a repporteur is

chosen by the committee coordinators to study the proposal in detail who

will prepare a draft report on the proposal in question. There are also

Shadow reporters appointed by each political group in the Parliament to

monitor the activities of the Parliamentary Committee and to develop their

own positions on the proposal. Clearly, the most important person for the

lobbyist to influence in the parliament will be the rapporteur. It is

important, therefore for the lobbyist to get in contact with the

repporteur and shadow repporteur and to identify who will be potential

supporters of the interest he or she is representing (Stern, 1994, p.102)

Most likely the rapporteur and his assisting team will be under-resourced

and would welcome any assistance i.e. gathering information and event

drafting reports. Not like the Commission official why may have expert

technical knowledge of his or her area of specialty, the MEP is a career

politician and will not have the same grasp of technical detail (Stern,

1994, p.103). IIt is also essential to have understanding of the political

grouping and the positions most likely assumed by these groupings on

different issues. With this knowledge potential allies in the committees

can be located to exert influence. National political parties in Member

States of MMEP can be also targeted for considerable influence to support

certain views.

To sum up, if the European Parliament is viewed as a lobbying

organization itself, rather then an EC institution, and its key

parliamentarians can be persuaded to support a lobbyist cause then its

power emerges large indeed. Nevertheless, the European Parliament is not a

major player in the emission trading debate; although the Parliament will

issue resolutions on climate issues but these are followed up and are not

formally influential in shaping EU policies (Pedler, R.H., 2002, p. 97).

As the EU’s judiciary, the European Court of justice (ECJ) monitors the

observance and interprets the EU law. The only way for interests groups to

exert their influence is by challenging the compatibility of domestic and

EU law. And eeven when this is the case, the outcome of such litigation is

uncertain, the process is lengthy and expensive, which means that this

channel is not clearly available to all citizens and interest groups, and

will only be worthwhile when the stakes are high (Cini, 2003, p.195).

Definitely, the stakes in emission trading which starts in 2005 will be

high and close eye will be kept on how the Final Directive is transposed in

to national law of Member States. The national allocation discretion

retained by Member SStates might also be subject to be challenge before ECJ

as Member States could be tempted in one other form to favor national

industries in the regulation of emission market. It will be interesting to

monitor how the implementation of the single emission market will be

enforced by ECJ if challenged by industrials or any other interested party.

Finally, there is one more institution worth mentioning as being

potential for lobbyism. It is the Economic and Social Committee (ESC). As

it consists of representative of producers, farmers, workers,

professionals, and of general public to channel the opinions of organized

interests within the European policy process, it should be seen as a place

attracting a lot of lobbying interests. Nevertheless, direct contacts

between the EU institutions and interest organizations make this potential

lobbyism redundant or at least, of marginal importance. Much the same can

be said about Committee of Regions (CoR) (Cini, 2003, p.195).

Conclusions

One may ask, what did the stakeholders get for all lobbying? In getting

understanding of a complex emission lobbying process I can assume that any

regulation (taxes, grandfathered quotas, or auctioned permits) will bring

down to any level of pollution in a cost efficient way. But due to intense

lobbyism efforts by industrials the grandfathering system was chosen as a

starting point. Although, some eenvironmentalists claim that policies and

measures agreed until now are far from being capable to stabilize climate

changes, for the time being it is most advanced politically feasible

compromise between economic optimality and political feasibility. The

Lafarge case shows that practical approach to combat global warming should

be applied as it helps to reach best trade-off among parties and bring

benefits. The benefits achieved by industrials can be summed up in the

following way:

– Avoided higher application of energy tax on energy-intensive

industries, although, the draft proposal remains on the Commission’s

desk and one may question how long will it take for finance ministries

looking for resources to come up with energy taxes again.

– Grandfathered permit system is chosen as a base for allocation CO2

permits. This is favored by industry as it minimizes private emission

reduction costs, creates a rent for existing firms and to certain

extent gives the edge over new entrants in the market. Although, some

allocation percentage based on auctioning will be implemented in the

system but it is much lower in the final Directive than it was

proposed in the Directive Proposal (respectively 5 and 10 percents).

– Number of sectors participating in the emission market is reduced to

fife bby excluding chemical industry. That could be attributed to the

wining by chemical industry as they clearly were against such emission

trading. However, the main reason for excluding chemical sector is

rather administrative then political but the future, as emission

market evolves, most likely will bring up this question again.

– Not only did industrial groups promoted for establishing

grandfathering system, they also achieved implementation and

settlement of permit allocation among sectors at the national level.

This leaves open possibility to influence national governments and

achieve favorable allocation.

– Clear progress in convincing skeptics and environmental organizations

that emission trading system can work to the benefit of the

environment, in particular when the European Commission now takes a

clear line in favor of emission trading

From Lafarge case it is clear that proactive approach in lobbying can

be very fruitful; it implies the recognition that changes are necessary and

is about influencing the choice of policy measures, for example by

proposing voluntary commitments to reduce emission instead of taxes.

The EU emission trading and afterwards the Kyoto protocol is expected

to be only the first step in a much longer process that will need to last

for years to come if global warming is to

be kept under control. In

particular the developing world will need to take on reduction commitments

as their emissions are set to overtake those of the richer countries by

2010. Thus many of the elements of EU emission market and Kyoto protocol

will stay on the political agenda much beyond 2010, which only adds to the

significance of lobbying efforts in this field.

Literature:

• Birgit Schmidt am Busch (2002), – European Institutions. Strategies

for exerting more influence.

• CEU (2001a), Green Paper on ggreenhouse gas emissions trading within

the European Union, Commission of the European Communities, Brussels,

8 March.2000, COM (2000) 87 final

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