The The EU ETS is a pure

TheEuropean Union (EU) has maintained a strong position on the international stagewith regards to combating climate change. The EU’s goal is to reduce greenhousegas emissions by at least 20% below 1990 levels by 2020 and 40% below 1990levels by 2040 .The European Union Emission Trading System (EU ETS) isthe backbone of the EU’s climate policy. The EU ETS is a pure quantitymechanism which has the primary goal of efficiently meeting the emissions capat the lowest possible costs and thus achieving static efficiency and thesecondary goal to stimulate low carbon technology and thus achieving dynamicefficiency.Theeconomic recession in 2009 acted as a demand shock which led to an excessivesurplus of allowances in the EU ETS.

This in turn caused carbon prices toplunge and scared away investment in low-carbon technology. In 2012, theCommission proposed six policies to adjust the carbon price volatility withquantity and price instruments, which in turn started a structural debate aboutthe reform of the EU ETS. The economic theory developed by Roberts and Spencewould have provided the economic basis for the undebatable preference for a priceinstrument such as the proposed auction reserve price to adjust the cap andtrade system to create a stable and strong carbon price signal. Instead, a quantityapproach, the Market Stability Reserve (MSR), was selected to adjust the carbonprice, leading to a fusion of two pure quantity mechanisms: the MSR and EU ETS.Within this research paper I want to address the researchquestion: With the dynamics of diverse interestsleading to a rejection of an optimal economic solution for the adjustment ofthe EU ETS, is the European Union a powerful actor in the global environmental governance?Thispaper is relevant because theEU is considered a strong leader in global environmental governance and the actorswithin the EU are shaping the EU’s position on the global stage. The paper is structured in two main sections.

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Thefirst one focus on the interest dynamics of actors which shape the agendasetting for the EU environmental policy. There are opposing interests betweenthe EU member states and businesses. The United Kingdom had fiercely advocatedfor a stronger climate policy from 1990s until today while Poland alwaysopposed more stringent environmental policies that could harm its carbon fuelledeconomy. The business sector has a crucial role in the proper functioning ofthe carbon market and thus its views must be taken into account when craftingan environmental policy. Clashing views appear between the power sector, notablyenergy companies, which favour stringent climate policy and higher carbonprices while the energy intensive companies, notably the chemical and steelsectors, would oppose more burdensome environmental policies. This sectionexamines how the political dynamics of state and non-state actors led to thepreference for quantity based mechanisms and thus a rejection of any priceinstruments to adjust the EU ETS.

The second section will assess if the EU is a powerfulplayer on the global environmental governance by looking at the EU’s leadershipcapacity in the environmental negotiations after 2012 such as the ParisAgreement in 2015. Following T Dereux’s footsteps, this section will assess thecompetence of the EU to be a powerful player in the environmental negotiationsby looking at three criteria: “recognition (its acceptance by other actors inthe international system); authority (its legal competences) and autonomy (theEU negotiator’s independence from the member states).”11 Tom Delreux, ‘EU Actorness, Cohesiveness And Effectiveness InEnvironmental Affairs’ (2014) 21 Journal of European Public Policy, p. 1018.

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