1. Title Outline 1.The Blunt Knife: MBI in Theory and Practice 2.The Explanatory Approach 3.Cross-Country Results 4.Sharpening the Knife: Conclusions Sharpening the Blunt Knife How Interest Groups Shape Environmental Policy Instrument Choice An Exercise in Advanced Cross-Country Political Economy Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de

2. The Cutting Knife … Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de “If it is feasible to establish a market to implement a policy, no policy-maker can afford to do without one.” John H. Dales 1990: 21 MBI in Theory and Practice ecologically effective economically efficient US AT: -50% SO 2, -50% costs EU ETS: -21% GHG (2020), -30-50% costs German ETR: -2-3% CO 2, 250.00 jobs

3. … and its (Partial) Bluntness Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de “[T]he use of economic instruments has somewhat increased, but … for the wrong reasons … [and] their impact is still rather low” G. Kirchgässner and F. Schneider 2003: 369, 388 Shortcomings of MBI in Practice US AT: weak target, competitive distortions EU ETS: over-allocation, competitive distortions German ETR: low tax rates, exemptions Japan ETS: voluntary, bottom-up intensity targets

4. Question Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de “[T]he output of environmental policy emerge from a struggle between key interest groups.” Robert W. Hahn 1990: 21 “[W]here did all the markets go? ” Robert W. Hahn and Gordon L. Hester 1989: 109

5. Conceptual Framework Systemic Constraints Situational Constraints Actor Determinants of Environmental Policy Instrument Choice Based on: Jänicke, Martin/Kunig, Philip/Stitzel, Michael (2003): Umweltpolitik – Politik, Recht und Management des Umweltschutzes in Staat und Unternehmen. Bonn: Dietz Output cognitive-informational institutional-political economic- technical socio- cultural Input Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de

6. Research Steps of a Political Economy Analysis Analytical Steps description of effects of the policy instrument identification of relevant political actors analysis of political actors’ preferences (towards policy’s effects) study of political actors’ influence external constraints Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de Effects of the Policy Instrument company-level and society-level efficiency attribution of costs administrative costs competitive distortions property rights ecological accuracy incentives to innovate adaptation to structural changes

7. Research Steps of a Political Economy Analysis Political Actors and Preferences voters maximize utility from private and public goods interest groups maximize political rents bureaucrats maximize budgets politicians maximize votes and support Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de Determinants of Political Power number of members homogeneity of interests market power financial and personnel resources informational advantages power of individual group members will-and-skill of individuals access to discussion and decision-making arenas utilizable networks

8. Similarities in IG Action in USA, Germany, Japan Most Important Effects of ETS on IG’s interests are society-level cost efficiency and maximization principle the cap attribution of costs property rights’ issues competition issues Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de Political Influence Most Heavily Depends on support of the public homogeneity of interests financial and personnel resources access to the political process utilizable networks market power

9. Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de Similarities in IG Action in USA, Germany, Japan Situational/Systemic Conditions Shape Interests, Influence visibility of the problem failure of alternative instruments political pressure by earlier commitments overall economic situation availability of information routines of policy making belief in government’s/civil society’s role

10. Differences in IG’s Influence USA, Germany, Japan Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de USAGermanyJapan support of the public + + – homogeneity of interests + + – financial, personnel resources – – – access to the political process 0 0 – utilizable networks 0 0 – market power – – – visibility of the problem + + – failure of alternative instruments + + + pressure by earlier commitments + + + overall economic situation + + – availability of information + + – routines of policy making + + – government’s/civil society’s role + + –

11. Additional Observations profit maximization leads to distinguished special interests industry utilize instrument hopping and voluntary action economic knowledge determines environmentalists’ interests political flexibility of emissions trading can be used to gain support free allocations can be used for pay for approval cap can be protected despite of free allocations Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de Similarities in IG Action in USA, Germany, Japan

12. Sharpening the Knife: Conclusions Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de Recommendations for Governing Interest Groups’ Action increase public support for climate protection and MBI increase NGOs economic knowledge communicate emission trading’s merits to companies use free allocation for buying support protect the cap split opponents alliances by collaborating with winners create homogenous support amongst environmentalists organize cross-actor networks of supporters increase NGOs resources open the political process to NGO participation

13. Quote Interest Groups and Instrument ChoiceGCET 11 Bangkok, November 5, 2010 Dr. Sven Rudolph Faculty of Economics s.rudolph@wirtschaft.uni-kassel.de “[P]roposals for reform that ignore these constraints... run the risk of being irrelevant for policy makers” Robert W. Hahn and Gordon L. Hester 1989: 144