(De)centralized law-making in the revised EU ETS

After a highly pressurized political process, the European Parliament and the Council adopted Directive 2009/29/EC which will amend Directive 2008/87/EC as to ‘improve and extend the European Emissions Trading Scheme (EU ETS)’ in April of 2009. The changes in the so-called third phase of the EU ETS will be substantial, altering some of the essential features of the EU ETS. This paper discusses these changes in relation to two key aspects of the EU ETS - cap-setting and allowance allocation. In relation to both aspects, changes regarding the level of governance in terms of law-making competences are foreseen. This paper analyses the desirability of these changes in reference to the economic theory of federalism in order to ascertain whether it provides a justification beyond political and legal arguments provided by the European institutions and the Member States