Chapter 4 focused on how lobbying took place in the main case of the European Union Emissions Trading System (EU ETS) and the risk of cheating in this system. First, concerning the EU ETS, the original proposal from the Commission was changed during the decision-making process, especially regarding the final choice of allocation rule. This change may be explained by the role of industrial groups in the policy-making process. By using rational choice theory and by analysing the Green Paper hearing replies from the main industrial groups, we argued that producers were active and influential in order to reap a net gain from being regulated by a grandfathered emissions trading system. This was so because total costs of emissions reduction and lobbying were likely to be smaller than the total economic rents from achieving this type of regulation. Second, we investigated the risk of favouring domestic industries in the current EU ETS. As the EU forms a weak federal structure compared to the US, there is a risk that individual countries may be tempted to free-ride on the others by choosing to turn a blind eye to industry-level corruption when this favours their own industries. In other words, the optimal level of national cheating may not take into account the external cost it imposes upon other countries, and the risk of large-scale cheating and the possibility of an EU ETS collapse. Thus, there is a strong need for further systematic empirical analysis of the actual level of cheating in the EU ETS.
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