Economic under-determination: industrial competitiveness and free allowances in the European carbon market

Abstract

ABSTRACT Tackling climate change has provided a key focus for the creation of what the editors of this special issue have termed ‘environmental intangibles.’ This paper focuses on the European Union Emissions Trading System (EUETS), a climate policy that revolves around the issuance and trading of environmental intangibles called emissions allowances. Set up in the mid-2000s, the cap and trade system has experienced many complications. We propose here to explore a particularly contentious issue: the allocation of free allowances. We will see that deciding on allocation rules leads to vivid debates about whether energy-intensive industries in Europe, such as the manufacturing of cement, can remain competitive in the global economy if climate policy is unilaterally enforced. These debates are focused on a phenomenon referred to as the risk of carbon leakage due to loss of competitiveness. Drawing on an empirical enquiry into the workings of policy-making, the paper examines the ways, in which this risk is framed and questioned through lobbying and evidential work. We suggest that the threat to competitiveness posed by the EUETS can neither be established, nor dismissed; a form of under-determination is maintained and carbon leakage as a never-quite-tangible possibility becomes a battleground for protecting European industry over the environment.