The requirements of a sizeable economy and over- seas commercial interests and, as far as trade diplo- macy is concerned, global ambition and reach are arguably what disqualiﬁ es many other regional trading powers from being possible poles of the world tradingsystem, at least for the moment. For sure, both Rus- sia and Turkey are important trading partners of the European Union. Yet neither country has a particularly large footprint in the world tradingsystem (and let us not forget that Russia has still to accede to the WTO). South Africa, Nigeria, and Egypt seem, at most, to be regional powers. Korea, despite its relatively large economy, has not asserted itself as much as India and Brazil in multilateral trade circles preferring, it seems, to focus its energies on negotiating free trade agree- ments. Much of the same could be said about Mexico. Other regional powers, such as Saudi Arabia, have a sizeable economic footprint but have not been partic- ularly active in either bilateral or multilateral trade ne- gotiations, at least as of now. For all of these reasons I focus my attention on just three new poles: Brazil, China, and India. In what follows I consider the impli- cations of their current trading performance, develop- ment strategies, and overseas corporate interests for their potential long-term strategies towards the world tradingsystem. In the short space available I can hardly do justice to each of these nations’ rich and illu- minating development experience. Instead I identify a number of common themes which may inﬂ uence their commercial policies in the years to come. Before do- ing that, however, it is appropriate to dwell on the rela- tive importance of the three new potential poles and the two existing poles (the EU and the USA)
5. Conclusion and Policy Implications
The empirical picture sketched above has four important implications. Firstly, MRV transaction costs are positively correlated with the amount of annual emissions of larger companies (more than 249 employees). This implies that marginal MRV transaction costs are non-zero with possible negative consequences for economic efficiency, as already discussed in literature (Mundaca et al., 2013). Secondly, the result implies that there are economies of scale in the MRV process. The estimated coefficient of the independent variable ‘log of annual verified emissions’ (logverem) is significantly larger than zero but also significantly lower than one (p-value: 0.01). Thirdly, ‘fixed’ MRV transaction costs are lower for utility companies when compared to other companies. A possible reason for this finding is that MRV procedures are highly standardised in utility companies and that the monitoring of emissions is less expensive since it is based on the carbon content of the burned fuels. Finally, MRV transaction costs are not dependent on the amount of annual emissions for small companies (less than 250 employees). However, small companies report large ‘fixed’ transaction costs when compared to other companies. Significant differences in average MRV transaction costs represent a cost-disadvantage for smaller companies or companies with a smaller amount of annual verified emissions when compared to larger firms.
In theory, the emissions market should be a cost-effective mechanism that equates the marginal cost for meeting the carbon target across regulated entities, ensuring that emissions sources that can reduce emissions at least cost within a given compliance period will do so. Further, the ability to bank allowances is supposed to ensure that cost-effectiveness is achieved over time. Another attractive aspect of a cap-and-trade policy is that the regulator has instantaneous information about marginal cost, summarized in the allowance price. However, in practice, the value of price discovery is limited: overlapping policies and other factors interfere with the market and drive a wedge between the apparent and actual costs. For example, the EU Renewable Energy Directive forces more clean electricity generation to be implemented than would be cost-effective with carbon pricing under the ETS alone. By directing the market to reduce more emissions via relatively expensive renewables, less abatement will be done via other, less costly methods, leading allowance prices to fall. As a result, the actual costs of meeting the emissions target are higher while the allowance price is lower. 13
In view of this challenge, some analysts regard discretionary power as a potential solution to over- come the trade-off between credibility and ﬂexibility (Bernanke, 2003 ) (for a discussion of this trade- off in climate policy, see Brunner et al., 2012 , and Jakob & Brunner, 2014 ). Drawing on lessons from past experience, the possibility of unforeseen events or ‘unknown unknowns’ that require a quick response beyond applying a predeﬁned rule to ensure the efﬁciency of the ETS, makes the case for del- egation to a carbon authority more appealing. While this constitutes an argument in favour of discre- tion to enhance efﬁciency in the presence of economic shocks (as argued in the previous section) it does not per se justify discretion as an adequate response to credibility problems. This holds only if the ﬂexi- bility derived from discretionary power reduces uncertainty in a way that increases credibility. This might occur by offering a predictable framework to adjust EU ETS regulations in the presence of new information on, for example, learning over climate impacts, mitigations costs, and international climate policy developments. Nonetheless, the precise speciﬁcation of the discretionary mandate will determine the capacity to overcome the credibility – ﬂexibility trade-off. As discussed in Bernanke ( 2003 ), this is likely to require constrained discretion where the action of the independent authority is consistent and limited by a credible and clear mandate balancing short-term and long-term objectives. Nonetheless, delegation to an independent body is unlikely to be a ‘silver bullet’. In fact, the ability of such a new institution to establish credibility among market participants will take time and is likely to depend on several factors such as its mandate, the proﬁle of the head of the agency, and its historical record. It also requires political agreement on the objectives of the EU ETS as well as on the degree of ambition of EU climate policy, which is perhaps the major challenge this design option is facing and which can change over time. This therefore implies that future legislators might attempt to modify the mandate of the independent body, which could undermine its credibility if it is not sufﬁciently taken into consideration in the design of this institution. The success of implementing such an inde- pendent body will therefore depend on a well-crafted mandate.
Ensuing EUpolicy challenges
The aforementioned factors, which shape the EU’s global trade relationships, and their likely interplay deﬁ ne the en- suing policy challenges. As always in trade matters, these policy challenges are both international and domestic. The top priority of the EU’s trade policy in the future, which derives directly from the developments sketched above, is an offensive one: to further open foreign markets. This is due to the growth differential already mentioned, but also because of remaining asymmetries between the EU’s high degree of trade openness and that of emerging mar- kets, whether one considers traditional obstacles to trade (such as tariffs or public procurement limitations), behind- the-border measures (such as technical or sanitary speci- ﬁ cations) or the trade-distorting subsidies to industry which characterise state capitalism.
The systematic mapping of RoO has also shed light on the dynamics of RoO regimes, their extra-regional expansion and infl uence. Two transmission mecha- nisms seem at work. The fi rst channel, which is usu- ally focused on, is “direct transmission”, whereby the promoters of rules in RTAs (EU, USA) apply the agreed rules to agreements with third countries. The USA/NAFTA model has expanded southwards on the American continent due to its application in US FTAs and the use of the NAFTA-type rules in “new genera- tion” agreements between other countries, including Mexico, although at the same time a tendency can be observed to simplify the new generation regime by re- ducing the cases subject to alternative rules, stressing the CTC as a predominant qualifi cation criterion and reducing the degree of ex ante restrictiveness in rela- tion to the NAFTA original origin regime. This use of the NAFTA model would have been further reinforced if the FTAA had succeeded. A similar tendency can be ob- served for the case of those FTAs that the USA negoti- ated with countries of other continents like Australia and Singapore. In contrast to the EU, the USA seems to have shown more fl exibility regarding RoO, espe- cially in the framework of extra-regional agreements. The US-Jordan and US-Israel FTAs, for example, rely basically on the value content rule. 8 The agreement
JEL : Q58, D23, H23
Keywords : Environmental policy, transaction costs, EU ETS, emission trading
The EU Emissions TradingSystem (EU ETS) has the objective to achieve the EU’s carbon emission goals at min- imum cost. Instead of imposing a tax to reach a certain goal, the policy determines a goal and lets the market determine the equilibrium price, which many economists have been advocating for a long time. Ideally, as this system ensures that all firms incur the same marginal price for emissions, abatement should be realized where it is cheapest so that the aggregate abatement cost is minimized. However, abatement costs are not the only costs arising from an emission trading scheme: just like any other regulation, this measure has to be implemented and managed by firms, causing a wide range of administrative, managerial and information-related transaction costs. Typically, such transaction costs are unobserved by the econometrician. Presumably, even many firms themselves do not account explicitly for the value of their employees’ time and resources spent in the course of EU ETS compliance optimization. As a result, transaction costs are mostly ignored both in academic and in policy discussions about emission trading. This study uses firm-level data to estimate these transaction costs and argues that their magnitude is relevant for many of the smaller regulated firms and should thus be taken into account when assessing the efficiency of the EU ETS.
to other reforms.
In any case, our empirical results have to be taken with care since our carbon pricing policy designs are very stylized. In practice, it would be very hard to monitor how much emissions may be shifted from the ETS to the non-ETS sector or retired due to the price floor. Moreover, there exist huge sectoral differences in abatement costs within the ETS and non-ETS sectors (recall Figure 3, Appendix C). Thus, potential efficiency gains very much depend on whether the additional tax is levied on coal-fired power plants in the electricity sector or on rubber production plants in the chemical sector. Policymakers may increase abatement targets in ETS sectors that face high marginal abatement costs but relax targets in non-ETS sectors that face low marginal abatement costs which may even result in efficiency losses. Analogously, regarding the efficiency analysis of policy 2 it also depends on which sectors are taxed and thus, how many emission allowances will be retired.
The EU Emissions TradingSystem (EU ETS) is the world’s largest carbon market and the EU’s ﬂagship tool to combat climate change. The launch of this transboundary carbon tradingsystem marked a severe tightening of environmental regulation in a uni- lateral way: Starting in the year 2005, EU ﬁrms in energy and manufacturing industries faced a strict cap on their total amount of greenhouse gas emissions while the perspec- tive for a widespread implementation of comparable regulations in other regions of the world was uncertain. Even though a number of regional and experimental carbon trad- ing programs were started subsequently to the EU ETS, these regionally or temporally conﬁned initiatives did not alter the unilateral character of the EU ETS in comparison to the substantially lower stringency of climate change policies outside of Europe. Against this backdrop, concerns about potentially negative competitiveness impacts on regulated businesses under the EU ETS were voiced from its inception and have not died out since. The concern that unilateral environmental regulations might impose signiﬁcant costs, divert resources from productive activities and ultimately put the international com- petitiveness of regulated ﬁrms at risk is widespread among economists, policymakers and industry representatives. In case of a persistent international asymmetry in the stringency of environmental regulation, the pollution haven hypothesis is that aﬀected businesses may move production capacity to countries that impose a lighter regulatory burden. In the context of climate change policies, such a shift creates “carbon leakage”, since the emissions would move together with the relocated production. In this scenario, the uni- lateral environmental policy backﬁres economically and ecologically, combining a loss of economic activity in industrial sectors with, at best, environmental ineﬀectiveness, or worse, an outright negative eﬀect if production outside of the regulated area is carried out in a more carbon intensive way. Such a process would manifest itself in the form of an erosion of the regulated ﬁrms’ asset bases in Europe.
or at least while potentially conflicting domestic laws are still being amended. 15 Japan has ratified
more core conventions than Korea, with whom the EU conclude an FTA in 2011 and had not ratified the Convention on forced labour, minimum age, and worst forms of child labour. The number of ILO core conventions signed is not the only policy indicator for labour stand- ards. Reality on the ground can be very different – for instance, Cambodia, Indonesia, and the Philippines are three countries that ratified all ILO core conventions, where the conditions are inarguably not better than in Japan.
tax shows. After one decade of ad hoc policies and reliance on the historical accidents of German reunification and the British “dash for gas”, it dawned on the Commission that current national policies would not reach the EU’s Kyoto commitment. In a courageous U-turn the Commission decided that an internal emissions tradingsystem for large emitters provided the only powerful and effective alternative to an emissions tax.
This debate does not need to be deepened here. What suffices is it to note that presently China - based on whatever philosophical or ideational approaches - is assuming an independent position on the world stage and intends to shape the rules of globalization according to its own ideas, interests and values. 38 This autonomy also determines China´s trade and economic policy, especially after the reorientation of its domestic and foreign policy under state and party leader Xi Jinping since 2012. One striking feature of this reorientation is the adherence to a particular economic system of a different kind that is not a market economy, but characterised by a strong government interventionism into the economy and close government ties of companies. Another one is the "Made in China 2025 Plan" of 2015 which brought about a long-term, targeted, strategic orientation of the Chinese economy towards assuming a leading role worldwide in key areas of technology and industry in a few years' time
through welfare state elements. As Keynesian policies failed at the end of the 1960s, there was the window of opportunity for neoliberalism to enter the political mainstream. It consolidated in political practice especially in the US under Reagan and in Britain under Thatcher. Since then it became hegemonic in many policy fields in the western countries. This development is connected to the fact that neoclassical macroeconomics replaced Keynesian macroeconomics in the 1970s. Neoliberal policies are based on neoclassical macroeconomic theory. However, it can be argued that the neoclassical economic theory is inappropriate and unfavourable for environmental protection and sustainability because the reality has shown that not all costs and benefits are included correctly in the price mechanism of the market. Natural living conditions are destroyed and natural resources not protected (Rogall 2013: 82). Nevertheless, the US was able to introduce and enforce neoliberalism in the negotiations about climate action under the UN. As a consequence, emissions trading became a central element of the Kyoto Protocol. The EU‟s initial position against flexible mechanisms such as emissions trading changed and the EU introduced the EU ETS in order to meet the Kyoto targets.
According to the Phase IV (2021-2030) rules of the EU ETS, the total amount of emissions permits allocated to firms is not fixed but endogenous. This implies that a national climate policy that overlaps with the emission tradingsystem can have an impact on total aggregate emissions. Roughly speaking, if firms increase their holdings of emission permits, the total amount of emissions allocated is reduced. This paper investigates analytically how an overlapping national policy affects the decision of an individual firm and the whole industry to bank emission permits. If marginal abatement costs are not too convex, national climate policies increase banking and thus tend to reduce overall emissions. This effect, however, is reduced in times of low interest rates.
On 15 th of July 2015, the European Commission released its proposal for a reform of the EU Emissions TradingSystem (EU ETS). The reasons for a rather thorough reform are obvious: First, the mechanism of supply and demand is not working properly as the market for emissions allowances currently exhibits a surplus of more than one year’s emissions, thus causing the price for carbon to be very low and as a consequence postponing investment decisions into carbon reducing tech- nologies. Second, the EU ETS needs major adjustments regarding the long-term perspective of a possible carbon path that is relevant for low-carbon investment decisions under risk. Third, the EU ETS needs to be aligned with the 2030 frame- work for climate and energy policy, which in turn has to be updated in view of the Paris Climate Conference that took place in December 2015. Although the Commis- sion proposal addresses all these issues, there is emerging evidence that only addi- tional reform steps will bring the EU ETS back to its intended role of becoming the cornerstone of EU climate policy.
Fifth, WTO members made a huge tactical mistake in requiring that progress on agricul- ture precede negotiations in other areas. The rationale was clear: farm reforms lagged in past rounds and needed to “catch up” in the Doha Round. In the event, focusing on agri- culture effectively delayed negotiations across the entire Doha agenda. Progress on agri- culture has been insufficient to spur worthwhile offers on manufactures and services; many of the big emerging-market countries that will enjoy the most growth over the next decade – China, Brazil, India, Indonesia, South Africa, and Thailand – remain wary, and justifiably so, that key US and EU farm reforms will be excluded or subject to lengthy de- ferment in the Doha Round negotiations. Because they believe the farm trade talks are “unbalanced” – demanding too much from them and too little from the United States and the European Union – they have held back in talks to liberalize trade in other areas. Yet without contributions by at least the middle-income developing countries on industrial products and services, officials in many OECD countries cannot garner political support for a deal to sharply reduce farm subsidies and border protection. Geneva officials say this is a “chicken and egg” problem. In fact, it is a lame excuse for not taking responsibility – which, in other words, means lack of political will.
variable “stateless nation” indicates that subnational administrators of such regions in our sample (Alsace and Brittany in France, Catalonia and País Vasco in Spain) want to have more subnational policy competences. We also find significant coefficients concerning the indicators of the party-political constellation. On the one hand, the subnational context in which the regional government is “partly in opposition” to the national government or government coalition seems to be negatively related to the desire of the top-level bureaucrats for regional policy competences. In contrast, the individuals from subnational authorities where the regional government is “completely in opposition” to the national government (or governmental coalition) are obviously more in favour of policy participation by their authority. We supposed that the institutional setting would influence the preferences as well. The significant and positive coefficient of the variable “institutional depth” is in line with the theoretical expectation that top-level bureaucrats from institutionally strong regions would desire more codetermination rights over a greater range of policy areas. What also shows a significant and positive coefficient, however, is the variable measuring regional population. This means that the larger the regional population, the more competences are desired by regio-crats. The model including all twelve policies shows a considerably higher degree of variance between the groups (regions) than within the regions. Overall, Model 1 explains about 24 percent of the variance.
The operationalisation of the opportunity approach is based on individual-level variables which were also collected by means of the survey. 13 On the one hand, the dummy variable “career ambitions” indicates whether top-level bureaucrats want to advance their career within the regional administration where they work. 14 The dummy variable “security of employment” (as a motivation for entering the subnational administration) taps into another common aspect of individual utility. The subnational social identity programme is based on factors that are common in subnational mobilisation research. The variable “regional gdp” (Gross Domestic Product) describes the socioeconomic situation of the regions. The dummy variable “stateless nation” indicates cultural differences between the nation state and the subnational entities. The party-political situation is captured by the opposition variables: if the subnational governmental coalition is partly in opposition at the national level, the variable “partly in opposition” is coded 1 (otherwise 0). If no regional government party is represented in the national government, the variable “completely in opposition” takes the value 1. 15 Finally, the institutional embeddedness of the subnational authorities is operationalised by an indicator taken from the regional authority index developed by Hooghe et al. (2010). The variable “institutional depth” measures the extent to which a regional government is autonomous as opposed to deconcentrated. 16
The result shows that the European asylum system is indeed characterized by a lack of inter-state solidarity. There are grave differences among Member States – and the distribution of asylum seekers is indeed surprising. It is not only the border states in the south and east of the EU which carry the main burden, but also countries like Belgium or Sweden, which are far off the shores of Lampedusa. Countries like Malta and Cyprus are surely overburdened, but on the other hand most southern European states like Italy and Spain receive relatively few asylum applications (all details are available as pdf ).
We recognize, of course, that normative political theorizing needs to maintain a certain distance from the most immediate political and economic developments. Political theorizing that is too proximate to current affairs is in danger of being status quo biased. 7 Yet we believe that rising powers are altering the global economic and political landscape in such funda‐ mental ways that practically relevant normative theorizing needs to reflect carefully upon this macrochange. 8 Therefore, our article explores from a normative point of view this in‐ creasingly multipolar constellation by addressing, albeit only in an exploratory manner, the basic question as to how one should assess the existence of rising powers from the point of view of global justice.