The Policy Studies Journal, Vol. 38, No.

3, 2010

Arenas of Power in Climate Change Policymaking

Brian J. Cook

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This article investigates the potential linkage between particular policy design ideas and distinctive patterns of politics and power relations. The research examines a sequence of four cases involving the use of the cap-and-trade policy design principally to combat global climate change through the reduction of greenhouse gas emissions. Through the lens of arenas of power framework, the comparative case analysis suggests the existence of consistent linkages between particular cap-and-trade design ideas, and distinct patterns of political conict and empowerment. The article concludes with a brief consideration of what the ndings suggest about the national politics of climate change policymaking in the United States in the near term, and more important, an assessment of the implications for the further development and renement of policy theory.
KEY WORDS: arenas of power, political entrepreneur, entrepreneurial politics, interest-group politics, climate change, cap and trade

I. Introduction Until very recently, cap and trade was a relatively obscure public policy design primarily deployed to reduce sulfur dioxide emissions from power plants in the ght against acid rain. Even as its use expanded to battle other air and water pollution problems, including its incorporation into the European Unions emissions trading system developed to implement the Kyoto Protocol, public awareness of cap and trade as a policy tool remained limited to a relatively small network of policy scholars, policymakers, and administrators, and businesses engaged in emissions trading, whether as buyers, sellers, or brokers. As the Obama administration joined forces with substantial Democratic majorities in the 111th Congress to craft major legislation addressing the growing threat of climate change, however, cap and trade entered the political lexicon. It rapidly became a lightning rod for opposition to federal government action on climate change. It has even come under re from those demanding more aggressive action to reduce greenhouse gas emissions (e.g., Hansen, 2009). The story beneath the recent furor is in many respects far more complicated and dynamic, however. Cap and trade has not simply been absorbed into the larger politics of the moment. Since it was rst introduced in the late 1980s, it has been the focal point of competing design ideas and policy aims, resulting in uctuations in

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politics and power relations. This article traces signicant instances of the politicsshaping effects of this now highly visible policy design. The aim is to contextualize the current debate, to dissect the political dynamics of climate change policymaking at the national level in the United States, and to assess whether a policy typology, or arenas of power approach still has probative value for understanding policymaking politics. I begin with a review of the conceptual contours of the notion that policy shapes politics, specically Theodore Lowis idea of arenas of power and a modication of Lowis framework devised by James Q. Wilson. Both are well known to policy scholars. I then apply the Wilson typology in a comparative case analysis involving cap and trade. This analysis of four successive cases involving policymaker consideration of cap and trade strongly suggests the existence of consistent linkages between particular cap-and-trade design ideas, and distinct patterns of political conict and empowerment. I conclude by considering briey what the ndings suggest about the national politics of climate change policymaking in the United States in the near term, and more important, the implications for the further development and renement of policy theory. II. Analytical Framework In his original arenas of power formulation, Lowi (1964) did not specify the policy design variables that differentiated the broad types of policy politics he identied. He did, however, make clear the structure of his causal argument: (1) The types of relationships to be found among people are determined by their expectationsby what they hope to achieve or get from relating to others. (2) In politics, expectations are determined by governmental outputs or policies. (3) Therefore, a political relationship is determined by the type of policy at stake, so that for every type of policy there is likely to be a distinctive type of political relationship (p. 688). Later, Lowi (1972) did designate the variables. He contended that the key dimensions of policy that shape expectations and varying structures of powervarying sets of political relationshipsare the likelihood of government coercion (immediate or remote) and the applicability of coercionwhether a policy works by targeting specic individual actions, or alters the environment of action so that behavior changes without the need to enable or prohibit specic individual actions. Table 1 is a distillation of the more elaborate graphic of his scheme Lowi provided. It indicates, for example, that where policymakers intend public action

Table 1. Lowis Original Typology: Types of Coercion, Types of Policy, Types of Politics Applicability of Coercion (Works Through:) Individual Conduct Remote Likelihood of coercion Immediate Source: Lowi (1972, p. 300, Table 1). Regulative policy Redistributive policy Distributive policy Environment of Conduct Constituent policy

Cook: Arenas of Power in Climate Change Policymaking Table 2. Wilson Policy Politics Typology Distributed Costs Distributed benets Concentrated benets Source: Adapted from Wilson (1980). (1) Majoritarian politics (2) Client politics Concentrated Costs

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(3) Entrepreneurial politics (4) Interest-group politics

primarily to inuence directly individual behavior (including the behavior of groups or organizations) yet there is little coercive force in the policy design, it produces a pattern of political relationships Lowi labeled as distributive policy. The political coalition stemming from a policy design primarily distributive in its conception or in the expectations of effect the design created would not be forged of conict, compromise, and tangential interest but, on the contrary . . . composed of members who have absolutely nothing in common; and this is possible because the pork barrel is a container for unrelated items. This is the typical form of relationship in the distributive arena (Lowi, 1964, p. 693). In contrast, where a policy design creates expectations of immediate coercion that works through the environment of conduct, the politics of distributive policy is distinguished by class divisions, highly ideological conict, and the involvement of peak associations (p. 707). It is important to emphasize that Lowi was interested in identifying and explaining the rise of general, repeating political patterns, not simply classifying individual policies. He sought enough theoretical potency to be able to predict what kinds of political relationships would formwho would have powerbased on the expectations policymakers held of the coercive impact any given policy would have. Lowi expected these arenas of power to be broad and reective of tendencies over time and across substantive policy issues. He sought to shift the focus of scholars from the politics of specic and ephemeral (Lowi, 1964, p. 689) issues to the broader politics of the power arenas, including how power might shift over time. Indeed, he also anticipated that the politics associated with any given substantive issuetrade, or income security, for examplemight shift with the introduction of new policy ideas and changes in the design intentions of policymakers reected in the new ideas. Lowis effort has met with considerable criticism over the years (see especially Greenberg, Miller, Mohr, & Vladeck, 1977; Steinberger, 1980). This has not stopped scholars from continuing to rene, modify, and extend Lowis approach (e.g., Anderson, 1997; Spitzer, 1987), although there remain fundamental questions about the utility of all such efforts (Smith, 2002). As I have already noted, James Q. Wilson (1980) devised an alternative four-fold typology to capture the policy-shapes-politics dynamic based on the perceived (or expected) costs and benets of proposed policies (see Table 2). It is not fundamentally different in its thinking from Lowis ideas (see King & Shannon, 1986), although it better focuses attention on the patterns of politics resulting from the expectations policy designs engender. The two schemes can even be linked (Birkland, 2005, p. 148). For example, pollution control policies have tended to recreate or reinforce policymaker expectations and consequent patterns of politics associated with protective regulatory policy in the Lowi schema as modied by

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Ripley and Franklin (1987), which also reects a general type of politics, or arena of power, that Wilson characterizes as entrepreneurial. How so? For protective regulatory policy, like all regulative policy in Lowis scheme, the likelihood of coercion is immediate and it works through, or targets, individual conduct (again, see Table 1). Policy actors thus perceive policy designs of this sort as concentrating the costs of the policy solution on a relatively narrow set of actors, usually the rms in an industry whose production processes, or the products themselves, generate externalities. The benets of ameliorating the external effects are broadly dispersed and thus relatively small for any one citizen. Thus, citizens are not motivated much to organize in pursuit of the benets, nor do they feel the bite of the modest coercion associated with the policy. In contrast, the regulated parties bearing the costs are relatively few, well-resourced, and motivated to resist the imposition of the coercive costs. Therefore, an extraordinary political effort is often necessary to overcome the collective action problem of imposing narrow costs to realize diffuse benets. The political relationships engendered by the expectations of policy costs and benets of this sort create conditions in which policy enactment requires the active engagement of one or more individuals who can derive a direct net benet from the extraordinary time and effort needed to rally the diffuse beneciaries, and who will therefore act entrepreneurially to overcome the political resistance of the concentrated interests expecting to bear the costs. To determine the extent to which the general insights of the Lowi approach and the Wilson typology are evident in policymaking involving the application of cap and trade, I examine four cases that span nearly two decades. Following the comparative case analysis approach of Sharpe (1994), each case represents a successive stage of policymaker consideration of the use of the cap-and-trade policy design. My cases are more loosely connected than those in the Sharpe analysis, as they involve both subnational and international initiatives, and more than one substantive policy issue, although they all involve attempts to control air-borne pollutants. The limited number of cases is also consistent with Sharpes approach, since she analyzed only ve cases each within two substantive issue areas. The time span is also roughly the same for my cases and those Sharpe investigated. An additional advantage to using Sharpes approach is that it connects to the temporal aspect of Lowis original theorizing. Tracing a given issue over time, one nds that its place in the Wilson typology may change several times, as policy proposals and associated perceptions of costs and benets change, and as the number and character of organized interests in the policy domain change (Sharpe, p. 923). This temporally linked case approach also shows that one of the presumed weaknesses of policy typologies, that policy issues seem to move from one policy type to another over time, is in fact a strength in that the typology approach can take account of the dynamic shifts in policy actor perceptions and the resulting changes in coalitions and power relations that occur over time, as Lowi anticipated. Throughout the presentation of the cases that follows, I use the Wilson typology. This raises two additional methodological problems. First, what evidence is sufcient to establish that political actors have perceived the cost and benet impacts of a policy proposal in a way that one can condently place the policy proposal, at a

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given point in time, into one of the four types in the Wilson scheme? Political actors are unlikely to articulate their positions in language that readily matches the terminology in the Wilson approach. Scholars using the Wilson scheme have used both primary and secondary sources for evidence, which they nevertheless have had to interpret as consistent with the concepts in the Wilson typology. For example, in arguing that the politics of the disability rights issue was at one point best characterized as entrepreneurial, Sharpe (1994, p. 925) pointed out that benets remained diffuse at this time, as organizations representing the handicapped remained largely unaware of Sec. 504 and [Ofce of Civil Rights] staffers proceeded on the basis of generalized beliefs about civil rights. Consistent with the scholarship using the Wilson typology, I present primary and secondary source evidence in support of my interpretation of how each case ts the Wilson policy politics types. The second methodological problem, raised by one of the cases I present, concerns what conditions are necessary to determine that the politics surrounding a policy issue or issue stage is entrepreneurial. The central question is whether the presence of an active policy or political entrepreneur is necessary. Wilson seems to have suggested that the presence of a political entrepreneur is only necessary for the successful adoption of a policy. Perceptions of the proposed policy spark a pattern of entrepreneurial politics. Finally, a policy may be proposed that will confer general (though perhaps small) benets at a cost to be borne chiey by a small segment of society. When this is attempted, we are witnessing entrepreneurial politics (Wilson, 1980, p. 370, emphasis added). On the other hand, in one of the cases Sharpe presented, the political entrepreneur clearly created the conditions that allowed Sharpe to type the politics as entrepreneurial. The limited scholarly literature using the Wilson typology provides no consensus on the question. Therefore, consistent with Wilsons framing, I believe it is the alignment of politics and power relations creating the conditions under which so-called political entrepreneurs might emerge that sufciently denes entrepreneurial policy politics. In my conclusion, however, I call for research that will clarify this ambiguity in the Wilson conceptual scheme and the existing scholarship. As a lead-in to the cases, I briey recount the politics associated with the introduction of market-based approaches into the design of air pollution control regulation, moving then to a discussion of the specic market-based approacha species of emissions trading called cap and tradethat has become the design of choice among most policymakers. The policy design problem at the heart of these schemes has become one source of debate about the design of policies intended to reduce greenhouse gas emissions. This design problem concerns how to allocate the initial endowment of tradable allowances within the baseline budget, or cap, of a cap-and-trade system. It is the substantive policy issue I examine through the four successive cases. III. Policy Design and Political Consequences in Allowance Trading As I noted above, protective regulatory policies, among which pollution control is the most widely recognized and far-reaching example, create favorable conditions

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for, and thus empower, political entrepreneurs. In effect, entrepreneurial politics has been the political default setting, or arena of power, associated with environmental policy since the 1960s, when regulatory policy designs supplanted distributive policies across a broad swath of natural resource and public health issues. Over the same time period, however, economists became increasingly forceful in advocating the use of various market-based regulatory tools to curb pollution. When their ideas for pollution charges and marketable pollution permits rst gained prominence in the mid to late 1970s, considerable philosophical, legal, and organizational conict ensued (Cook, 1986; Kelman, 1981). Despite the repeated challenges to these design ideas, however, over time major groupings of political actors originally opposed to market-based approaches, most notably state regulators and environmental public interest groups, shifted their political positions considerably (Cook, 2002). A leading environmental public interest group, the Environmental Defense Fund, was one of the leading advocates for the use of market mechanisms to curb acid rain (Weisskopf, 1989). The four cases explored here reveal a politics of policymaking in ux over time as policymaker consideration of market-based policy designs has shifted the cost and benet perceptions and thus the relative power relations of the principal parties. This political ux began prior to climate change policy moving to the forefront of environmental concerns, with the introduction of the cap-and-trade idea into the air pollution control policy network in the battle against acid rain. A. The Politics of Allowance Allocation in the U.S. Acid Rain Program Within cap-and-trade programs, the decision about how to allocate the initial budget of allowancesthe unit of emissions that can be bought and sold, banked, traded, or retiredimposes perhaps the most clear, simple, and direct material impact on interested parties within what is otherwise a technically, legally, and administratively complex policy design. Emissions trading takes the pollution absorption capacity of the atmosphere, previously free to all concerned parties and thus of little direct economic value, and turns it into a scarce resource by requiring polluting rms to hold allowances equal to their total pollution output. In the case of cap-and-trade programs specically, the cap is incrementally lowered over a number of years, making the resource increasingly scarce over time. Prices increase as demand exceeds supply, creating incentives to reduce emissions. As a new production cost factor, how the resource is initially allocated to launch the controlled market goes a long way toward determining the policys perceived (and real) winners and losers (see Dinan & Rogers, 2002). At its simplest, the policy design problem for allowance allocation is a binary choice. Regulatory authorities may simply give allowances away for free to regulated sources, or sell them to those entities. The device for accomplishing the latter usually contemplated is some form of auction. There can, of course, be numerous combinations of the two, many of which are likely to complicate the benet-cost calculus of the affected parties. Title IV of the U.S. Clean Air Act, the acid rain program, incorporates both forms of allowance allocation. For both Phase I (1995 through 1999) and

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Phase II (2000 and after), however, Congress chose to allocate at no cost to regulated utilities over 97 percent of the total allowances available under the initial cap on sulfur dioxide emissions set in the statute. Ostensibly, the statute based the no-cost allocation of the allowances on an emissions rate tied to historic operating averages (heat input over the 3 years 198587). As both Heinzerling (1995) and Joskow and Schmalensee (1998) report, however, the policy design choice overwhelmingly weighted toward free allocation produced a pattern of politics and political power that was a distinct departure from the entrepreneurial politics generally associated with environmental policy (see also Hausker, 1992, pp. 56669). With respect to the Phase I allocations, which concerned a limited set of fossilfuel-red electric generating units, signicant departures from the statutory formula appeared in the nal legislation, the most important of which was designed to favor the use of eastern high-sulfur coal (Joskow & Schmalensee, 1998, p. 41). The equally complex provisions for Phase II, which covers virtually all large (>25 MW), fossil-fueled electric generating units currently in existence or to be built in the future, included an additional policy device that came to be known as the ratchet. This provision . . . in effect said that at the end of the day total allocations under (almost) all other provisions would be scaled down to a specied total. [It] had the effect of making negotiations about allowance allocations into a zero-sum game (p. 51). The policy design for allowance allocation in the acid rain program created the classic conditions for special interest rent seeking (Joskow & Schmalensee, 1998, p. 55; also see Heinzerling, 1995, p. 330). More specically, the zero-sum structure of the allocation created conditions in which the perceived policy costs and benets were both concentrated. Those interests who realized net gains in allowances did so at the direct expense of those who realized net losses. Glicksman and Schroeder (1991, p. 249) compared it to a ght over which defense installation to close, or an appropriation for public works projects. Although there are some indications in the legislative history of the 1990 Clean Air Act amendments of a pattern of client politics, in which benets are concentrated and costs diffuse, there was enough competition and bargaining among well-dened but narrow interests to make the politics resulting from the allowance allocation decision in the acid rain program a clear case of interest-group politics in the Wilson typology. The competition was certainly between states, the prime focus of the Joskow and Schmalensee analysis. But the competition was also between industry interests, including fuel producers (high-sulfur versus low-sulfur coal, coal versus natural gas) and electricity generators, particularly old, dirty, heavily regulated public utilities versus new, cleaner, and independent power producers (see Heinzerling, p. 331). Interestingly, Joskow and Schmalensee (1998) describe what happened in the battle over the allocation of allowances in the crafting of the acid rain legislation as a process of majoritarian politics (once the dam holding back acid rain legislation was broken) combined with a number of special interest provisions to satisfy narrow constituencies (p. 70). They conclude that the resulting allocation of Phase II allowances appears more to be a majoritarian equilibrium than one heavily weighted toward a narrowly dened set of economic or geographical interests (p. 81).

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However, neither Wilsons denition of majoritarian politics nor the evidence from the legislative history of the 1990 amendments really supports this conclusion. In a majoritarian pattern of politics, interest-group bargaining and competition is muted by the broad public nature of the issues and the perception of the policy costs and benets as widely shared (see Wilson, 1980, p. 367). The political relationships engendered by a policy design in which all or nearly all of the public will both bear the costs and enjoy the benets also make it difcult for individual interests to game the system or gain advantage behind closed doors. The grand bargain among policymakers diminishes the incentives to behave surreptitiously and increases the incentives to expose any such efforts publicly. In their efforts to test various hypotheses about who gained advantage in the bargaining over the free allocation of sulfur dioxide allowances, however, Joskow and Schmalensee discovered that Congress took no meaningful votes (Joskow & Schmalensee, 1998, p. 39) on most of the provisions in the legislation that concerned the allocation of allowances. Instead, the ght to grab allowances, within a range of allocations that could not be easily defeated in the Senate or House, reect[ed] both a . . . complex and . . . idiosyncratic pattern of political forces (p. 81). This pattern resulted from the power that owed to those legislators who were able to exploit for the benet of particular interests among their constituents the legislative processes operating out of public view. In his description of interest-group politics, Wilson does not touch on the question of how policymakers not connected to the contending interests might behave. One can reasonably speculate that some vote trading takes place. In the acid rain case, the resulting coalitions supporting and opposing the acid rain legislation were nevertheless primarily dened by their expectations of a concentrated cost or benet effect from the zero-sum allowance allocation scheme in the proposed law. Thus, the rst, full-blown national legislative consideration of a cap-and-trade program generated intense bargaining and competition among a relatively limited set of interests because of a policy design granting a limited, valuable resource to regulated parties. In effect, policymaker acceptance generally of market-based designs prepared the ground for a shift in perceptions of policy costs and benets, weakening the ingrained pattern of entrepreneurial politics associated with environmental regulation. The creation of a limited, divisible benet through free allocation of allowances in the design of the acid rain legislation solidied a new set of power relations consistent with interest-group politics in the Wilson typology. B. The Politics of Allowance Allocation in the European Union Carbon Trading System Although the United States most aggressively promoted emissions trading as a central design element of the Kyoto Protocol, the failure of the United States to ratify the Kyoto treaty left to the European Union the task of designing an emissions trading scheme in accord with Article 17 of the protocol. As MacKenzie (2007, p. 5) has described it, the initial design of the EU carbon trading system was deliberately simple. It covered only carbon, and in contrast to the direct emissions monitoring systems required in the U.S. acid rain program, the EU system initially relied on the

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mass balance method, in which gas-meter readings or invoiced quantities of coal or oil . . . are multiplied by appropriate emission and oxidation factors. The system also initially encompassed only large, xed installations, excluding [g]round transport, shipping and aviation . . . [;] the domestic sector is covered only indirectly via the participation of electricity suppliers. MacKenzie observed that the EU systems biggest initial challenge was the politics of allocation (p. 6). Two notable design differences between the EU carbon trading system and the U.S. acid rain program might suggest a different pattern of politics emerging. First, in the initial phase (January 2005 to December 2007) of the EU system, Europe did not nd its equivalent of the ratchet that was imposed in the nal U.S. acid rain program legislation. Second, although in the acid rain program, U.S. states had no discretion to determine the quantity of allowances distributed per state or per rm, in the EU program, each Member State sets its own cap for rms and economic sectors covered by the carbon emissions trading system (Kurkowski, 2006, p. 701). The National Allocation Plans each member state submitted to the European Commission for the rst phase set these caps. In addition, individual Member States in the EU system controlled the allocation of allowances to covered rms and industries under the national caps they set (pp. 7012). Despite the design differences and the markedly different institutional context, the launch of the European Unions CO2 emissions trading system in 2005 produced a political effect nearly identical to that evident in U.S. acid rain policymaking. The fundamental allowance allocation design featurefree allocationmade the initial EU system essentially the same as the U.S. acid rain program, at least from the perspective of affected parties and their perceptions of policy costs and benets. In at least two ways, then, the political effect in Europe of a design in which almost all carbon allowances have . . . been given away, not auctioned (MacKenzie, 2007, p. 6) has thus far been a pattern of interest-group competition that is a strong echo of the politics generated by the U.S. decision to give away most sulfur dioxide allowances. First, as in the state-based bargaining among representatives and senators in Congress that produced the state-by-state allocation decisions in the U.S. acid rain program, EU member states sought to protect certain favored industries, and their national economies more generally, by submitting National Allocation Plans with emissions caps that produced in aggregate a surfeit of carbon emission allowances. In the rst phase of the EU systems operation, the European Commission was able to rein in only the most outrageous national plans. The jockeying among EU Member States over their allocation plans spurred the U.K. to denounce the very modest carbon emission reduction goals of some other nations for creating a damaging competitive distortion (Kurkowski, 2006, p. 719, quoting Hirst, 2004). Second, the competition among industries for favorable allowance allocations within Member States and across the EU as a whole was very much like the maneuvering among industry interests in the crafting of the U.S. acid rain program. Electric utilities were pitted against one another in Spain, for instance, and energy-intensive industries faired better than utilities in several nations. Of particular note in this respect was again the U.K., in which the sheer scale of [the] anomalies in distribution of the burden of carbon emission reductions in its national plan was striking.

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The electric utilities faced a 28 percent reduction compared with 12 percent for the chemical industry and 4 percent for cement (Kurkowski, 2006, pp. 72021). Phase II of the EU emissions trading system preserves the essential features of Phase I. Member States retain the discretion to set their own emission caps and to allocate allowances to covered industries under their caps, although the European Commission has indicated it would prohibit allocations that unduly favour certain undertakings (European Union, 2005, p. 12). Despite the protests of many economists that marketable permits are inferior to emissions fees and taxes as a way to reduce pollution in the most economically efcient way, after the creation of the U.S. acid rain program, policymakers across the globe rapidly converged on cap and trade as the economically and politically most defensible approach to regulating air pollution. Had the free initial allocation of allowances under cap and trade remained unchallenged, a new political equilibrium in the form of interest-group bargaining, may have become the primary arena of power associated with air pollution control. A signicant challenge to free allocation did arise, however, in the form of proposals to auction rather than give away the initial allocation of allowances under cap-and-trade schemes. Evidence of the political consequences stemming from this alternative policy design idea rst emerged in association with the Regional Greenhouse Gas Initiative (RGGI) in the northeast United States. C. The Politics of Allowance Allocation in the Regional Greenhouse Gas Initiative The RGGI encompasses nine states in the New England and Mid-Atlantic regions. It is a voluntary effort aimed initially at designing and implementing a cap-and-trade system for carbon emissions from the electric utility sector. A working group of staff from the environmental agencies of the member states has guided the development of the system. The group rst drafted an action plan in September 2003 and then a memorandum of understanding that among other things established the dates for achievement of initial emission reduction targets, and set the overall carbon emissions budget and individual state allocations (referred to as apportionment). The staff working group has been responsible for all phases of system design including the production of a model rule that member states could follow in designing the regulations to implement their emission reduction commitments. The staff working group coordinated much of its effort with a stakeholder process that began in April 2004. The nal RGGI model rule, including provisions for allowance allocation within a states allowance budget, appeared in January 2007. A signicant component of the staff working groups labors, including the development of the model rule, concerned the assessment of options for allowance allocation in the RGGI cap-and-trade system. Thus, the more expansive RGGI stakeholder process also wrestled with allowance allocation design and the various options and their likely impacts on the operation of the emissions trading system and the electricity market, including the ultimate effects on ratepayers. Participants in the RGGI process confronted two primary decision problems with respect to allowance allocation. The rst concerned how to apportion the total

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RGGI allowance budget among the member states that would put in place the cap on carbon dioxide emissions from electric utilities and initiate the gradual ratchetting down of the cap to achieve long-term carbon emission reduction targets. The initial apportionment scheme was incorporated into the RGGI Memorandum of Understanding nalized in December 2005 (amended in August 2006, and again in May 2007 when Maryland joined RGGI). The second decision problem RGGI staff and stakeholders faced was what guidance, or even dictates, about allowance allocation within each state would be incorporated into the model rule. The options were complex and extensive, but for all facets of the problem the participants explored, they faced the same essential binary choice identied previously: free allocation to utilities based on some determination of historic emissions, or a scheme for selling allowances that would generate revenue to be used for some form of what came to be called public benet. The RGGI workshop on allocation options and apportionment to the states took place in Boston in October 2004. With respect to the allocation problem, an excerpt from the summary of the workshop makes plain the character of the debate on free allocation versus some other method. The advantages and disadvantages of a series of options were discussed, with no clear consensus. There was an extended conversation about the free allocation of updated or non-updated allowances. Several speakers made the point that there is an enormous political weight on the side of grandfathering at least some of the allowances, especially initially. There was disagreement over whether free allocation to generators violated the principle of polluter pays that has been a common design element in environmental protection policies. (RGGI, 2004, p. 2) The lack of consensus noted in the summary remained through much of an ensuing year of work on the RGGI model rule and related tasks. Generators of electricity and their allies pushed for grandfathering or related forms of free allocation. Environmental groups promoted setting aside some sizable portion of allowances that would be sold to generate revenue for public benet. Resources for the Future (RFF) took the lead in conducting analyses of the impacts of various allocation methods and scenarios (see, e.g., Burtraw, Palmer, & Kahn, 2005; Kopp, 2007; Palmer, Burtraw, & Kahn, 2006), with a major stakeholder meeting on the RFF research taking place in April 2005. The dynamics of the debate surrounding the free allocation versus auction choice for allocation began to change noticeably, or at least became fully public for the rst time, at this meeting. One of the respondents to the RFF research concluded in part, Generators, as a class, should not nancially benet from this program at the direct additional expense of consumers. In keeping with the new competitive markets for wholesale electricity, allowances should be sold through an efcient, transparent market for buying and selling allowances (DeWitt, 2005). DeWitt took the position that close to 100 percent of allowances should be sold. The general colloquy that followed the presentations reveals how the debate had sharpened. An industry coalition representative argued that an auction policy will [not] y on a national scale, so we shouldnt focus too much on it in RGGI. There may

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be authority issues about whether states can use an auction. Also, the transaction costs of an auction may lead to a higher allowance price, greater leakage potential, and decreased benets (RGGI, 2005a, p. 13). A consultant to the power generation company AES insisted that an auctioning approach could be perilous, and . . . a historic allocation approach, potentially with long-term updating, is best (p. 14). The debate focused on the efciency and price signaling advantages of auctions versus the negative economic impact of auctions on power generators burning coal and oil. As one participant observed, summarizing the challenge of selling the bulk of initial allowances through an auction, This boils down to implications of an auction: who benets, and who gets harmed. I dont see why someone who ends up buying vs. given allowances is necessarily disadvantaged. Maybe there are credit stipulations on buyers. The allowance price is the critical factor as to what units run and which shut down. We need to understand this better (p. 16). Although selling allowances as an alternative to free allocation had gained currency in the RGGI process, what appears to have cemented the commitment of the RGGI staff working group and the broader stakeholder network to a substantial public benet set aside in the RGGI model rule was the position taken by National Grid, the U.K.-owned electric distribution company. In late August 2005, National Grid Environmental Department Vice President Joseph Kwasnik issued a letter, later supported by a brief white paper, calling on the RGGI State Working Group to design a program that will minimize its impacts on electricity customers and maximize the reductions in greenhouse gas emissions. Proceeds from sales of CO2 allowances through a region-wide auction should be used for the benet of customers to mitigate the expected increases in the cost of electricity, preferably via direct rebates to electricity customers, or through a combination of rebates and other expenditures for the benet of customers (Kwasnik, 2005). In the subsequent stakeholder meeting held in September 2005, further discussion ensued concerning auctioning allowances, specically whether the RGGI staff working group should strongly recommend to the states the use of auctions to allocate a substantial portion of their allowance apportionments, or leave it completely to individual state discretion. There was also discussion of the possibility of a region-wide auction. Mr. Kwasnik of National Grid pointed out that as his was a transmission and distribution company, not a generator, he heard rst-hand of consumer unhappiness with rising electricity prices. He contended that whether allowances were given away for free or sold, there should be some compensation back to the electric customer to try to ameliorate some of those price increases. He also supported the position that RGGI should direct the states on how allowances should be allocated, and that we believe they should all be auctioned (RGGI, 2005b, p. 28). By May 2006 the political positioning had largely solidied. Power generators opposed any allocation scheme that did not allocate the vast majority of allowances to them for free. Environmental and consumer advocates pushed for the sale of most allowances through some form of auction. The key to shaping the political dynamic of allowance allocation in RGGI was the position of business advocates other than generators. Because RGGI was aimed at regulating exclusively the carbon dioxide emissions of electric power plants, all other businesses, whether or not they were

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large CO2 emitters, fell into the consumer camp. And they were divided on the issue. Comments offered during the May 2006 RGGI stakeholder meeting made this clear. The representative of 55 large industrial and commercial enterprises, as well as the Connecticut industrial alliance contended that RGGI should minimize the cost to consumers, and therefore the program should auction 100 percent of the allowances and rebate the costs on a per KWh basis to ratepayers. . . . Auctioning the allowances is the best way to reduce the impacts of this program (RGGI, 2006, p. 6). On the other hand, the representative of a business council in New York state indicated that his group had not embraced a 100 percent auction, and that his organization represented several thousand NY businesses (p. 7). The costs of auctioning all or nearly all of the initial CO2 allowances in RGGI would fall directly on the electricity generators, and they were expected to pass on such costs through the prices they charged for their power. The benets of auctioning, in the form of proceeds from the sale of allowances being distributed to electricity consumers through some rate-reducing mechanism or to promote and improve energy efciency, would be widely dispersed. This was so even though there were very large business consumers of power who might be able to exercise some clout as a concentrated consumer interest. The potential clout was dissipated because these business consumers were divided about the benets of auctioning or otherwise selling allowances. Hence, in the case of RGGI, the introduction and serious consideration of a policy design alternative to free allowance allocation changed the political dynamic, with perceptions emerging that policy costs were concentrated and benets widely diffuse. In the absence of one or more political entrepreneurs actually engaged on the side of the diffuse beneciaries, overcoming the collective action problem is at best an uphill battle, and the political position of the concentrated cost bearers will most likely prevail. This appears to be what transpired in the RGGI process. The RGGI model rule, Subpart XX-5.3(a), simply states that Allocation provisions will vary from state to state, provided at least 25 percent of the allocations will go to a consumer benet or strategic energy purpose (RGGI, 2007, p. 43). Subpart XX-1.2(ae) does mention that states may set up a general account established by the consumer benet or strategic energy purpose fund administrator from which allowances will be sold or distributed in order to provide funds to encourage and foster projects to benet energy efciency programs or direct ratepayer relief (p. 10). The mechanism for selling or distributing allowances in the fund is not specied anywhere in the document, and the specic term auction does not appear anywhere in the model rule. It is also worth noting that the structure of RGGI likely contributed to the absence of the emergence of one or more political entrepreneurs who might have prevailed either in having more explicit instructions to the states on allowance allocation incorporated into the model rule, or in having a region-wide auction of a substantial share of the total initial allowance budget for the region (over 150 million short tons of CO2). First, as an interstate compact, RGGI has no legally recognized regulatory authority over the carbon dioxide emitters targeted by the compacts agreement on a carbon emissions cap. Only the individual member states have the legal authority to regulate sources, and only those within their own borders. Second, the state governors

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signing the memorandum of understanding faced considerable incentive to maintain maximum exibility so as to preserve for themselves the discretion to develop what would be for each of them the most politically defensible regulatory structure for implementing their RGGI obligations. Another way of stating this is that no governor had the incentive to incur the political costs of trying to lead RGGI to a result that impinged on state discretion or imposed a region-wide allocation scheme. Thus, the structure of RGGI served to push the hard decisions on allowance allocation methods down into the individual states, where the incentives and authority structures were different. The example of Massachusetts illustrates what happened. D. The Politics of CO2 Allowance Allocation in Massachusetts Former Governor Romney pulled Massachusetts out of RGGI in December 2005 and directed his environmental regulators to develop a stand-alone greenhouse gas emissions trading system that was not cap and trade (see Daley, 2005, 2006). In choosing not to run for re-election in 2006 in order to pursue the presidency in 2008, Romney altered the political fortunes and political calculus of others, and reopened the climate change issue in the 2006 Massachusetts gubernatorial contest. In the debate among the four main candidates for governor that took place on October 4, 2006, the format was provided for candidates to question one another. Grace Ross, the Green Party candidate, asked her opponents, what are you going to do to move Massachusetts to not having an impact on global warming over the next four years? The only candidate to mention RGGI, the Democratic Party candidate Deval Patrick, stated, First of all I think we ought to join the regional greenhouse gas initiative. That was a regional approach to the generation of greenhouse gases, to the causes of global warming, it was something that was negotiated during this administration and then right when it was time to sign, if I understand it correctly, the administration walked away and I think thats a mistake. When Im governor we will join it (The Boston Globe, 2006). True to his word, shortly after his inauguration as governor, Mr Patrick announced on January 18, 2007 that he had signed the RGGI MOU on behalf of the Commonwealth, as well as letters to the governors of the other RGGI states announcing that Massachusetts had rejoined the regional effort. More important, however, Mr. Patrick announced that Massachusetts will auction 100 percent of its allowances, and use the funds generated by those sales . . . to fund energy efciency, demand reduction, renewable energy programs, and combined heat and power (CHP) projects (Commonwealth of Massachusetts, Executive Department, 2007). State agency staff from the Department of Environmental Protection (DEP) and Division of Energy Resources set up a series of public hearings on the states regulations for implementing the commitment to RGGI. Part of the problem the state faced was that it had to nd a way to deal with the creation of greenhouse gas emission reduction credits created under the short-lived, stand-alone program. But the state agency staff also sought stakeholder input on the design of the states allowance allocation mechanism. The staff held a stakeholder topical forum on March 12, 2007, that explored the issues associated with the design of an allowance

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auction. They sought to structure the public comments on the issues from stakeholders with a series of questions (see Commonwealth of Massachusetts, Department of Environmental Protection, 2007a, pp. 1215). Although the governors position on the extent of the states commitment to selling rather than giving away its share of RGGI allowances was clear from his January press release, the state agency staff referred only to the governors commitment to auction MA allowances, and then went on to stress the RGGI 25 percent consumer benet reserve requirement and that several other states were considering auctioning 100 percent of their RGGI allowance apportionments. The effect was to open up the stakeholder debate in Massachusetts, however briey, to the question of free allocation versus auctioning. The 24 sets of written public comments submitted by stakeholders in response to the states exploration of issues surrounding the design of its RGGI allowance allocation mechanism included ve individual industry or industry trade association commenters, 11 power generators or generator trade associations (including one consultant), two energy efciency consulting rms, and seven environmental advocacy groups. All but one industry and one generator commenter called for auctioning less than 100 percent of the states allowance apportionment. Several of these commenters even insisted that the minimum 25 percent consumer benet set-aside in the RGGI rules must be the maximum proportion Massachusetts should commit to auctioning, with the rest being granted to the electric utilities. Most of these commenters also called for an allocation mechanism design that minimized allowance price. They also generally demanded a closed auction, meaning that they wanted to limit auction participants to the generating stations in the state covered by the states RGGI regulations. Not surprisingly, the environmental advocacy groups, joined by one of the two energy efciency consultants, called for auctioning 100 percent of the states RGGI allowance apportionment. They also generally advocated maximizing revenue rather than minimizing allowance price, and supported an open rather than a closed auction (see Commonwealth of Massachusetts, Department of Environmental Protection, 2007b, 2007c). The public comment data thus provide a reasonably clear picture of the political coalitions that formed in response to the allowance allocation question associated with the states planned implementation of RGGI. It is a picture consistent with an entrepreneurial politics pattern: an alignment of cost-bearers seeking to relieve the cost impact by pushing for substantial free allocation of RGGI allowances in Massachusetts, versus an alignment of groups promoting an allocation of allowances that would emphasize benets to electricity rate payersa broad, diffuse population of beneciaries. The acid rain and EU carbon trading experiences strongly point to the likelihood that an allocation design based primarily on no-cost allocation would have created the conditions for intense interest-group bargaining in nalizing the Massachusetts RGGI allowance allocation scheme. The introduction of the auction design alternative and its serious consideration during the RGGI stakeholder debates changed the perception of imposed costs and benets and thus the relationships among the engaged parties. The electric power generators faced having signicant costs imposed on them, with the benets dif-

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Policy Studies Journal, 38:3 Table 3. Types of Allowance Allocation Designs and Types of Politics Evident in Four Cap-And-Trade Policymaking Cases Free Allocation Auctioned Allocation

Interest-group politics (concentrated costs, concentrated benets) Entrepreneurial politics (concentrated costs, dispersed benets)

U.S. Acid Rain Program European Union Emissions Trading System, Phases I and II Regional Greenhouse Gas Initiative Model Rule (no political entrepreneur) Massachusetts RGGI implementation (governor as political entrepreneur)

fused among a largely indifferent, or at least inattentive, public. This set the stage for the possibility of a political entrepreneur emerging who, motivated by sufcient stake in the outcome, would invest the political resources to ensure that an auction design would be put in place. In contrast to the broader RGGI process, however, the structure of legal authority and institutional incentives ensured that the political entrepreneur did actually emerge in Massachusetts. The governor had the independent legal authority and the political power gained through a strong electoral victory and vetoproof party control of the state legislature to overcome the resistance of the concentrated cost bearers. He set in place a policy of 100 percent auctioning of the Massachusetts RGGI allowance allocation. Politically, he had aligned himself with the environmental advocacy community in the state during his election campaign. He was motivated to take a strong position on the allowance allocation issue by electoral competition (although he otherwise positioned himself as far more probusiness, pro-economic growth than the Green Party candidate). The outcome was a victory for the diffuse interests over the concentrated interests, at least at the initial policy adoption stage. E. Policy Design and Politics in National Climate Change Policymaking Table 3 arrays the four cases of cap-and-trade policy politics detailed above according to the dominant design policymakers considered, and the pattern of politics that resulted. I believe the case evidence supports the conclusion that where policymakers gave primary or exclusive consideration to free allocation of allowances under a cap-and-trade design, interest-group politics ensued. Where policymakers gave serious consideration to auctioning allowances, a pattern of entrepreneurial politics resulted. This is so even in the case of RGGI, where other relevant factors dampened the incentives for political entrepreneurship sufciently to inhibit any specic political actor from taking advantage of the favorable pattern of political relationships that emerged. Four cases are at best only suggestive, of course. Yet the correspondence between allowance allocation designs and particular patterns of politics, especially

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the connection between free allocation and interest-group politics, is further reinforced in the recent development of national climate change policies aimed at reducing greenhouse gas emissions in the United States. Space limitations prohibit a full account here of what has transpired, but a battle between free and auctioned allowance allocation schemes has clearly played out. In 2005, Senator John McCain proposed legislation to reduce greenhouse gas emissions that specically required the free initial allocation of allowances in a national cap-and-trade system (U.S. Congress, Senate, 2005). Two competing designs emerged in the 110th Congress (200708). The rst gave primary priority to auctioning allowances, but also left to executive discretion both the particulars of auction structure as well as a design for allocations without charge to covered entities or entities that are not covered by the cap (U.S. Congress, Senate, 2007a, p. 15). The second designated a graduated schedule beginning with a large proportion of allowances allocated at no cost to regulated entities, shifting to a majority of allowances auctioned only after a decade, and not providing for 100 percent auction allocation until 2035 (U.S. Congress, Senate, 2007b, p. 29). None of the congressional sponsors of greenhouse gas emission reduction schemes through cap-and-trade designs introduced or reintroduced in the 111th Congress called for auctioning all or nearly all of the allowances from the start. Less than 2 months into his presidential term, however, Barack Obama outlined in his rst budget document a cap-and-trade program that would auction 100 percent of the allowances under the initial cap (U.S. OMB, 2009, pp. 100101). Although all the stakeholders touted their positions in response to the Obama proposal as ultimately anchored in a concern for protecting consumers, the primary division among them concerned the immediate cost impact on coal-intensive areas and the benets of broad distribution of the revenue from auctioning allowances in the form of a credit or dividend (Broder, 2009a). Whatever entrepreneurial initiative and institutional authority the president held initially by staking out a position on allowance allocation in his budget, the institutional design and political power factors favoring his position were not as robust as those favoring Deval Patricks position in Massachusetts in 2007. Furthermore, by late spring 2009, President Obama had redirected most of his power, authority, and entrepreneurialism toward healthcare reform. The resulting political vacuum allowed industry cost-bearers and their regional allies in Congress to prevail in shaping the perceptions of the distributional impact of a cap-and-trade-based climate change policy (see Broder, 2009b; Eilperin, 2009). By late fall 2009, the major legislation passed by the House and various proposals circulating in the Senate all provided for most emission allowances to be allocated for free at least over the rst decade of the cap-and-trade program. On the basis of press accounts, and consistent with the case evidence presented above, the political effect of this policy design choice readily resembles the interest-group politics pattern in the Wilson typology. Much of the legislative horse-trading in recent months centered on which sectors of the economy would receive these carbon allowances free, as a subsidy to switch to low-carbon fuels or to invest in carbon-abating technologies, and which industries must pay for them (Mouawad, 2009; also see Broder & Mouawad, 2009).

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IV. Conclusion: Arenas of Power and Policy Change A policy design based on the free allocation of allowances in a cap-and-trade emissions trading system appears to spark competition over a nite resource among a limited array of well-organized interests who win or lose depending on whether they receive a windfall or are short-changed by the allocation scheme. Stated another way, free allocation alters the normal pattern of politics and power relations in environmental regulation, shifting the pattern of political effects from the entrepreneurial politics quadrant (cell 3 in Table 2) to the interest-group politics quadrant (cell 4) in the Wilson schema. The introduction of an auction scheme for initial allocation in a cap-and-trade system, especially when the auction will encompass all or nearly all of the allowances created under the initial cap, has the effect of shifting the politics of emissions trading back to a pattern of entrepreneurial politics. This uctuation in patterns of political relations and relative power associated with competing policy design ideas evident in the cases examined here is in itself a signicant nding. Scholars have observed this kind of effect in the evolution of policy in other issue areas. As a practical matter, this nding suggests that to the extent cap and trade remains a viable policy instrument, in the near term the politics of climate change policymaking in the United States at the national level is destined to be dominated by the idea of free initial allocation of allowances to regulated entities in a cap-and-trade system, and consequently by interest-group competition and bargaining over the precise pattern of that allocation. Changing that dynamic requires the sustained involvement of at least one fully committed political entrepreneur promoting the primary alternative policy design featuring initial allocation by auction, which would force polluters to pay for the allowances and thus immediately benet the public at large. President Obama, who prominently inserted a strong version of the auction alternative into congressional deliberations, failed to seize the opportunity created by the change in policymaker perceptions and political calculations his proposal temporarily created. Although the reasons behind the presidents actions may be of passing interest, for students of public policy the more important questions arising from a close look at the unfolding politics of cap and trade over time concern the conditions under which a pattern of entrepreneurial politics is likely to appear, the conditions under which a political entrepreneur is likely to emerge and succeed when conditions are favorable, and perhaps most important, the value of an arenas-of-power perspective for understanding long-run policy change. The concept of the political, or policy, entrepreneur, has remained relatively unrened and analytically unsophisticated since its appearance in the scholarly literature (but see Roberts & King, 1991; Schneider & Teske, 1992). In anticipation of the cases I have presented here, I suggested at the outset that the core conditions favorable to political entrepreneurship may be present without a political entrepreneur actually emerging to seize the opportunity. This is consistent with John Kingdons (1995, pp. 18283) observations, but the question of whether a pattern of entrepreneurial politics exists absent an identiable political entrepreneur deserves further scholarly attention.

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Elected ofcials will have considerable incentive to ll this pivotal political role because they can realize both personal political goals and broader, public-regarding policy aims by publicizing what might otherwise be an opaque conict between concentrated interests. This helps bring the weight of the broad but shallow majority to bear against the relatively intense opposition of the most directly, materially affected, interests. As Kingdon concluded, however, the role of policy entrepreneur requires persistence, which implies a willingness to invest large and sometimes remarkable quantities of ones resources (Kingdon, 1995, p. 181). The contrasting cases of Massachusetts on the one hand, and RGGI and the current national political battle on the other, indicate that these resources include an institutional design that provides independent governing authority and a secure base of political power. Thus, in addition to the personal and circumstantial variables Kingdon alluded to in his brief assessment of the policy entrepreneur concept, there are also institutionallevel variables that must be taken into account. Policy entrepreneur has become a term of art in policy writing, which threatens to dissipate whatever analytical power the concept may have. It is imperative, then, that policy scholars further develop, rene, and test concepts of political entrepreneurship and entrepreneurial politics. A broader implication of the research reported here is that the arenas of power framework may be compatible with the dynamic nature of politics and policymaking, as Lowi initially surmised. A number of major works in policy theory in the past two decades make clear that policy scholars have become centrally concerned with explaining policy change. However, policy typologies appear to have considerable difculty accounting for policy change. Referencing the Greenberg et al. and Steinberger critiques, Smith (2002) noted that policy classication schemes have trouble with policies that appear to shift categories over time or in response to changes in the broader political environment (p. 380). As the work of Sharpe (1994) and the results I report here suggest, an arenas of power approach like that of Lowi or Wilson is compatible with attempts to describe and explain policy ux and change. At a minimum, however, further development of the concepts that dene the categories is necessary. In Lowis original exposition, broad patterns of change were his central concern. At two points in his use of Bauer, de Sola Pool, and Dexters (1963) American Business and Public Policy to explain his arenas of power scheme, Lowi remarked that tariff policy had transitioned from the distributive to the regulatory arena between 1930 and 1962. This transition reected a shift in the design intentions of policymakers and their expectations about outcomes stemming from those intentions. It was the pattern of politics and power relations that followed such a shift in design intentions and related outcome expectations that by 1962 made the political patterns associated with tariff policy regulatory rather than distributive, even though distributive elements remained in many tariff bills. This suggests that scholars interested in employing a policy typology or arenas of power approach should shift their focus away from trying to match the design characteristics of a particular policy with a specic policy type. The focus should instead be on how policy ideas shape policymaker expectations and the patterns of politics that result, especially which types of political actors are empowered. This

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focus should include determining with greater condence that there is a limited set of such patterns, and the distinctive characteristics and mutual exclusivity of the patterns. Such efforts might enable scholars to explain better why such disparate policy areas as trade and the environment may evidence similar patterns of coalition formation, empowerment, and disempowerment, or why the patterns of politics and power relations associated with a specic policy have shifted over time. By looking systematically at policy designs and consequent actor expectations across institutional space and over time in a wide variety of substantive policy areas, scholars employing an arenas of power approach may make valuable contributions to the study of policy politics. Much work synthesizing the arenas of power approach with other frameworks that take a longitudinal and developmental orientation will be necessary. The payoff, however, will be more robust theory to help us understand and explain the complexities of the policymaking process. Brian J. Cook is professor and chair of the Center for Public Administration and Policy (CPAP) at Virginia Tech. His latest book is Democracy and Administration: Woodrow Wilsons Ideas and the Challenges of Public Management (Johns Hopkins, 2007). His previous books are Bureaucracy and Self-Government: Reconsidering the Role of Public Administration in American Politics (Johns Hopkins, 1996), and Bureaucratic Politics and Regulatory Reform: The EPA and Emissions Trading (Greenwood Press, 1988). References
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