A Public Choice Theory Analysis of the European Union Emissions Trading System

This study analyzes the European Union Emissions Trading System (EU ETS) as a representative example of market-based environmental policy and examines its effectiveness and limitations through the lens of public choice theory. The initial design of the system reflected strong industrial lobbying and national interests, resulting in excessive free allocation of permits and weakened reduction targets, which led to a decline in carbon prices and limited mitigation effects. However, subsequent institutional reforms gradually improved price stability and policy credibility. This study theoretically explains how market-based environmental instruments can be constrained by political and economic factors and highlights the need for institutional balance in formulating sustainable climate policies.