After 44 years of membership, the United Kingdom decided it would exit the European Union during a referendum on the 23rd of June. In the months leading up to the referendum up until now, there have been ongoing speculations on how the new relationship between the UK and the EU would be shaped. Many reports have been written on the economic side of Brexit, discussing membership of the single market, the customs union and the supervision of the European Court of Justice. To a lesser extent, other policy areas have been discussed. Yet it can be said with certainty that exiting the Union will affect all policy areas. Although the EU is an important actor in the areas of Energy and Climate, they are often under exposed in the Brexit debate.
Even though the wish to have clarity on the future relationship between the UK and the EU is understandable, one should first look at the current relation to make a funded claim on the future relation. If it is proven that United Kingdom has been successful in influencing the European environmental policy area, this would implicate that there have been less problems with implementation. If there is little ‘misfit’ it might be more beneficial for the country to stay within the EU environmental framework.
The EU Emission Trading Scheme could be considered as the cornerstone of the environment and energy policy of the EU. Since 2005, the ETS has been an important tool to reach the necessary emission reductions by putting a price on greenhouse gas emissions in a so-called cap-and-trade system. Although the EU ETS has proven its worth by on the one hand reducing emissions and on the other hand pushing for low-carbon innovation, it has not functioned perfectly. Hence, reforming the EU ETS has been on the agenda for several years. However, finding common ground on how the ETS should be reformed has proven difficult, given the diverging preferences of the Member States. To tackle the surplus allowances in the system and to shift towards a low carbon economy in a cost-effective manner, reform of the EU ETS is inevitable. Therefore, two proposals are discussed on the European level to realise the necessary reform. First, the introduction of the Market Stability Reserve (MSR) which is a tool to remove the surplus of 2 billion allowances from the system and the wider EU ETS Phase IV reform that should deal with carbon leakage, modernisation and innovation of the energy sector and the general ambition of the ETS.
This dissertation will analyse the decision-making process of the EU ETS and see to what extent the UK Position is reflected in the proposal of the structural reform that entered the trialogue process in `April 2017 and in the introduction of the MSR. The dissertation will not look beyond the start of the trialogue phase since the negotiations are ongoing.
Although it is hard to distinguish the individual role of member states given the dynamic nature of EU policy-making, this dissertation will argue that the UK has been a driving force for the introduction of the Market Stability Reserve and the structural reform of the EU ETS. This becomes apparent from policy analysis but also from the two interviews that have been conducted with Sandbag and Energy UK. Several factors have played a role in the relative success of the UK namely, the ability of the UK to form coalitions with other Member States, industries and interest groups. Furthermore, the Knowledge and position of the UK as green finance hub helps the UK in being a credible and reliable force. Lastly, the extent of Europeanization of British environmental policy ensures that the policy preferences of the country are closer to the European level and hence the chances of successful uploading are enhanced. One should however note that the position of the United Kingdom has weakened after the result of the EU referendum since the country changed into a more reactive policy taker with regard to the structural reform.
Although extensive research related to the functioning of the EU ETS already exists, position of specific member states remain hard to assess. Furthermore, research into the latest reform is still lacking as well as research into the position of specific member states and the role of Europeanisation in this regard. Researching the development of the position of the United Kingdom is interesting for several reasons. As mentioned earlier, the result of the referendum instigates new interest in the position of the United Kingdom vis a vis the EU. Second, the reform of the fourth phase of the EU ETS could have been the last possibility of the United Kingdom to exert formal influence in this regard since it is uncertain what position the country will have in the new EU ETS. Third, the United Kingdom is an interesting country to look into given its position as financial hub and its ongoing efforts in the field of green finance in the City of London and as the first country that has introduced carbon flooring.
This dissertation will assess the extent to which the UK has been able to ‘upload’ its preferences with regard to the 4th phase reform on a European level. In order to analyse the policy a theoretical framework on Europeanization will be used. The more a European policy fits the domestic context, the lower the adaptation costs in the implementation process. In the absence of an elaborate policy structure, ‘misfitting’ European policies may still inflict significant costs since these structures have to be built up in the first place. Secondly, uploading prevents competitive disadvantages for domestic industry. Heritier states that “ Member States seek to shape European policy-making according to their interests and institutional traditions. At the same time, they have to adapt their institutions to European legislation once the latter has been enacted.” Besides the existing literature on Europeanization and uploading, the literature on pace-setters and environmental leaders and policy entrepreneurs will also be examined. Lastly, after the analysis on whether the United Kingdom has been able to successfully upload, some factors that could have contributed to the relative success will be discussed.
Theoretical framework
This chapter will lay the framework for the analysis. First it will give insight to the concept of Europeanization where it will explain uploading, downloading and cross-loading. Subsequently, the chapter will aim to explain when countries qualify as leaders or pace-setters in the field of environmental policy. The chapter will also assess the difference between larger and smaller member states when it comes to Europeanization. Lastly, the chapter will end with a short summary of the methodology used to write this dissertation.
Europeanization – uploading and the goodness of fit
European integration is a widely studied topic in the academic literature because of the constant evolving nature of the EU. Neo-functionalist studies on European integration claim that integration is self-sustaining because of spill-over, supra-nationality and interest groups. Intergovernmentalist on the other hand believe that European integration is the result of ‘intergovernmental bargains’ which means that member states are the only actors that shape the European Unions decisionmaking process and the European instituions merely function as agents. On the basis of the above mentioned theories of European integration a new lens was developed called Europeanization which takes the relationship between neo-functionalism and intergovernmentalism into account through ideas relating to up-loading, downloading and crossloading.
There is wide variety of definitions of Europeanization available that are used in the academic literature for this concept that is considered valuable and contested at the same time. Radaelli states that Europeanization is: “a process of construction, diffusion and institutionalisation of formal and informal rules, procedures, policy paradigms, styles, ways of doing things and shares beliefs and noms which are first defined and consolidated in the making of EU public policy and politics and then incorporated in the logic of domestic discourse, identities, political structures and public policies” . Borzel and Risse utilize a more concise definition by referring to Europeanisation as a process whereby the EU as an independent variable affects EU member states domestic spheres, the dependent variables.
Ladrech states that, “Europeanisation” is the process of “penetration of the EU into politics, institutions and policy-making of member states , merely referring to a top-down approach. According to Borzel, Europeanization should be perceived as a two-way process with a bottom-up and a top-down dimension. One can define bottom-up as the evolution of European institutions as a set of new norms, rules and practice. The latter refers to the impact of these new institutions on political structures and processes of the Member States. In the past, academic research was mostly focused around the bottom-up dimension that explores the underlying dynamics and potential outcomes of the European institution building process. However, they both limit their European analysis to effects at either MS level or EU level whilst in most cases one can observe both a bottom-up and top-down development.
Member states share a general incentive to upload their policy arrangements to the European level in order to minimize the cost of implementation in their respective countries. The level of success regarding uploading will determine the level of change in relation to downloading and is linked to the so called ‘goodness of fit’ or ‘misfit’. This comes down to the idea that the closer the European legislation is to the current domestic preference, the better the fit. Since the member states have distinct social political and economic preferences, they often compete for policies that conform to the preferences of their countries or constituencies. National preferences are uploaded to the European level and incorporated into policy proposals. However, given the differences between the countries and their capabilities, governments all have different strategies to participate in this European policy contest.
The integration principle of cross-loading as identified by Howell acts as a mechanism between uploading and downloading through lesson drawing, policy transfer and policy convergence. Member states download EU directives to the domestic level, they upload domestic preferences and to the European level. This results in cross-loading which is ‘a constant dialectical and cyclical fuelling of institutions, policies and processes in the broader EU arena’.
According to Heritier: “ Member States seek to shape European policy-making according to their interests and institutional traditions. At the same time they have to adapt their institutions to European legislation once the latter has been enacted.” Moravcsik counters this by stating that it would be too simplistic to say that the European institutions have no power or that Member States are just focused on gate-keeping the access of domestic interests to the European policy arena. At the same time, one should not underestimate the importance of national executives in the development of European policies.
In this regard, one could utilize the body of thought of the two-level approach as developed by Robert Putnam in which the reciprocal relationship between on the one hand the European institutions and the Member States is explained. On the level of the member states, actors pressure their national executives to pursue policies at the European level that are favourable to their interests. At the European level, Member states governments push for European policies that are favourable to their interests. Two-level game approaches establish a systematic relationship between domestic and European politics, with the national governments functioning as the core intermediaries between the two. Furthermore, the two-level approach provides a link between the decision-making and the implementation stage, ascending and descending, of the European policy process.
Since this dissertation focuses on European environmental policy-making, the five mediating factors developed by Schmidt will be utilized to explain environmental policy change. First of all, economic vulnerability since it could be argued that states are more open to change when they are faced with an economic crisis or other economic adversities. Second, the political institutional capacity of a country, which highlights the ability of political actors to impose or negotiate change based on the interactions and the institutional structures. Third, the policy legacies which deal with the ‘fit’ with domestic long-standing policies and the preferences of the policy-making institutions. Fourth, the policy preferences, their old preferences and their willingness to change them and lastly, the discourse that deals with the ability to change preferences by altering perceptions of economic vulnerabilities and policy legacies and thereby enhance political institutional capacity to impose or negotiate change”.
As mentioned in the introduction, this dissertation will assess the extent to which the UK has been able to ‘upload’ its preferences on a European level. The more a European policy fits the domestic context, the lower the adaptation costs in the implementation process. Thence, when answering whether the United Kingdom has been successful, we will aim to define success by looking at the goodness of fit and the adaptation costs that the United Kingdom has to make in order to implement and comply with EU law.
Pace-setting or leading environmental policy
Environmental policy is often used in Europeanization research since almost all national environmental policy is made by or in close collaboration with the EU. Besides the extent to whether the UK has been able to upload its preferences one could also examine whether the UK can be considered as a pace-setter, leader or pioneer in terms of the establishment and reform of the ETS. Pace-setting involves the active shaping of European policies according to domestic preferences. Ideally, domestic policies are exported to the European level and subsequently adopted by other Member States. If the strategy is successful, the subsequent downloading of the European policy creates few problems for the pace-setter, who can easily incorporate it their domestic policies. In environmental policy, the pace-setters are called ‘leaders’, ‘pioneers’, ‘forerunners’ or ‘firstcomers’. Although the United Kingdom is often not listed as a forerunner of environmental policy in general (France, Luxembourg, the Netherlands and Sweden are), it has been active in pushing for ambitious proposals and pioneering such as a their introduction of carbon flooring, their domestic ETS and later on their push for a fairer ETS system.
Pace-setting not only presupposes established domestic policies but also the capacity to push them through the European negotiation process, very often against the opposition of other Member States with diverging policy preferences. Especially after the Treaty of Nice, this is not merely a question of voting power in the Council since smaller member states have in the past also been successful in pushing through their policy preferences at a European level. An example of this can be seen in Denmark that successfully managed to transform its national plan for the aquatic environment into the urban waste water and nitrate directives. Another example in the environmental policy area is the Netherlands that managed to convince other Member States to adopt high standards for small car and truck emissions. SMART strategies often contribute to the successful pushing of policy preferences of smaller Member States, key in this is offering expertise and information to the European Commission in order to shape the policy at an early stage. Also coalition building and interest accommodation skills are crucial. Having a large administration also contributes to this since having the necessary staff power aids to offer help to the European Commission.
The European Commission is on its turn more prone to listen to these member states since high-regulating states could distort trade which threatens the functioning of the single market. At the same time, one should acknowledge that is impossible for any member state to solely construct EU policies because the Union is build on consensus and coalition building. Furthermore, it is important to note that high-regulating states all have their own traditions which means that there are considerable differences that can be appointed between different MS.
Also, European environmental legislation can be better defined as a patchwork of policies rather than a coherent set. In the absence of a consistent regulatory framework, every Member state is likely to deal with costly policies that it has to download from a European level. Hence, Germany has lost its former enthusiasm to function as the “ motor behind EU environmental policy and has changed from a pace-setter or leader to a more reluctant laggard.
When looking at the United Kingdom, the subject of this research, one could observe that Britain has displayed an opposite dynamic. According to some literature, where it once qualified as an environmental laggard, it can now be seen as an occasional leader. After the United Kingdom joined the European Community in 1975, the country was able to implement most policies with only small adjustments. However, when the EC sped up its environmental policy, the UK found itself increasingly at odds with the position of the European Commission. The European Commission was at that point largely influenced by the approach of Germany. Where Germany had uniform air and water quality standards, the United Kingdom was more in favour of an ad-hoc approach. The ongoing opposition with the European Commission and the other member states led to the qualifications of the United Kingdom as a laggard or the dirty man of Europe. However, at the beginning of the 1990s, this began to change with a more proactive stance of the Department of Environment (DEC) according to Jordan.
Carter and Lowe describe the country even as a “pathfinder in many areas of legislation and regulation”. An example of this can be seen in the parallel development of the EU Environment Management Scheme (EMAS) and the British Standard Institute’s (BSI) voluntary standard for environmental management schemes. According to one german official, the decision-making process of the EMAS could be characterized as a pioneer by stating that “behind every door in Brussels, there seemed to be a Brit”. By rapidly launching their own management scheme, the United Kingdom tried to act as a first-mover and upload, at least elements of, their domestic scheme to the European level. This move was successful to a certain extent given the qualification in numerous articles as the mother of the EMAS .