Business and Emissions Trading from a Public Choice Perspective: Waiting for a New Paradigm to Emerge

Emissions trading is the economist's preferred instrument for handling CO2 emissions. It is described as an efficient and effective instrument that motivates corporations to redesign their internal decision-making processes and innovation management. Referring to the European Emissions Trading Scheme (ETS) and, in particular, to its implementation in Germany as defined by the National Allocation Plan covering the period 2005-2007 (NAP I), we derive hypotheses about the interests of the actors deciding environmental policy against the background of Public Choice Theory. This helps us to understand why the practice in environmental policy differs significantly from theory. We argue that the German NAP I reflects a structural conservatism. Although comprehensive ET comes into force for the first time, we will still have to wait for a new paradigm to emerge in environmental policy.