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 tthe 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 oof 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 ve

ery 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. Thhe 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 th
he 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 on

ne 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 in

ncumbents 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 the 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 the 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 at 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 cost 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 of 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 compliance 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 cement. 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 insight 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 and 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 has 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 great 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 be 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 also 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 the 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). It 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 MEP 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 even 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 States 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 environmentalists 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 by 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 greenhouse gas emissions trading within

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

8 March.2000, COM (2000) 87 final

http://europa.eu.int/comm/environment/docum/0087_en.htm (access date

13 October 2004).

• CEU (2001b), Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND

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