Extending the EU emissions trading system: A deep dive into leadership in the decision-making process for the ETS-2

In December 2022, the European Parliament and Council of Ministers reached an agreement on a new emissions trading system for buildings, road transport and fuels for additional sectors (ETS-2). The decision-making process took place in a challenge context: most Member States initially had a critical stance towards the proposal, there had already been backlash to rising fuel prices and high costs of living (such as the Yellow vests protests) and the energy crisis unfolded during 2021 and escalated with the Russian invasion of Ukraine. Given this backdrop, the ETS-2 could have been a prime example of intergovernmental bargaining leading to a lowest common denominator solution. Nevertheless, an interinstitutional agreement was reached within 1.5 years. Moreover, the scope of the ETS-2 was extended compared to the Commission’s proposal to include fuels for additional sectors along with buildings and road transport. How can we explain the efficiency and relatively ambitious outcome of the decision-making process for this major climate policy? This paper will focus on one causal process that is likely to have contributed to the efficiency and outcome of the decision-making process: it will look beyond the highest political level that is formally in charge (the ‘control room’) to instrumental leadership provided by the actors at the technical and preparatory levels of the negotiations (the ‘machine room’). Instrumental leadership consists of steering negotiations through drafting and process management activities. With this case study, the paper adds to the literature by dissecting and further specifying the different parts of the causal mechanism of instrumental leadership. Process tracing is used to empirically reconstruct how machine room actors provided instrumental leadership and how their leadership affected the decision-making process for the ETS-2. The process tracing is embedded: it goes beyond the publicly available sources by collecting data in close collaboration with insiders. In particular, the data collection will build on the background understanding of the policy process and the relationships with stakeholders developed while working at the Dutch Ministry of Economic Affairs and Climate Policy for four months during the ETS-2 trilogues as part of the research project. The paper feeds into the debate on climate politics in times of crises. This paper explores how decision-making on the ETS-2 has been propelled forward during and despite the current polycrisis. Moreover, this paper provides an in-depth empirical study of the decision-making process for the ETS-2, a new and significant aspect of EU climate policy. Due to the novelty of the reform, the decision-making process for ETS-2 has not yet been studied in detail.