The The EU ETS is a pure

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The
European Union (EU) has maintained a strong position on the international stage
with regards to combating climate change. The EU’s goal is to reduce greenhouse
gas emissions by at least 20% below 1990 levels by 2020 and 40% below 1990
levels by 2040 .The European Union Emission Trading System (EU ETS) is
the backbone of the EU’s climate policy. The EU ETS is a pure quantity
mechanism which has the primary goal of efficiently meeting the emissions cap
at the lowest possible costs and thus achieving static efficiency and the
secondary goal to stimulate low carbon technology and thus achieving dynamic
efficiency.

The
economic recession in 2009 acted as a demand shock which led to an excessive
surplus of allowances in the EU ETS. This in turn caused carbon prices to
plunge and scared away investment in low-carbon technology. In 2012, the
Commission proposed six policies to adjust the carbon price volatility with
quantity and price instruments, which in turn started a structural debate about
the reform of the EU ETS. The economic theory developed by Roberts and Spence
would have provided the economic basis for the undebatable preference for a price
instrument such as the proposed auction reserve price to adjust the cap and
trade system to create a stable and strong carbon price signal. Instead, a quantity
approach, the Market Stability Reserve (MSR), was selected to adjust the carbon
price, leading to a fusion of two pure quantity mechanisms: the MSR and EU ETS.

Within this research paper I want to address the research
question: With the dynamics of diverse interests
leading to a rejection of an optimal economic solution for the adjustment of
the EU ETS, is the European Union a powerful actor in the global environmental governance?
This
paper is relevant because the
EU is considered a strong leader in global environmental governance and the actors
within the EU are shaping the EU’s position on the global stage.

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The paper is structured in two main sections. The
first one focus on the interest dynamics of actors which shape the agenda
setting for the EU environmental policy. There are opposing interests between
the EU member states and businesses. The United Kingdom had fiercely advocated
for a stronger climate policy from 1990s until today while Poland always
opposed more stringent environmental policies that could harm its carbon fuelled
economy. The business sector has a crucial role in the proper functioning of
the carbon market and thus its views must be taken into account when crafting
an environmental policy. Clashing views appear between the power sector, notably
energy companies, which favour stringent climate policy and higher carbon
prices while the energy intensive companies, notably the chemical and steel
sectors, would oppose more burdensome environmental policies. This section
examines how the political dynamics of state and non-state actors led to the
preference for quantity based mechanisms and thus a rejection of any price
instruments to adjust the EU ETS.

The second section will assess if the EU is a powerful
player on the global environmental governance by looking at the EU’s leadership
capacity in the environmental negotiations after 2012 such as the Paris
Agreement in 2015. Following T Dereux’s footsteps, this section will assess the
competence of the EU to be a powerful player in the environmental negotiations
by looking at three criteria: “recognition (its acceptance by other actors in
the international system); authority (its legal competences) and autonomy (the
EU negotiator’s independence from the member states).”1

1 Tom Delreux, ‘EU Actorness, Cohesiveness And Effectiveness In
Environmental Affairs’ (2014) 21 Journal of European Public Policy, p. 1018.

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