Introduction Aim of This Chapter

Emissions trading is now widely acknowledged as the major instrument for regulating greenhouse gas emissions. The effective and efficient control of greenhouse gas emissions through the issuance of a restricted amount of trad-able permits is increasingly seen as an attractive approach. However, the specific design of this instrument, for which different models are available, raises many questions from an economic and legal perspective. This book focuses on how the emissions trading instrument is being applied and will be applied for regulating greenhouse gases in the European legal order. It has become clear that Europe too is seeking the correct modeling for the instrument: the European Commission already proposed a drastic revision only a few years after the initial greenhouse gas emissions trading scheme started to operate in 2005.1 Following this proposal of the Commission of 23 January 2008, important legislative decisions need to be undertaken by the Council and the European Parliament.2 We are however still at the stage of building understanding of the different design options and the related economic effects and

1 Directive of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emissions allowance trading within the Community and amending Council Directive 96/61/EC, OJ L 275/32 25.10.2003.

2 Proposal for a directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emissions allowance trading system of the Community, COM(2008)16, Brussels 23.1.2008.

legal aspects of the instrument.3 Moreover, emissions trading is not to be seen as a superior instrument, but as an attractive option that needs to be examined and to be compared with other approaches, like command and control and taxation. It would indeed be wrong to assume that emissions trading would be the unique approach to be applied as the one and only world-wide regulatory approach.4 Other instruments, for instance border tax adjustments, instruments like labeling and taxation, are interesting to examine as well.

Within the EU context, it is nevertheless clear that, with the adoption of directive 2003/87, emissions trading has become a key instrument of EU climate change policies, and literature in principle supports the idea of applying emissions trading for greenhouse gas emissions in this regional context. Nonetheless, the optimal design of the emissions trading instrument for specifically the EU has not been crystallized yet, and this chapter aims at enhancing the understanding of designing an emissions trading scheme for greenhouse gases within the EU context. After having emphasized the need for a legal analysis of the emissions trading instrument, it will present some important design options for that instrument. Subsequently, it will discuss the proposed major revision of the present scheme from one specific aspect that was raised in the 'reform' literature by Bruce A. Ackerman and Richard B. Stewart, which is what they call the 'democratic case' of emissions trading, which we will take further and call democratic accountability.5 We will elaborate on their argument that emissions trading in fact contributes to the democratic accountability of environmental law, and will review how this argument can be understood in view of the present proposal to change the initial European greenhouse gas emissions trading scheme. By doing so, we introduce a value for assessing the design of the emissions trading instrument that has been under-explored thus far in the literature concerning European greenhouse gas emissions trading. Remarkably, this exercise shows us that the initial greenhouse gas emissions trading directive facilitating national governments to allocate tradable rights is not that bad at all from the perspective of democratic accountability. On a more general level, this discussion shows that we are still building a framework of criteria to assess the emissions trading instrument, in which different economic and legal perspectives need to be balanced.

3 Also in the USA there is an ongoing debate about the design of emissions trading models and moreover the additional use of technological standards for air pollution notably by SO2, NOx and PM, see Brian Potts (2007).

4 As argued by Geert van Calster (2008).

5 Ackerman and Stewart (1988).

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