european struggles and american resistance: inclusion of aviation … · inclusion of aviation into...

EUROPEANSTRUGGLESANDAMERICANRESISTANCE:INCLUSIONOFAVIATIONINTOTHEEUETS

byPawelPustelnik

ThesissubmittedfortheDegreeofDoctorofPhilosophy

SchoolofGeographyandPlanningCardiffUniversity

2016

AbstractThis research examines the process of inclusion of aviation into the European Union

Emissions Trading System (EU ETS). The thesis investigates an environmentally-

recalcitrantcommunity(aviationindustry)anditsattemptstosuspendtheapplication

oftheEUETSonthesector.Itfocusesonthedecision-makingprocessesattheEuropean

Union (EU) level and juxtaposes the European policy-making with the resistance to

inclusion shown in the political system of theUnited States (US).More specifically, it

seeks to understand the factors affecting the effectiveness of efforts to forge effective

internationalenvironmentalpolicy,especially thosedrivenbytheEU in thecontextof

climatechange.

Theoretically, this research draws on three theories: Multi-level governance, Policy

Network Analysis and Interpretive Policy Analysis. These theories are advanced by

consideringthemeaning-makingactivitiespursuedbythestakeholdersanddiscursive

aspectsoftheprocessanalysed.Empiricallythethesis is informedbyaseriesofsemi-

structuredinterviewsconductedinWashington,DCin2013andinBrussels,Belgiumin

2014,policydocuments,andmediacontentanalysis.

Thethesisconcludesthattheclimateambitionsofthe(EU)mayinstigateinternational

resistance leading todeteriorationof relationswith international partners. The thesis

provestoothattheconflictintheEUETScaseisrelatedtotheconstructionofinterests

bothwithintheEUandvisàvisitsinternationalpartners.Theresearchcontributesalso

to understanding the internal proceedings of the European Commission by showing

discrepancies in decision-making between theDirectorate Generals. It shows that the

locusofpolicymakingcanbechangedtowardsmorenon-materialvenues.Finally, the

results show that aviation enjoys a particularly powerful position among other

businesses both in the EU and in the US and is able to shape policy-making at the

nationalandinternationallevel.

DECLARATIONThisworkhasnotbeensubmittedinsubstanceforanyotherdegreeorawardatthisoranyotheruniversityorplaceoflearning,norisbeingsubmittedconcurrentlyincandidatureforanydegreeorotheraward.Signed Date31.10.2016STATEMENT1ThisthesisisbeingsubmittedinpartialfulfillmentoftherequirementsforthedegreeofPhD.Signed Date31.10.2016STATEMENT2This thesis is the result ofmy own independentwork/investigation, exceptwhere otherwisestated.Othersourcesareacknowledgedbyexplicitreferences.Theviewsexpressedaremyown.Signed…………………………………… Date31.10.2016STATEMENT3Iherebygiveconsentformythesis, ifaccepted,tobeavailableforphotocopyingandforinter-libraryloan,andforthetitleandsummarytobemadeavailabletooutsideorganisations.Signed………………………………… Date31.10.2016STATEMENT4:PREVIOUSLYAPPROVEDBARONACCESSIherebygiveconsentformythesis, ifaccepted,tobeavailableforphotocopyingandforinter-library loans after expiry of a bar on access previously approved by the AcademicStandards&QualityCommittee.Signed Date31.10.2016

Acknowledgements

Working on this thesis was an intense experience and plenty of people greatly

contributedtothislearningprocess.

Firstly, I would like to thank my parents Anna and Grzegorz who have been always

supportiveandaccepting.TheirsupportwaslaterjoinedbymylittlebrotherWojciech.

Withouttheirconstantinspirationmylongjourneythatledmetothisthesiswouldnot

havebeenpossible.

I am very indebted tomy supervisors: Dr. Richard Cowell, Dr. Oleg Golubchikov and

Prof. Peter Feindt. Their constant encouragement and extremely valuable comments

havemadethisthesismuchbetterthanitwouldhavebeenotherwise.Iamalsograteful

toDr.AndreaCollinswhocontributedasareviewer.Mythanksareowedalsoto

Prof.MirandaSchreurs,Prof.FrankBiermannandProf.PhlippPattberg.

Natalia,Mos,Morena,mydear friendsand flatmateswhowerealwaysthere forme in

Cardiff.Theworkonthisthesishasbeengreatlyhelpedbytheenthusiasmofmythree

very special goddesses: Ioanna, Diana and Tara. Hade and Richard have helped

immenselywiththeirmoralandculinarysupport.Finally,Jasmin,GeorginaandHierald

whomademy research inWashington a great experience, Kri andAgata shown their

immense help in Brusselswhile Andrzejwas instrumental formywork in Berlin.My

WSCFandEYCEfriendswereagreatsourceofcommunityspiritandselflesshelp.

Manythankstomydearfriends,whokeptupwiththelong-distanceandmobileaspects

ofthisendeavour.Agata,Katka,Kiedro,Mezz,Matuszyouhavebeengreat.

Last but not least, very special thanks to Piotr for his unlimited care, support and

understandinginthevariousstagesofthisthesisandofmylife.

Listofabbreviations

A4A AirlinesforAmerica

ACES AmericanCleanEnergyandSecurityAct

ACF AdvocacyCoalitionFramework

ACI AirportsCouncilInternational

ACI-NA AirportsCouncilInternational–NorthAmerica

AEA AssociationofEuropeanAirlines

AEF AviationEnvironmentFederation

AIA AirspaceIndustriesAssociation

ALPA AirLinePilotsAssociation

APA AlliedPilotsAssociation

ATAA AirTransportAssociationofAmerica

ATAG AirTransportActionGroup

CAEE CommitteeonAircraftEngineEmissions

CAEP CommitteeonAviationEnvironmentalProtection

CAQDAS computerassistedqualitativedataanalysissoftware

CBDR commonbutdifferentiatedresponsibilities

CBDRRC commonbutdifferentiatedresponsibilitiesandrespective

capabilities

CDM CleanDevelopmentMechanism

COP ConferenceoftheParties

CJEU CourtofJusticeoftheEuropeanUnion

CO carbonmonoxide

CO2 carbondioxide

CRS CongressionalResearchService

DGCLIMA DirectorateGeneralClimateAction

DGMOVE DirectorateGeneralMobilityandTransport

EC EuropeanCommission

ECAC EuropeanCivilAviationConference

EDF EnvironmentalDefenseFund

EEA EuropeanEconomicArea

EPA EnvironmentalProtectionAgency

ET EmissionsTrading

EU EuropeanUnion

EUETS EuropeanUnionEmissionsTradingSystem

FAA FederalAviationAdministration

FOIA FreedomofInformationAct

GAMA GeneralAviationManufacturersAssociation

GHG greenhousegas

GWP GlobalWarmingPotential

IATA InternationalAirTransportAssociation

ICAO InternationalCivilAviationOrganisation

ICSA InternationalCoalitionforSustainableAviation

IMO InternationalMaritimeOrganization

IPA interpretivepolicyanalysis

IPCC IntergovernmentalPanelonClimateChange

JI JointImplementation

MEP MemberoftheEuropeanParliament

MLG multi-levelgovernance

NAP NationalAllocationPlan

NBAA NationalBusinessAviationAssociation

NOx nitrogenoxides

NRDC NationalResourcesDefenseCouncil

PNA policynetworkanalysis

RECLAIM RegionalCleanAirIncentivesMarket

RFI RadiativeForcingIndex

SOx sulphuroxides

T&A TransportandEnvironment

TTIP TransatlanticTradeandInvestmentPartnership

UNFCCC UnitedNationsFrameworkConventiononClimateChange

WWF WorldWideFundforNature

ListofTables

Table1:Outlineoftheresearchmethodsused……………………………….………………. 84

Table2:InterviewsconductedinBrussels…………………………………………………….… 95

Table3:InterviewsconductedinWashington,DC……………………………………….…... 98

Table4:Typesofcodesemployed…………………………………………………………….…..… 104

Table5:EUETSProhibitionActTimeline……………………………………...…………….……137

Table6:BRICspositiontowardstheEUETSinclusionofaviation…………………......189

8

TableofContents 1 Introduction............................................................................................................................111.1 Researchrationale......................................................................................................................111.2 Researchquestions.....................................................................................................................171.3 Structureofthethesis................................................................................................................21

2 LiteratureReviewandContextualization.....................................................................242.1 Introduction...................................................................................................................................242.2 Emissionstrading........................................................................................................................242.2.1 Benefitsofflexiblemechanisms.......................................................................................................262.2.2 Challengesfacedbytheemissionstradingconcept................................................................28

2.3 TheEuropeanUnionEmissionsTradingSystem..............................................................322.4 Aviation,climatechangeandtheEUETS.............................................................................382.4.1 Impactsofaviationonclimatechange..........................................................................................382.4.2 Internationalregulationofaviationemissions.........................................................................402.4.3 AviationintheEUETS..........................................................................................................................452.4.4 Exceptionalisminaviationpolicyandregulation:origins,pathdependencyandretrenchment...........................................................................................................................................................47

2.5 Conclusions....................................................................................................................................493 Theoreticaldiscussion.........................................................................................................513.1 Introduction...................................................................................................................................513.2 Thefirstpillaroftheinvestigation:policynetworkanalysis.......................................523.3 Therefinementprovidedbyinterpretativepolicyanalysis.........................................573.4 GovernanceandMulti-levelgovernance.............................................................................613.4.1 Multi-levelgovernance.........................................................................................................................643.4.2 Spaceforpower.......................................................................................................................................683.4.3 Geographicalapproachesvs.MLGtheory....................................................................................71

3.5 Combiningthethreeapproachestothepolicyprocess..................................................723.6 Conclusions....................................................................................................................................76

4 Methodology............................................................................................................................784.1 Introduction...................................................................................................................................784.2 Logicoftheinquiry......................................................................................................................794.3 Casestudydesign.........................................................................................................................804.4 Desktopanalysis..........................................................................................................................844.5 Interviews–whyinterview?....................................................................................................864.5.1 Semi-structuredinterviews...............................................................................................................894.5.2 Whoaretheexperts?............................................................................................................................904.5.3 Preparationfortheinterviews.........................................................................................................92

4.6 FieldworkinBrussels.................................................................................................................944.6.1 IdentificationoftheintervieweesattheEuropeanCommissionandaccesstothehighprofileinterviewees....................................................................................................................................964.6.2 AccessingtheEuropeanParliament...............................................................................................964.6.3 AccessingtheenvironmentalNGOs................................................................................................974.6.4 Accessingtheaviationindustry.......................................................................................................974.6.5 Intervieweesrepresentingothersectors.....................................................................................97

4.7 FieldworkinWashington,DC..................................................................................................984.7.1 IdentificationofthepotentialintervieweesattheCongressionallevel.........................994.7.2 AccessingtheeNGOs..........................................................................................................................1004.7.3 Accessingthesectoralorganisations..........................................................................................101

9

4.7.4 Accessingtheadministration.........................................................................................................1014.7.5 Othertypesofinterviewees............................................................................................................102

4.8 Dataanalysis...............................................................................................................................1034.8.1 Remarksontranscription................................................................................................................1034.8.2 Dataanalysis..........................................................................................................................................103

4.9 ResearchEthics..........................................................................................................................1054.9.1 Informedconsent................................................................................................................................1054.9.2 Confidentialityandanonymity......................................................................................................106

4.10 Conclusion.................................................................................................................................1065 TheEUgoesintotrenchestostimulateICAO:EU’sleadershipintheclimatepolicy..............................................................................................................................................1075.1 Introduction................................................................................................................................1075.2 TheemergingroleofICAOinCO2emissionsregulation..............................................1085.3 TheICAOandEUintersectionontacklingCO2emissions...........................................1165.3.1 TheroleoftheEUMemberStates................................................................................................1185.3.2 TheEUandICAO:non-environmentalvenues.......................................................................121

5.4 “WithoutustherewouldbenodevelopmentatICAO!”CantheEUbeseenastheICAO’saccelerator?..............................................................................................................................1235.5 “Perhapsitwasn’tpainintheass…butabititwas”:issuesbetweentheECDirectorateGenerals..........................................................................................................................1285.6 Conclusions.................................................................................................................................132

6 ThenatureoftheoppositiontotheEUETSforaviationintheUS......................1366.1 Introduction................................................................................................................................1366.2 TheaviationindustryintheUS............................................................................................1376.3 “SendingthemoneytoEuropedidnotseemlikeagoodideatoanybody”–betweenfinancialandsovereigntyissues...................................................................................1406.3.1 LegalcaseagainsttheEUETS........................................................................................................1416.3.2 USformalresistanceagainsttheEUETS..................................................................................1466.3.3 TheEUETSProhibitionBillanditssignificanceasobservedbythepolicyactors1496.3.4 Financialissues:whatmoneyistobesent?.............................................................................1596.3.5 Competitionissues:measuresequivalenttotheEUETS...................................................1626.3.6 Policychangeorcontinuity?...........................................................................................................163

6.4 Theimportanceofasingleaviationorganisation.........................................................1676.4.1 UScarriersininternationalsectoralorganisations..............................................................1676.4.2 ConsolidationoflobbyingeffortsinWashington..................................................................171

6.5 Conclusions.................................................................................................................................1747 Thevoicesoftheunwilling:theoppositiontotheEUETSonaglobalscale...1777.1 Introduction................................................................................................................................1777.2 Coalitionoftheunwilling.......................................................................................................1787.2.1 Coalitionmeetings:fromNewDelhitoWashingtonviaMoscow..................................180

7.3 “Idon’tthinkthattheUSisthemostproblematicinthesenegotiations,itismainlyIndia,Russia,China”BRIC’soppositionandtheCBDRarguments.......................1887.3.1 India...........................................................................................................................................................1947.3.2 China.........................................................................................................................................................1987.3.3 Russia:“TheRussiansareachallenge”......................................................................................206

7.4 Conclusions.................................................................................................................................2108 Discussion..............................................................................................................................2158.1 Introduction................................................................................................................................2158.2 Governanceissues:policyparadiseversuspolicystagnation?.................................2168.3 Globalraceforleadership......................................................................................................2208.4 Avenueoranon-venue?........................................................................................................225

10

8.5 Attemptstoregulateaviation:exceptionallyexceptional..........................................2298.5.1 Accesstoflying.....................................................................................................................................2308.5.2 TheEUmobilities................................................................................................................................2318.5.3 Whoreallyrulesaviation?...............................................................................................................233

8.6 Concludingremark...................................................................................................................2349 Conclusions............................................................................................................................2369.1 Introduction................................................................................................................................2369.2 Policychange:effects,actorsandvenues.........................................................................2379.3 TheEUandthirdcountries....................................................................................................2419.4 Limitationsandfurtherstudy..............................................................................................245

10 References...........................................................................................................................25011 Appendices..........................................................................................................................30211.1 AppendixA:MasterInterviewSchedule–EU...............................................................30211.2 AppendixB:MasterInterviewSchedule–US...............................................................304

Chapter1:Introduction

11

1 Introduction In theWestern world, flying became a part of modern lifestyles and with the

advent of low-fare airlines it is no longer considered a luxury.While usingplanes for

leisure,businessorevendailycommute,travellersarenotalwaysawareoftheirclimate

impacts.LittledidtheyalsoknowthattheEuropeanUnion(EU)’sattemptstoinstigate

internationalactiontotackleaviationemissionscouldhavegroundedEUcivilaviation

in2012.TheEyjafjallajökulleruptionin2010gaveanideaofwhatEuropewithempty

skiesmeans,andapotentialparalysisin2012couldhavebeenevenmorepainfulboth

forpassengersandEUeconomies.

This thesis focuses however on the process that led to this potential crisis. It

advancesknowledgeof thegenesisandeffectsofambitiouspoliticalactionaspiringto

tackle carbon dioxide emissions from civil aircraft. It unpacks the complexity of

contemporarygovernance.Furthermore, itoffersauniqueaccountofmanyvoicesand

evenmoreinterestsunderlyingcurrentregulationsaimingatreducinggreenhousegas

(GHG)emissionsglobally.

Theintervieweesthattookpartinthisstudyalwaysstartedtellingtheirversion

of the EU’s attempts to regulate aviation emissions with worried faces. This thesis

unpacks the reasons for these concerns, with the objective to provide a balanced

account of the events, but also challenge someof the theoretical premises of theway

scholarslookatgovernanceofclimatechange.

This firstchapterof thethesisaimsatshowingtherationale forconductingthe

studypresentedhereandproposestheparticularapproachtaken.Italsointroducesthe

caseanalysedandliststheresearchquestionstogetherwithresearchobjectives.Finally,

it explains the structure of the thesis by offering short summaries of the following

chapters.

1.1 Researchrationale The rationale for this research is based on its relevance for contemporary

research themes around the contestation of policies and the pace of climate change.

Thesecanbedividedintothreethemesthatarefurtherdevelopedbelow:international

aspects of policy-making in the area of environment, EU’s policy endeavours and

sectoralexceptionalisminregulation.


12

Social science research on the European Union (EU), has flourished in recent

yearsandthestudyoftheEUhasbecomeamainstreamendeavouramongeconomists,

sociologists,planners,politicalscientists,geographersandothers.Theenvironment,and

moreparticularlyclimate,joinedEUpolicy-makingagendasonlyinthe1970s,afterthe

1972Paris Summit.Througha subsequentadoptionof the firstEnvironmentalAction

Programme,thetopichasquicklybecomeoneofthemostdynamicareasofresearchon

the EU. This trend has been to a large extent motivated by the environmental and

climate policies requiring essential cooperation between the EU Member States and

variouslevelsofgovernance.

Another importantaspect is that theenvironmentalandclimatepoliciescanbe

highlycontestedbythepolicyprocessparticipantsastheypertaintodifferinginterestat

national, regional and local levels as well as differing concerns between the industry

sectors, consumers and environmental organisations. What is more, the regulatory

issues regarding climate change go beyond EU borders. For example, some of the

regulations and standardsdirectly affect foreign companiesdoingbusiness inEurope.

Lastly,thealarmingpaceofanthropogenicclimatechangemakesresearchonthe

environmentandclimatevital,notonlywithrespecttoitscausesandimplicationsbut

alsowithregardstothepoliticaltoolsthatcanbeimplementedinordertochallengethe

continuedgrowthofglobalGHGemissionslevels.Finally,thisthesisisaresultofalong-

standinginterestofitsauthorinaviationissuesandacademicfascinationinthemarket-

basedmeasuresaddressingclimatechange.

BylookingattheEU’sclimatepolicyinitiativesonecanexaminevariouspolitical

phenomena that condition the functioning of the international climate arena.One can

identifyinsightsregardingthenatureofvenueswherepolicymakingiseffectivelytaking

place and also ask why certain decisions are being made and other initiatives

abandoned.While the literature gives prominence to investigating the importance of

various parts of theEU institutional architecture and theMember States, the broader

pictureof theEUconfrontingglobal sectoralorganisationsandnon-EUstates ismuch

lessthoroughlyanalysed,whichcreatesanimportantresearchgap.Secondly,onlyviaa

critical assessment of the actual implementation of the ideas can one systematically

considertheEuropeanpositionintheclimatedebateglobally.

One of the recent and highly debated ideas of the EU has been the European

Union Emission Trading System (EU ETS), an initiative created to address climate


13

change through putting a cap on emissions of GHG from specified installations in

selectedindustriesandallowingcarbontradingbetweentheparticipatingentities.The

EU ETS is considered the main pillar of the EU’s fight against climate change and a

flagship climate initiative of the EU (European Commission 2015a; European

Commission 2015c; Skjaerseth &Wettestad 2008; Ellerman et al. 2014). This strong

affirmationforflexiblemechanisms,suchasemissionstrading,providedbytheEUitself

directs the researchers toanalyse the schemenotonlywith regards to its functioning

but also pushing the enquiry towards the political intricacies of the largest carbon

trading mechanism in the world. As will be shown in the next chapter, a variety of

research projects have examined the EU ETS from economic and legal perspectives,

however approaching the topic from a governance perspective has to date received

limited attention. The case offers to address the following puzzle –what explains the

EU’scapacitytosuccessfullyimplementitsallegedlymodelpolicy?

Analysing the political construction of the scheme through its institutional and

organisational architecture provides an opportunity to examine governance as a

theoretical framework. Climatepolicieshave alsobeen identified as fertile ground for

theory-testing, especially in themulti-level governance realm (Schreurs & Tiberghien

2007; Zelli et al. 2010; Blok 2013). This means that for example, the capacities of

individual actors present in the policy process can be assessed and the relations

betweenthemexploredbyprovidinginthisthesisadequatespacefornon-stateactors,

whichhavebeenpreviouslyignoredintheliterature.Furthermore,theexaminationcan

consider the exercise of authority that takes place outside of the usual jurisdictions

(Rosenau2000,p.172).TheEUETShasalsobeenafruitfularenaforlobbyistsandthe

levelof interactionbetweenthestakeholdershasbeenextremelyhighinthis file.This

allowsfurtherexaminationofthegovernanceframeworksthatgivesprominentspaceto

industry–policy-makers’interactioninrelationtoclimatepolicy.

These three research rationales are pursued through a case study of a specific

period and sectoral context for policy implementation: the inclusion of aviation

operations into theEUETS.Althoughregulationofaviationemissionshasbeenat the

discretionoftheInternationalCivilAviationOrganization(ICAO),theEU-respondingto

what itsawasICAO’s idleness-decidedtoaddthissector intotheEUETSinorderto

curbrapidlygrowingaviationemissionsrelated to increaseddemand for flying.Given

the hitherto special position of aviationwithin international governance regimes, this


14

appears a substantial policy change1 of multilateral dimension as all civil flights

departingfromandlandingatEuropeanairportsweretobeincludedinthescheme,no

matter what the country of an aircraft’s registration. Indeed, the EU’s decision on

inclusioncanbeseenasanattempttolimittheexceptionaltreatmentofthesector.The

caseoffersacompellingexampletoanalysetheprocessofchangeinpublicpolicyatthe

international level and the resistance to it given the sector in question and spatio-

politicaldimensionsoftheissue.Itaddressesthenthepuzzleofextraordinarypowerof

theaviationsectorthatdisabledtheimplementationoftheEUETSandtheremarkable

situation in which the EU has been confronted with multi-directional international

resistanceblockingitspolicy.

The EU’s decision to include aviation activities into the EU ETS led to various

political controversies, which unexpectedly for the EU, involved a large number of

countries including theUS, Russia, China, India andBrazil aswell as other important

politicalandbusinesspartnersoftheEU.ThecountriesopposingtheEUETSanswered

totheinclusionwiththreatssuchasinvolvingtheWorldTradeOrganisation,grounding

EU aircraft abroad and imposing additional levies on EU airlines. In this way, the

oppositionmanagedtoblocktheEU’sleadership.Legalbillsenablingtheprohibitionof

participationintheEUETSasapprovedbythedecision-makersoftheUS,ChinaorIndia

gavelittleroomfortheEUtomanoeuvre.Thesituationhasbeenfurtheraggravatedby

someEUMemberStates trying toprotect theirnationalaviation-relatedactivitiesand

theEuropeanCommission’sinternalissuessurroundingleadershipoftheETSfile.Inthe

background of the high politics, environmental non-governmental organisations

(eNGOs)triedtosupporttheEU,butoftentheirlobbyingcapacitiesweresurpassedby

theaviation’sbusinessflairforputtingpressureondecision-makers.

The context outlined above allows this thesis to explain various aspects of

international regulation. The thesis thus looks beyond the European regulations

concerning aviation CO2 emissions and provides an insight into the reactions coming

from the non-EU countries and negotiating over the shape of the international rules

1The EU policy-makers started to think about abolishing kerosene exemption from taxing back in the1990s.AccordingtotheDirective92/81/EECMemberStateswereabletolimittheexemptionsforjetfuel.In 1996 the European Commission endorsed abolition of the exemption as soon as the internationalsituation is formed in a way that non-EU countries could be included in the project (EC Cons Doc11452/96, 19November1996). In 2003, according toArticle14(2) of 2003/96/ECMember States areallowed to limit the exemption “to international and intra-Community transport” or where the states“enteredintoabilateralagreementwithanotherMemberState.”


15

concerningaviationemissions.Inthisway,thisthesisaddressesthegapintheliterature

pertainingtosovereigntyofstates,states’authorityandregulatoryjurisdictionbutalso

engageswith literaturespertaining to leader – laggarddynamics in the climate realm

(Andresen & Agrawala 2002; Knill et al. 2012). It also contributes to bridging the

research gap between scholarship focusing on climate leadership within the EU and

researchonclimateleadershipglobally.

Giventhatthemostvocalandorganisedresponsetotheinclusionofaviationinto

theEUETShascomefromtheUnitedStates,thiscountryreceivescarefulconsideration

inthisthesis.FromtheUS,“TheEuropeanEmissionsTradingSchemeProhibitionActof

2011”(USHouseofRepresentatives2012b)marksadramaticdisagreementwiththeEU

policyandcreatesan internationalprecedent.Byexamining theUS’s responses to the

inclusion of aviation into the EU ETS, the thesis is able to look into transatlantic

relations,theirdynamicsandtheEU’sabilitytoinfluenceacountrythathasbeenvisibly

reluctanttoadoptbindingglobalclimateagreements(Schreursetal.2009b).

AfurtherfacetofthedebatethatisanalysedhereconcernstheEU’sinclusionof

aviation into the EU ETS as a unilateral step that happened without obtaining third

countries’consent.Thislackofconsentresultedinsignificantresistancemostlyfromthe

USwithsupportfromChina,Russia,Indiaandothers.Opponentsemphasisedproblems

such as protection of their sovereignty, breaking of international law, the creation of

substantial costs for third country customers, and trade distortions. All these were

represented as severe threats for aviation operations at EU airports as well as for

operations of EU-based airlines globally. The case allows the analysis of multiple

understandings of climate policies by non-EU countries to be brought to bear on

understandingoftheconstructionofEUclimatepolicy.

Furthermore, given the EU’s failure to implement the EU ETS in its ambitious,

broadscope, it iscrucial toanalysethe fateofattemptsto includeaviation intheETS,

giventhattheEUisoftenregardedasa“leader”,settingthepaceforenvironmentaland

climate policies worldwide (Vogler & Stephan 2007; Oberthür & Roche Kelly 2008;

Mehling et al. 2013; Oberthür 2009; Rayner & Jordan 2013; Schreurs & Tiberghien

2007).

Another important theme that this thesis addresses pertains to circumstances

underwhich aviation happens to operate. The aviation industry offers an interesting

caseofasectorwhosemainfeaturesarehighlevelsofmobilityand,partlyasacorollary,


16

exceptional treatment with regards to taxation. Aviation’s regulatory framework

encompassesconflictingmandatesamongnational,internationalandglobalinstitutions

regulating the sector (Staniland 2012). Furthermore, the sector is seen as having

enjoyed privileges from the very start of civil aviation regulation (Havel & Sanchez,

2012, p. 355). The exceptional treatment within systems of fiscal regulation is

exemplifiedbythefollowing:internationalflightsareVATexempted;thereisnocharge

duty on fuel according to Article 24 of the Chicago Convention and Air Service

Agreementsallowingforfurtherbilateraltaxexemptionsonaviation-relatedgoodsand

parts. Its regulation is harmonized through international treaties. The sector also

features strong lobbying capacities and is regarded as powerful (Woll 2004). Also,

regulation of international aviation happensmostly at the level of International Civil

Aviation Organization, which has been formally positioned by UN institutions as an

exclusivevenuetodealwithaviationregulation.

A further remarkable feature of the inclusion is that in the European context,

policy-makersdidnot expect to face thatmuch resistance.TheEuropeanCommission

officials would often be taken aback by the reactions of the third countries to the

scheme. Consequently, examining the internal workings of the Commission as

showcased in the thesis contribute to a better understanding of the dynamics on the

Europeanside.

Tosummarise,thefocusofthisthesisisdrivenbyanumberofimportantaspects

of internationalandclimatepolicy.Firstly, it examines theproblemof lackof sectoral

actionforemissionsreductionsinaviationandastrongresistanceofthesectortocave

inandcomplyunderthepressureofambitiousEUtargets.Secondly,thethesisseeksto

extendourunderstandingoftheEU’sabilitytoshapeinternationalregulations.Thirdly,

it considers the political dimensions of the problem such as legitimacy, authority and

power in a fluid context of multi-stakeholder and multi-venue interactions based on

national interests,particularbenefits for industriesononesideandthecommongood

ontheotherside.


17

1.2 Researchquestions

The circumstances presented above pose a case for investigating complex

governanceandcontrolissuesattheinternationallevelandprovidethejustificationfor

thefollowingresearchquestions,asbelow:

1. WhatweretheeffectsoftheEU’sattempttoincludeaviationintheETS?

2. Whoarethemostprominentactorsofthedebateoninclusion?

3. Whywereparticularvenuesofpolicyprocessesregardingaviationemissions

preferred?

4. Why do EU and non-EU countries differ on the shape of a global aviation

emissionspolicy?

5. HowarethepolicydifferencesbetweentheUSandtheEUbeingresolvedatthe

internationallevel?

More specifically, the first research question aims to understand the EU’s

potentialtoinfluenceinternationalclimatedecision-making(Kilian&Elgström2010;L.

G. van Schaik 2013), and is addressed by reconstructing the full picture of the issues

surroundingtheinclusionofaviationintotheschemebothintheEUandinternationally.

Thus, while focusing on opposition it invites further queries. Which key discourses,

interests,andactorshavebroughttheEUtothisdecision?Whyweretheserationales

met antagonistically by the EU’s key international partners? What have been the

politicalrationalesandconsequencesof theEU’sattemptto includeaviation intheEU

ETS?

Thesecondquestionexaminestheclaimsregardingaviation’sprivilegedposition

(Kopsch 2012; Havel & Sanchez 2011a; Havel & Sanchez 2012) and contributes to

assessing the feasibility of a global agreement for aviation emissions trading systems

(Susskind&Ali2014).Furthermore, itaddressesa frequentlyaskedquestion:what is

thenatureofrelationshipsbetweenthestateandnon-stateorganisations?(Keohane&

Nye1971;Keohane1984;Biermannetal. 2010; Chanetal. 2015;Newelletal. 2012;


18

Arts et al. 2001; Willets 2001; Bieler et al. 2004). It also uncovers the relationships

between the actors included in the debate, and investigates in depth the following

issues: the role of sectoral organisations such as International Civil Aviation

Organisation(ICAO)inthefacilitationofaircraftemissions’governance,theregulatory

capacities of such organisations and the interplay between the sectoral organisations

andtheEUinitiativestargetingemissions.Thethirdquestiongivesspecialattentionto

the decision-making process per se. By unpacking it, the thesis answers why some

decision-makingvenuesaremoreimportantthanothers,whylessformalvenuesgained

importance and what the nature of the venues is (material versus non-material). It

advancesthevenueshoppingtheory(Baumgartner2007;Trueetal.1999;Pralle2003)

asitnotonlyaskswhicharetheimportantvenuesbutinquiresfurtherwhyandunder

whatcircumstances their importance increases.At thesametime itexpands thescant

researchonintra-EuropeanCommissionproceedings(Delreux&VandenBrande2013;

Kassim 2013). By tracing venues and actors the thesis is able to contribute towider

debates: the effects of unilateral action on international bodies, the ability of a non-

specializedactortoinfluenceahighlytechnicalsector,andtheleverageofoneactorto

regulatethetransnationalconductandbehavioursofotherstates.

Questions 4 and 5 tackle a broader, international area of investigation. They

pertain toassessing the feasibilityofEU leadership(s)withregards toclimatepolicies

(Schreurs&Tiberghien2007; Zito2005; Skodvin&Andresen2006;Gupta&Vander

Grijp2000;Christiansen&Wettestad2003)andfurthercontributetounderstandingthe

role and construction of the interests the involved parties have had. Furthermore, by

buildingoncomparisonsbetweenpolicynetworks(Marsh&Rhodes1992)itconfirms

that theEUand theUShavedivergent approaches to their respective climatepolicies

(Skjærsethetal.2013;Schreurs&Tiberghien2007;Schreursetal.2009a).WhiletheUS

andtheEUhavedecidedtodealdifferentlywith issuessuchascommitmentstowards

KyotoProtocoltargets,renewableenergiesoremissionstrading,thisthesisshowsthat

the transatlanticdivisionmaybedeeper thangenerallyassessedand theEUETScase

poignantlydocumentsthat.

The questions pertaining to the interactions between the EU and non-EU

countries resonate strongly with debates on the EU’s environmental and climate

leadership (Gupta & Van der Grijp 2000; Oberthür & Rabitz 2013). Investigating


19

leadership facilitates interpreting theEU’s position internationally and the level of its

regulatoryambitions.ItalsocontributestounderstandingthebaseoftheEU’spolitical

power, and a series of subsidiary questions. Is it based on coercion and threats to

achieveitsresults?IstheEU’sleadershipbasedonavoluntaryfollowership(Lindenthal

2009)? Or is the EU leadership structural and simply utilizing its power resources

(Young1991)?The inclusionof aviation into theEUETSoffers a casewhere a policy

envisaged as a domestic (intra-EU) tool, started to be perceived, by some non-EU

countries, as of an external, international character infringing their sovereignty. This

thesiscontributesthustocomprehendingtheEU’spositionforfutureinvolvementswith

climatechangepoliciesatagloballevelbutalsotheEU’sexternalpolicyingeneral.

Pulling these threads together, the overall aim of the thesis is to assist in

understanding how aviation came to be includedwithin the EU ETS andwhatwere its

consequences. It looks at the change that the EU aspired to achieve with regard to

aviation emissions regulation. The “change” here is understood broadly following

Convery’sthinking:

“change is a product of many forces, including: an enabling legislative andinstitutionalcontext;aninternationalcontextandsenseofcrisisthatstimulatesandsupportsaction;anintellectualframeworkandexperiencethatprovidestheanimating idea and evidence to support action; effective political andbureaucraticleadership”(2009,p.392).

Drawing on interviews with policy-makers, industry representatives, policy

expertsandnon-governmentalorganisationsinWashingtonDC(US)andBrussels(EU)

aswellasdocumentandmediacontentanalysis thethesisaspires to lookat the issue

fromaperspectiveofdifferentnationalstances.

Therangeofissuesthataretackledinthisthesisenableittospeaktoanumber

ofcurrentscholarlydebates.Firstly, itaddressestheproblemofclimatepolicy-making

both in Europe and the reactions to it in third countries whose industries may be

affected by EU regulations. It contributes also to understanding of inter- and

transnationalpolicy-makingwhilelookingattheroleofstateversusindustry,venuesof

policy-makingandpolitical support formarket-basedmechanisms.Whileemployinga

multi-level governance framework, the research also serves to uncover transnational

policy networks, the strategies they use to influence decision-making and their

dynamics.


20

Ontheotherhand,thisthesisalsofocusesontheone-sidedleadershipoftheEU

thatcallsforaglobalanswerfortheissueofemissions.Theleadershipbrokeredbythe

EUisbasedonexportingitsrules,attemptingtobypassmultilateralnegotiationsandin

thiswayincentivisenon-EUcountries’action.Thisinturnmarksanewdynamicinthe

multi-levelgovernancecontextshowinghowmodificationofbehaviourofotherstates

can be induced by extension of authority (Buenger 2013). The mobile nature of the

activities intheaviationindustrypresentsacaseforexploringthespatialextensionof

powerbeyondgovernmentalboundaries.

This thesis supplements the existing knowledge on the EU climate policy and

provides novel insights into the process of creating, negotiating and implementing

policies that reach (at least according to theunderstandingof some)beyond theEU’s

borders.Ittalksthereforetoliteraturesconcerningpolicyprocessesattheinternational

level and dealing with a collective action problem as well as pertaining to certain

authors’ concerns about the extension of the EU’s regulatory power (Lavenex 2014;

Damro2012).

By employing empirical data and a multi-angled theoretical perspective, this

thesisrespondstotheproposedquestionswhilegivingspecialattentiontothevarietyof

actors present in the policy process, their interests and their interactions with each

other.Additionally,theproposedframingofthequestionsguaranteesreachingbeyond

the mere analysis of the process within the EU structures, but allows additional

importantactorstobeinvolved.Thisisduetotheglobalcharacterofclimatechangeand

theregulatoryarchitectureof internationalaviation,whichisbasedonICAO’sprimary

roleandconsensualdecision-making.Thisresearchconsidersthusstates,industry,non-

governmental and trans-governmental organisations as well as less formal venues of

decision-making. Furthermore, this framing takes into account the theoretical

underpinningsemployedandprovidesspace foranalysisof thenon-stateactors’roles

and their importance for shaping international emissions policies. In this way, it

contributestoexamininginterdependenceanddecentralization(Bevir&Rhodes2003).

In a similar manner, it explores interactions between markets and political actors

(Pierre2000).Thisisdonebyofferinganin-depthanalysisofthecaseandbydrawing

onliteraturesconcerningstakeholders’participation(Newell2000).Thisthesisinstead

ofanalysingthevariousactorsofthepoliticalsceneseparatelyadvancesthedebateby

examining all the stakeholders’ networks at the same time. Furthermore, special


21

attention is given to venues of decision-making and by this governance theories are

better sited in a tangible, institutional context (EU institutions, ICAO, national

governments, sectoral organisations, non-governmental organisations). Finally,

theoreticaladvancement isofferedbyan innovativeapproachtoglobalenvironmental

governance,which issupplementedby interpretivepolicyanalysisandpolicynetwork

analysis.

1.3 Structureofthethesis Taking into account all the premises mentioned above and responding to the

argumentsoutlined,thethesissetsoutfirstlytoexaminetheliteraturesconcerningthe

EUETSandthepolicy-makingintheEuropeanUnion.Thesecondchapteristhustasked

with introducing concepts relevant to emissions trading and also provides an

introductiontotheregulatorycontextof internationalaviation,which is important for

the contextualization of inclusion. The latter part of the chapter outlines the main

assumptionsbehindtheinclusion,basedontheEUregulations.Asawhole,thechapter

indicatesthemainshortcomingsoftheavailablestudiesandsuppliesacontextforthe

analysedissues.

Inchapter3themaintheoreticaldiscussionispresented.Thekeycontributionof

thechapterisbasedonproposinganewwayofinvestigatinggovernance:byinvolving

interpretivepolicyanalysis(IPA)andpolicynetworkanalysis(PNA).Firstly,drawingon

the scholarship ofMarsh andRhodes (Rhodes 2006;Rhodes&Marsh 1991;Marsh&

Rhodes1992),abriefaccountofdevelopmentofbothtypesofanalysisispresented.The

rationaleofthisnewapproachisbasedoninterestinthewidercontextofgovernancein

action.ThisisfollowedbytheexplanationofblendingIPAandPNA.Itisexplainedhow

multi-level governance succeeds in grasping a macro perspective while network

analysisprovidesarobustframeworkforinvestigatingstakeholders’relationsandtheir

institutionalised contexts. Additionally, the chapter draws from Yanow (2000) and

Wagenaar (2011) to explain the importance of interpretive policy analysis for

supplementingmulti-levelgovernancewithexaminationofbeliefsandmeaningmaking

practices, which are crucial if an effective answer to the research questions is to be

provided. Lastly, this part gives consideration to the issue of power in the conducted

researchandanswersthequestionofhowpowerissituatedinthegovernancecontext.


22

Inchapter4themethodology isexplainedand justified.Thischapter is focused

onthetwowavesoffieldworkconductedinBrusselsandWashington,DCthatinformed

theresearch.Itclarifieshowacasestudydesignhasbeenemployedtoprovideamulti-

angle perspective and also to be able to answer the “how” and “why” questions. The

chapterexplainstheinterviewingprocess,fromdraftingtheinterviewschedulethrough

toapproachingpotentialinterviewees,conductingtheinterviews,transcribingthemand

finallyanalysingtheinterviewdata.Italsoexplainshowotherdata(policydocuments,

media content and grey literature) contributed to increasing the quality of the study.

Equallyimportantly,itbrieflydiscussesethicalissuespertainingtotheresearch.

Chapter5,thefirstanalyticalchapteroffersanswerstoresearchquestions1and

2. It provides an historical account of ICAO’s involvement with environment-related

regulationandexplainshowtheEUcametoadecisiontoleadglobaleffortsbydenting

ICAO’s primacy in aviation regulation. Not only does it draw from documents and

policies, but alsoemploys first-handaccounts and judgements from intervieweeswho

either worked at ICAO or have been close to the ICAO decision-making processes.

Additionally,thechapteraddressesanimportantgapidentifiedbytheinterviewees:the

disagreements between different parts of the European Commission with regards to

howtheinclusionofaviationshouldproceed.

Chapter6focusesonUSperceptionsoftheinclusionofaviationintotheEUETS

and theUS’sactionsagainst theEUETS, andhencedrawsmostlyondatagathered in

Washington DC. It continues answering research question 2 and starts answering

research questions 3 and 4. It also responds to question 5. The chapter provides a

unique blend of accounts provided by policy-makers, representatives of sectoral

organisations and non-governmental organisations as well as policy think-tank

representatives.ItisarguedthattheEUETShasbeentoalargeextentinterpretedasa

politicalratherthanalegaloreconomicissuefortheUSandsectoralorganisationswere

abletoemploysovereigntyargumentstounderminetheEU’splantoextenditsscheme.

It is also shown how venue shopping has played a role in amplifying counter-ETS

arguments.ThisthemeiscloselyrelatedtotheEUandUShavingdifferentapproachesto

ICAO’spositionconcerningaviationregulation.

Chapter 7 positions the debate on the EU ETS in the context of global

environmental governance while focusing on opposition to the scheme coming from

non-EU countries. It thus concludes the response to questions 2 and 4. The chapter


23

further unpacks the dynamics of a global policy of aviation emissions and provides

accountsofnon-materialvenuesforinternationalpolicy-making.Whiletheattentionof

this chapter is directed towards states’ actions, it does not neglect the sectoral

organisationsandinfluencesofindividualcompanies.Byofferinganin-depthanalysisof

aircraftmanufacturer involvementwith the case it contributes tounderstandingwhat

typesofleveragecanbeeffectivelyusedtopromotecertainpolicysolutions.

Inchaptereighttheoreticalaspectsofthisresearchareexaminedbybuildingon

theempiricalmaterialpresentedinthewholethesis.Itdrawstogetherdiscussionsthat

werestartedinchapters5,6and7andspeakstodebatesonEU’sinternationalposition.

It discuses also the mechanisms enabling effective stakeholder participation and

considershowmulti-levelgovernanceisabletocontributetounderstandingachangein

policy that isregardedascontroversial. In its finalpartchaptereightoffersadditional

reflectionsonaviation’sspecialregulatorypositioninthecontextofEUmobilitiesand

globalregulatoryapproachesforaviation’sregulation.

Finally, chapter nine reflects on the results that the study brings. By providing

conciseanswerstotheresearchquestionsaskedatthebeginningofthisthesis,thispart

summarizesthemostimportantfindingsandonceagainconnectsthemtotheon-going

scholarlydebates.Thethesissuggestsalargerfocusonpolicylearningprocessthatthe

EUshouldconsider.SecondlyitproposesamoreintenseinvolvementoftheEuropean

External Action Service in issues pertaining to international climate regulation. The

chapterconcludeswithsuggestionsofresearchthatcanbebuiltonthefoundationslaid

inthisthesis.

Chapter2:LiteratureReviewandContextualization

24

2 LiteratureReviewandContextualization2.1 Introduction

Thepreviouschapterhasoutlinedthemainissuesthisthesisisaspiringtotackle

andtheRQsitseekstoanswer.Thischapteroffersmoredetailedcontextualinformation

regarding the problemspresented in Chapter 1. It introduces existing knowledge and

pointsatthegapsthatarefilledinthefollowingchapters.Italsoaimsatevaluatingthe

existing scholarship in the field of EU studies, governance andmorebroadly, political

science.

Thechapterisdividedintofoursections.Firstly,emissionstradingisanalysedas

aconceptformitigatingclimatechange.InthispartattentionisalsogiventotheKyoto

Protocolthatintroducedtheflexiblemechanismsonaglobalscale.Thesecondsection

focusesontheEUETS.Itisconsideredwithregardstoitsinitiation,implementationand

issuesthatitfacedinthefirstyearsofoperation.

The third section examines aviation from two distinct perspectives: as a GHG

producing sector and as an internationally regulated areawhosepolicypatternshave

developedovertheyears.Theexistingresearchonenvironmentalimpactsofaviationis

presentedtoelucidatetherationaleforengagingmarketbasedsolutionstotheproblem.

Finally, the fourthsectionoffersacloserexaminationof theaviationregulation

over the period between the production of the Chicago Convention in 1945 and the

introductionoftheEUETSforaviation.Thisallowsidentificationofthedeterminantsof

policy-makingintheareaandcircumstancesunderwhichthesectorisoperating.These

considerationsdirecttheargumenttowardstheissueof“exceptionalism”(see:Section

2.6) that is enjoyed by the sector and its consequences for global environmental

regulationsofaviation.Finally,theissueofpolicychangeisconsidered.

2.2 Emissionstrading TheproblemofGHGemissionshasbeenpresentinternationallyasearlyasatthe

UnitedNationsWorldSummitinRiodeJaneiroin1992.ItwashoweveronlytheKyoto

Protocol to the United Nations Framework Convention on Climate Change (UNFCCC)

thatproposedbindingemissions targets.Theseweresupposed tobe reached through


25

various initiatives 2 aiming at reducing the volumes of emissions released to the

atmosphere,butitalsoofferedsocalledflexibleormarket-basedmechanisms3:

“AnyPartyincludedinAnnexImaytransferto,oracquirefrom,anyothersuchParty emission reduction units resulting from projects aimed at reducinganthropogenic emissions by sources or enhancing anthropogenic removals bysinks of greenhouse gases in any sector of the economy” (Kyoto Protocol Art.6.1).

TheKyotoProtocolassumedthatthisideacouldbeimplementedthroughthree

policy instruments: Clean Development Mechanism (CDM), Joint Implementation (JI)

andEmissionsTrading (ET).TheProtocolhas alsooutlined that these shouldbeonly

supplemental to domestic actions (Art 6.1d), and shouldnot form the onlymitigation

effortofthepartiestotheConvention.AccordingtoGrubb,VrolijkandBrack(1999)the

ideaof emissions tradingwasan issue that almostkilled,but saved theProtocol. It is

hardtodisagreewiththem,as the flexiblemechanismswereat thecentreofaheated

debate in Kyoto and without them, the Protocol would have been much weaker.

Simultaneously, they caused a heated debate and led to disagreements between the

PartiestotheProtocol.

ThediscussiononmarketbasedmechanismsanimatedwithintheKyotoProtocol

frameworkwouldnothavebeenpossiblehoweverwithoutintellectualfoundationslaid

wellbeforetheclimatechangeissueswereofinterestfortheinternationalcommunity.

Whenlookingattheoriginsofemissionstrading,Convery(2009:p.396)looksbackto

Pigou’s “The economics of welfare” (1920) seeing the underpinnings of emissions

marketintheideaofavoidinginternalisingexternalcostsviaextrataxes.Anotherwork

quoted when it comes to inspiration for emissions trading is “The Problem of Social

Cost”, where it is claimed that property rights and elimination of transaction costs

would allow more efficient use of environmental endowments (Coase 1960). These

ideaswerebroughtfurtherbyCrocker(1966)andDales(1968),howevertheystilldid

notproposea spatially fixedETSandrather speculatedonmarket-basedpossibilities.

2TheKyotoProtocollistsamongthemenhancementofenergyefficiency,protectionandenhancementofsinks and reservoirs of greenhouse gases not controlled by the Montreal Protocol, promotion ofsustainableformsofagriculture,Researchon,andpromotion,developmentandincreaseduseof,newandrenewableformsofenergy,ofcarbondioxidesequestrationtechnologiesandofadvancedandinnovativeenvironmentallysoundtechnologies,reductionorphasingoutofmarketimperfections,fiscalincentives,taxanddutyexemptionsandsubsidiesinallgreenhousegasemittingsector(Art.2.1a)3Keohane, Revesz and Stavins(1998, p.317) include in the term flexible mechanisms also taxes andrevenue-neutraltaxes,howeverinthisthesisthedefinitionreferstoemissionstrading.


26

Soonafter,Montgomery(1972)advocatedexplicitandtransferablepropertyrights(the

rights to release emissions), so that the allocation of permits is efficient and also

independent fromthe initialallocation.Thesetheoreticalunderpinningsallowedmore

concreteexperimentswithemissionstradinginthe1970sthatstartedintheUS.

Emissions trading mechanisms are based on the assumption that providing

economic incentives will result in a decrease in the volume of any given emitted

substance. In principle, there is a total number of allowances issued by the authority

running a given scheme and these allowances are later traded between the parties

involvedinthescheme.Inacasethataninvolvedentitycannotmeetthetargetsgiven

by the authorities operating the system, it is obliged to acquire permits, usually from

emitters whowere able to decrease their emissions below the pre-given target. This

meansthatiftheabatementcostswerehigh,oneindustrywouldratherbuyallowances

fromanotherindustrywhoseabatementscostsarelow.Inthiswaytheenvironmental

benefitcanberealizedatthelowestpossiblecost.

2.2.1 Benefitsofflexiblemechanisms TherationalesforETSarecentrallyconcernedwiththemeritsandrealizationof

economicefficiency.Policy-makersassumethatbyallowingheavilypollutingsectorsto

surrender their emissionswhere it ismore cost-efficient, they are able to incentivise

reductions happening across a range of industries. It is argued that in this way

reductionsaremadeinthemostcost-efficientwayandalsothecostsforsocietyarelow

(Hansjürgens2005,p.3).Whatismore,theregulatorycostsarepresumablylowerthan

in the case of control and command policies that usually are more cumbersome to

implement and monitor (Baldwin 2008; Tietenberg 1996; Harrington & Morgerstern

2007). Ithasbeenalsoarguedthatemissionstradingdiscourages litigationand in the

caseofcontroversies,itisfairlyeasytodealwiththemincasetheyarise(Ackerman&

Stewart1985,p.1342).Thisisparticularlyimportantinthecaseofinternationalpolicy-

making and the EU context, where there is a visible turn towards more general

principles,insteadofpreciserulesthattheMemberStateshavetocomplywith.

Ackerman and Stewart (1985, p.1342) also consider that in the US context,

emissionstradingreducesbureaucraticburdensandcostsforthefederalgovernment.It

is also added that if examined from a total-cost perspective, emissions trading is less

expensivethanemissionstandards(Keohaneetal.1998,p.348).Onecanseehowthis


27

mighthavemeritsinthecaseofaviation,asemissionstandardscouldmeanextremely

highcostsforlessgreenairlinesbecausetheywouldhavetoupdatetheirentirefleets,

or if the processwas to be introduced in phases, theywould need to consider a long

fleet’slifeandthusimplementcarbonreductionswithconsiderabledelays.

Furthermore, the Stern Review4has endorsed emissions trading as it gives an

international price for emissions and via market interaction indicates the most cost-

efficientlocationforabatement.Consequentlytheywerecalleda“verypowerfultoolin

the framework for addressing climate change at an international level” (Stern 2007,

p.327). This is claimed to hold true also domestically, while choosing flexible

mechanismscanyieldpoliticaladvantages–emissions trading is regularlybelieved to

bemorewelcomedby theregulatedentities than forexample fuel tax (Baldwin2008,

p.196). In linewith this argument, Ackerman and Stewart (1988) consider emissions

trading as enhancing democratic bargaining because flexible mechanisms are more

focusedonthelevelofreductionsthataretobeachievedinsteadofdiscussingatlength

issues such as best available technology or how to set standards. At the same time

however, it is argued that “emissions trading is not a system in which ‘market’ and

‘democratic’checksandbalancescanbebroughtintolinewithanyease”(Baldwin2008,

p.209).Similarly, the technicalcomplexityofdesigning, implementingandrunningthe

scheme has led to a situation in which the industry has managed to establish an

extremely strong position in all three processes mentioned above (Bailey & Maresh

2009).

There is also an assumption that emissions trading allowsmaking the value of

reducing emissions apparent via putting a price tag on each tonne emitted(Vis 2006,

p.48). This realization affects then the economic reasoning. As explained by Braun

(2009,pp.470–471)“emittinggreenhousegasesbecomespartofeconomiccalculations

asadirectorasanopportunitycost”.

Finally, emissions trading is claimed to foster innovation in controlling air

pollution as there is a direct linkbetween abatement and cost-efficiency embodied in

allowances that can be sold (Goulder et al. 1999; Ackerman & Stewart 1985; Stavins

2002). What is more, in the aviation sector it has been claimed that market based

4TheSternReviewisareportcommissionedbytheBritishgovernmentandauthoredbyNicholasStern,whichexaminestheeffectsofclimatechangeoneconomy.Thereporthasbecomeoneofthebeaconsofdiscussionabouttheclimatechange/economyinteraction. Itsconclusionsunderlinetheneedforearlyactiononclimatechangeandalsoadvocateintroducingapriceoncarbon.


28

mechanismsare“manifestlythemoreflexibleandlessburdensomealternatives”when

comparedwithcommandandcontroltools(Havel&Sanchez,2012,p.376).

2.2.2 Challengesfacedbytheemissionstradingconcept In the previous section, the advantages of emissions trading were presented,

howevertheconceptisnotfreefromchallengesandproblems.Theseusuallypertainto

issuesrelatedtoallocationofallowances(Butzengeiger&Michaelowa2004;Svendsen

2005), which can easily translate to over-allocation, extremely low prices of carbon

creditsaswellaswindfallprofitsthatparticipatingcompaniesareabletoharness.The

literature also suggests difficulties in revisions of once established schemes, claiming

that emissions trading is a “cheap fix” that actually weakens endeavours addressing

pollution especially if prices of allowances are low and companies would prefer to

rendersmallfees(oftenpassedontocustomers)ratherthaninnovate(Driesen,1998).

In the same manner, instead of investing in often-expensive technological upgrades,

highlypollutingsectorscanpurchasetheirallowanceswheretheupgradesarelesscost-

intensive. A similar argument is made by Lohmann who says: “why bother making

expensive long term structural changes if you can meet your pollution rights from

operators that can cut their carbon cheaply?” (2006b, p.18). Also the advocates of

imposingstandardsusetheargumentconcerning low-costsolutionsagainstemissions

trading.Ifastandardisimposedbyauthorities,thesectorscoveredbyitneedtocomply

withthelimitsregardlessofthepricehenceenvironmentalbenefitisrealizedinspiteof

financialcircumstances.Thestandardswouldalsoprovidequickerresultscomparedto

trading.

Besides this,Hayward (2007) lookingmostlyatanation-state levelargues that

the idea of treating emissions as alienable rights is ethically controversial and he

maintains that there is a significant difference between carbon emission rights

(understoodaspropertyrights)andotherfundamentalrights.Althoughheseescarbon

emissionsessentiallyneededforprovidingsubsistence,hedisagreeswithgrantingthem

a human rights status since that would oppose the individual’s right to a healthy

environment. In a similarway Lohmann stresses that “if there is not enoughpolitical

pressuretoreduceemissionsinthefirstplace,theresultwillbemerelyagamingofthe

systemandcontinualover-allocationofpollutionrights.Carbontradingdoesnotoffera


29

way around tough political decisions”(Lohmann 2006a, p.90), hence market

mechanismsarepoliticallyvulnerable.

Contrary to the advocates of flexible mechanisms – opponents believe that

emissionstradingdoesnotencourageinnovationaseffectivelyascommandandcontrol

policies (Driesen 1998;2003;2007; Fischer 2005). They also claim that at times, the

public debate about a market-based mechanism may last long and therefore delay

implementation and possible reductions for years (Colby 2000, p.650). Furthermore,

there are some scholars who give accounts of situations, in which after introducing

emissions trading, the regulated entities would hold off from investments in

infrastructureaddressingemissionsuntiltheyarecertainofhowtheschemewillwork

andwhatthepricesofallowanceswillbe(Sullivan&Blyth2006;Ben-Davidetal.2000;

Leiteretal.2011).Undersuchscenariosthereductionswouldlikelyhappenwithgreat

delays.

Anothersetofargumentsagainstemissionstradingcomefromtheproponentsof

theenvironmentaljusticeframework.Thisperspectivefocusesmoreonlow-incomeas

well as minority communities rather than on cost-efficiency of emissions abatement

(Chinn, 1999; Hayward, 2007; Lam, 2012). Firstly, it is reported that its proponents

believethattradingschemescancontributetothecreationofareaswhereairpollution

is high, mostly with regards to nitrogen oxides (NOx) and sulphur oxides (SOx)

emissions, affecting local communities (Solomon & Lee 2000). These areas can be

created if “ahigh concentrationof emissions credits [is]purchased in anecologically

sensitivearea”(Solomon&Lee2000,p.40).Forexample,inacasestudyofLosAngeles

pollution market it is claimed that thanks to allowing emissions trading, marine

terminals were able to release volatile organic compounds to the atmosphere while

acquiring credits from initiatives addressing scrapping high-polluting vehicles (Chinn

1999).Thismeanthoweverthatthecreditsweregainedfromallovertheregionwhere

themarketwasoperatingandthemarineterminalemissionswereaffectingonlycertain

communities residing in the plants’ neighbourhood. In this way, emissions trading

remains blind to spatial distribution effects. On a global scale, these inequalitiesmay

translate into cheap allowances being generated in developing countries where

monitoring and enforcing of the schemes is poor and then sold in the developed

countries(Richman2003).


30

Carbontradinghasalsobeencalled“aformofmodern-daycolonialism”(Rising

Tide, 2011) and Christian Aid UK has underlined that it can “defraud developing

countries of their rights to use the global atmosphere” (Whittington 2009). Baldwin

(2008)alsopresentsadevelopmentperspectiveofMehmet(2002)andRichman(2003)

who explain that trading emissions often happens between wealthy and developing

countries,whichmayleadtoasituationwhereeventhoughthereistransferofmoney

towards the developing world, these countries bear costs in the form of lost

opportunities.Thepollutersare thenstillable tomaximize theirprofitson thecostof

developingcountriesholdingcarbonallowances.Richmanwouldmaintainfurtherthat

“emissionstradingmayconflictwiththepost-Riodevelopedcountryleadershipprincipleinseveralways.Mostobviously,itallowsdevelopedcountriestoclaimthat they are meeting their reductions obligations through trading and to‘doublecount’tradesasbothdomesticreductionsandassistancetodevelopingcountries”(2003,p.170).

Itisthroughsuchcolonialnarratives,thatthespatialreachofemissionstradingsystems

hasbeenchallenged.Asthisthesiswillgoontoexplain,theissueofspatialextensionof

theEUETSraisesahostofothergovernanceissuestoo,whichareratherlessexamined

intheexistingliterature.Thesearerelatedtooverlappingspacesofauthoritybetween

international organisations andnation states, spatial reach of the ICAO regulations or

thereachofregulationsissuedbythestatesthemselves.Furthermore,emissionstrading

especially ifdiscussed in thecontextof theEUETScalls forspecialattentionto issues

related to justicenotonlyof the tradingprocesses themselves,butalsowhiledrafting

therules.Thisrelatestoproceduraljustice(Tyler&Blader2003)(i.e.providingfairness

intheprocessesrelatedforexampletoburden-sharingof theconsequencesofclimate

change) andparticipatory justice for example via community-basedprojects (Shepard

2002)aswellastheimportanceofbroadinvolvementinglobaldecision-making.Ithas

alsobeenunderlinedthatpublicparticipationislimitedinthecaseofemissiontrading

schemesas theyareverymuch industry-centred (Kaswan,2008;2011).Finally, some

authors draw attention to the ethical framework,which ensues the emissions trading

concept while asking about the common but differentiated responsibilities principle

withregardstothesystemsorbylookingathowtheraisedfinanceisused(Light2012;

Caney2010;Ott&Sachs2002).

Another important issue that pertains to emissions trading is so called carbon

leakage, whichmeans that carbon-intensive activities can be relocated outside of the


31

territory that is covered by a given scheme (van Asselt & Brewer 2010; van Asselt

&Biermann2007;Levy&Newell2005).This,inanobviousmannerlimitseffectiveness

ofascheme.Anotherresultofcarbonleakagecanbethedisplacementofproductsmade

under stricteremission regimesby imported substitutes thatare cheaperdue tonon-

existentclimate-relatedfees.Althoughtheseadverseconsequencescanbeaddressedby

additional regulatory measures such as border adjustments for imported goods or

mitigating the costs of compliance for the producers (Neuhoff 2008) they themselves

have disadvantages. For example they create threats to energy security or internal

energymarkets (Kama2014) andwould require considerable cooperation and policy

learningbetweenregions(vanAsselt&Brewer2010).

The arguments pertaining to carbon leakage need to be also considered for

investigatinghowcarbonmarketsarearrangedspatially.Theonlywayof factoring in

thespatialaspectofwherethereductionsarebeingmadeisbasedontheassumptionof

introducing carbon border measures. These can potentially mitigate effects of some

countrieshavingcarbonpolicieswhereasothershavingtheminarudimentaryformor

notatall(vanAsselt&Brewer2010).Althoughsuchasolutioncouldintheoryreduce

the negative aspects of differentiated policies, they may be challenged by the World

TradeOrganisation regimeas creatingobstacles for free trade.Furthermore, it is also

notentirelyclearhowvariouscarbonmechanismsshouldinteractwitheachotherandif

such interactions would not water down the regulations and decrease effectiveness.

Linkage can create various issues and so far no substantial links have been created

between major emissions trading schemes (Pustelnik 2013; Flachsland et al. 2008;

Tuerketal.2009).

Thedebate concerning space andboundaries in theEUETShas been reflected

also within the EU. As some claim responding to the EU ETS meant a conflict:

“negotiations on the scheme involved an intense struggle between the differing

territorial logics of the European Commission, themember states and industry NSAs

[non-stateactors],withstateandindustryactorsformingdefensive-territorial‘alliances’

thatstressed‘fairness’innationalandsectoralemissionsallocations”(Bailey&Maresh

2009,p.447).ThesealliancesnegativelyaffectthelevelofambitionoftheETSandledto

a situation, inwhichat thedesign stage, theMemberStates and industrieshavebeen

creating coalitions that would advocate for “national territorial interests” (Bailey &

Maresh 2009, p.452). What is more, these coalitions were able to influence the


32

territorial distribution of the EU ETS allowances (Smale et al. 2006) and in this way

establish business-state alliancesworking against the legislation produced at the EU-

level(Bailey&Maresh2009,p.457).Asitwillbeshown,theterritorialinterestsplayed

animportantroleintheEUETSforaviationfilewhileMemberStatestriedtosafeguard

long-lastingallianceswiththeairlinesbasedwithintheirterritories.

This section has reviewed the ways in which emissions trading systems are

claimed to work, and different approaches and evaluations of the concept. The

introduction allowed situating the issue analysed in a wider area of climate change

mitigationstrategies.ThisallowsdelvingfurtherintothedetailsoftheEUETSitself.The

nextsectiongivesafurtheroverviewofthemechanism.

2.3 TheEuropeanUnionEmissionsTradingSystem Once the emissions trading concept hasbeen sketched, the thesis can continue

withthepresentationoftheEUETS.Between1990and1997,theEuropeanCommission

wasmostly interested in exploring possibilities to introduce a carbon tax (Boasson&

Wettestad2013,p.1)andtheideasrelatedtothecarbontradingsystemhadtowaitfora

more favourable period. Given that the preliminary proposals regarding a European

carbon tax presented by the Commission (Commission of the European Communities

1992; Commission of the European Communities 1991) met with unprecedentedly

fiercelobbyingactivitiesagainsttheproposal(Skjaerseth&Wettestad2008;Svendsen

2005),quitesoonitbecameobviousthattheCommission’splanswouldnotberealized.

Opposition was coming both from the industry, worried about the potential costs

relatedtothescheme,butalsofromtheMemberStateswhodidnotwanttograntthe

EUanopportunity todecideaboutanEU-wide tax (Convery2009,p.392).Asaresult,

the EU had to decide on an alternative way of tackling the issue of excessive CO2

emissions.TheideaofcarbontaxfailedbuttheshapeoftheKyotoProtocoldirectedthe

EU to look at theUS experienceswith emissions trading for other types of pollutants

(mostlyNOxandSOx),andlatertoconsiderimplementingsuchmarket-basedmeasures

onEuropeanground.

Paradoxically,theEUwasdrawingitsownschemelookingatacountrythatdid

not ratify theKyoto Protocol, even if theUS’s endorsement for emissions trading has

been always evident. The EU did not however regard the US’s lack of action

internationallyasamajorissue.TheCommissiontookadvantageoftheUSexperiences


33

withemissionstradingdesigngoingbacktothe1960s(Voß2007;vanAsselt2010)and

learnt from their successful implementation in the 1970s (Ellerman, Convery, &

Harrison,2003;Stavins,2001).TheUSAcidRainPrograminitiatedwithCleanAirAct

Amendmentsin1990wasaflagshipinitiativethataimedatreducingnitrogenoxideand

sulphuroxideemissions(EnvironmentalProtectionAgency2013).Anotherexample is

theRegionalCleanAirIncentivesMarket(RECLAIM),whichhadamoreregionalscope

and was the first regional emissions trading scheme (Harrison 1998). These two

schemes received considerable academic attention (Hahn & Noll, 1990; Joskow,

Schmalensee,&Bailey,1998;Schmalensee,etal.,1998;Stavins,1995)andlaterinspired

theEUwhentheEUETSlegislationwasunderconstruction.

Atthebeginningof2000theEuropeanCommissionputforwarda“GreenPaper

on greenhouse gas emissions trading within the European Union” with the aim of

establishing an EU scheme for trading carbon (Commission of the European

Communities 2000; Viguier 2001). The paper asked the following question: “Should

there be a common emissions trading scheme within the European Community for

certain sectors in the interest of fair competition, maximum transparency and legal

certaintyforcompanies?”CountriessuchasNorway(notanEUMemberStatethough),

United Kingdom and Denmark (probably the most disposed towards flexible

mechanisms in theEU) that insomeformwerealreadyexperimentingwithemissions

trading domestically would answer positively to the idea. Also Sweden, France and

Germany were interested in realizing Kyoto commitments through carbon trading

(Ellerman 2000, p.12). However the German industry lobby was concerned about

competitivenessissuesrelatedtocarbontrading(Convery,2009,p.402).InitiallytheEU

ETSwasplannedasavery centralized systemwith strongcontrol from theEuropean

Commission and wide auctioning of allowances but the EU eventually yielded to the

pressurescomingfromindustryandMemberStatesandlimiteditsambition(Boasson&

Wettestad2013,p.54;Skjaerseth&Wettestad2008).

In1999theCommissionwouldconsidertheKyotomechanisms“fundamentally

differentfromthewaytheEuropeanCommunityanditsMemberStateshaveorganised

theirenvironmentalpolicyoverthelastdecades”butwouldstillencourageinvestigating

them closer (European Commission 1999b). Shortly after, a threat for the binding

commitmentsincludedintheProtocolwasembodiedbyaspectacularfailureofCOP6

thattookplacein2000inTheHague(Grubb&Yamin2001).Later,inMarch2001,the


34

USwithdrew from theKyoto Protocol but this step gave theEU another argument to

push for a European emissions market to save the Kyoto regulations (Cass 2005).

Following theUSwithdrawal and revival theKyoto Protocol experienced through the

Bonn Agreement5, the EU ratified the Protocol in May 2002 and encouraged other

countries to follow its steps (EuropeanCommission2002a).Without theUSonboard

andwithaweakresponsefromthethenEUMemberStatesandEUcandidatecountries,

the Kyoto Protocol would have become a major climate regulation failure. After the

CanadianandRussianratificationsin2002oftheProtocol,itenteredintoforcein2005

with its firstcommitmentperiodset for2008-20126.TheEUgovernmentsunderstood

that an emissions trading systemwas needed in order to fulfil the obligations of the

Protocol (Ellerman&Buchner2007). TheKyotoProtocol togetherwithdisagreement

foraEU-widecarbontaxcanbeconsideredthelargestEUETScatalysts(Braun2009).

TheEUETSprovidedthenaplatformfortheEUMemberStatestofurtherinvolvewith

theKyotoProtocolflexiblemechanisms(CDM,JI)sincetheirallowancesareconsidered

compliancetoolsfortheEUETS.

Asaresultofthepolicydebatedocumentedingreatdetailelsewhere(Skjaerseth

& Wettestad 2008; Delbeke 2006; Lefevere 2005; Egenhofer 2007) the EU ETS was

establishedin2005andthenquicklybecameaflagshipoftheEuropeanUnion’sClimate

ActionProgramme. It is the first internationalcap-and-tradescheme in theworld that

operates at the company level. The EU ETS has been nicknamed “a parade horse”

(Peeters & Deketelaere 2006, p.8), the “eight-hundred-pound gorilla” (Ghaleigh 2010,

p.48) and “a political pet that the EU has aggressively implemented and promoted”

(Parker&Karlsson2010,p.930).Itspioneeringrolewasvisiblenotonlythroughitssize

intermsoftonnesofcarbontradedbutalsointermsofthesectoralscopeoftheproject.

Althoughatthebeginningofitsoperationthe“flagshipseemedlostinthesea”(Boasson

& Wettestad 2013, p.53), following the revisions introduced in 2008 many

commentatorsbelievedithadmadeprogress(Juergensetal.2013;Wråkeetal.2012).

5The BonnAgreement has been reach in July 2001 and established operational rulebook for the 1997KyotoProtocol. Inthisway, thepartiesmanagedtocometoanagreementoncarbonsinks,compliance,concern of the developing countries, implementation of the Protocol’s flexiblemechanisms and furtherstepsregardingthenegotiations.ThemeetinginBonnconcludedtheadjournedCOP6.Thepoliticalwillofthe Bonnmeeting has been later translated into concrete decisions during COP 7 inMarrakech, whenMarrakechAccordswerereached.6AccordingtoArticle25oftheProtocolitentersintoforcewhen"ontheninetiethdayafterthedateonwhich not less than 55 Parties to the Convention, incorporating Parties included in Annex I whichaccountedintotalforatleast55%ofthetotalcarbondioxideemissionsfor1990oftheAnnexIcountries,havedepositedtheirinstrumentsofratification,acceptance,approvaloraccession”.


35

Until2008theEUETSincludedspatially-fixedplantsgeneratingheatandpower,

energy intensive industries such as oil refineries, steelworks and production of iron,

aluminium, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and

severalorganicchemicals,whichalltogetheraccountedformorethan45%oftheEU’s

greenhousegasemissions(EuropeanCommission2013b).TheprincipleruleoftheEU

ETSis thepremisethat it isacapandtrademechanismbasedonbothgrandfathering

andauctioningof theallowances.Thismeans that thecompaniesreceiveapartof the

allowancesforfreeandacertainshareofcreditsisauctioned.InPhaseIIIofthescheme

(2013-2020) the Commission estimates that at least 48% of allowances will be

auctioned(EuropeanCommission2013b)comparedwith10%inPhaseII(Hepburn,et

al.,2006)andalmostallallowancesgivenforfreeinPhaseI(2005-2007).Whatismore,

theoverallaim is tostopthe freeallocationno later than2027(Official Journalof the

EuropeanUnion, 2011).One exceptionhas been established though: for aviation only

15%of allowanceswill be auctioned through thewhole of Phase III and85%will be

giventotheaircraftoperatorsforfree(EuropeanCommission2013a).

FromitsverybeginningtheEUETShasattractedabroadscholarlyinterestboth

intermsofitdesignandfunctioningaswellasintermsofitseconomicdimensions.An

important review of the research on the EU ETS can be found in works by

Convery(2008)andZhangandWei(2010).

There are several approaches fromwhich the EU ETS has been viewed in the

existingliterature:thestructureofthesystem(allocations,decision-making,monitoring,

implementation,etc.),thepriceoftheallowances,issuesrelatedtotheseparatetrading

periods,competitiveness,andpossiblelinksbetweentheEUETSandothermechanisms.

The allocation process of the EU ETS has attracted greatest attention. This is

related to the initial overallocation of allowances (McAllister 2009) and dramatic

decline in carbon prices and consequentlywindfall profits of participating companies

(Sijm et al. 2006). These profits, caused mostly by free allowances awarded to the

industries,weregatheredforexamplebythepowerproducers,whoincreasedpricesby

12-27%comparedwithnoemissionstradingscenarios(Liseetal.2010,p.42).Theyalso

estimatethatthepass-throughrates(costsofcomplyingwiththeEUETS)arebetween

70-90%,which indicates thatbothproducersandend-pipeconsumersareaffectedby

the scheme (Liseetal. 2010,p.42).Buchner,CarraroandEllerman (2006) lookat the

initial mechanism of allocating allowances. This picture is complemented by


36

Georgopoulouandcolleagues(2006)whofocusontheallocationissuesthattheywere

projectinginthesecondphaseofEUETSoperation.

Through lookingatcreditsdistributionwithintheEUETSonecanalsoobserve

howseparateMember Statesweredealingwith this issue in theirNationalAllocation

Plans (NAPs) (Gilbert et al. 2004).With regards to this issue it has been claimed for

example that theNAPswere importantas theyset the levelofreductionsandonlyby

lookingat themcantheeffectivenessofETSasapolicy toolcanbeevaluated(Soleille

2006).Even though therewereproblemswith thenumberof allowancesavailableon

themarket,thereisconsensuswithregardstothesuccessofthefirsttradingperiod:the

implementation was effective, no major technical issues arose, first changes in the

energyproductiontowardsgreenersourceswereobserved(Anderson&DiMaria,2011;

Delarue,Voorspools,&D’Haeseleer,2008;Ellerman&Buchner,2008).

The experiences from allocating credits for stationary sources are crucial for

more advanced analysis of the EU ETS for aviation, whose dynamics are inherently

differentasaviationreceivesase

european struggles and american resistance: inclusion of aviation … · inclusion of aviation into...

Documents