4.3.2 Permit politics Hungary’s CO2 allowances Gábor Baranyai1
As the largest cap-and-trade market in the world, the European Union’s (EU’s) carbon emission trading system (ETS)2 has received both praise and criticism. One early concern related to the allocation of emissions allowances. If allocated to regulated industries in excess of actual emissions, these permits can constitute hidden state aid; and, when distributed in a non-transparent manner, allowances can be a powerful tool to disburse unjustified subsidies, potentially becoming a hotbed for political favouritism.
Under the first two phases of the EU ETS (2005–2007 and 2008–2012), the allocation of permits was managed by each EU member state. National allocation plans (NAPs), which outline the number of allowances given to each regulated facility, were submitted by member state governments and approved by the European Commission. The relative discretion of member states to determine allocation methodology, the potential uncertainty of emissions data and lobbying pressures 3 in many countries resulted in the adoption of excessively generous allocation plans.
Hungary’s misallocation of allowances
The preparation of Hungary’s NAP for 2008–2012 was susceptible to industry lobbying. Political instability further complicated matters, with the position of environment minister – who oversees emissions allocations – reappointed three times within three years. Each subsequent
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minister was approached with new requests and proposals for more allowances for certain sectors and companies. Once the drafts had left the ministries involved, additional interests appeared at the Cabinet level, making oversight of the process increasingly difficult.4
3/15/2011 9:42:21 AM