Case Study Brief EU ETS (Global Political Economy)

Title

Market Mechanism or State Control? A Political Economy Analysis of the EU Emissions Trading System (EU ETS)

Research Question

To what extent does the EU ETS reflect neoliberal market governance versus increased regulatory state intervention in climate policy?

Case Study Purpose (Course Requirement)

This is an individual case study in Global Political Economy (10 marks).

The assignment requires selecting a period of economic development within a specific country or region and analyzing the competing political and economic dynamics that shaped this development, including its implications and contradictory legacies.

The EU ETS case study should therefore be treated as:

• A regional case (European Union)
• A contemporary period of economic governance and development (2005present)

Main Objective

Analyze how the EU ETS evolved historically and politically from 2005 to the present.

The paper must demonstrate strong historical and theoretical familiarity with relevant Global Political Economy literature and critically evaluate whether the system reflects:

• neoliberal market governance, or
• increased regulatory state intervention.

The study must be analytical, theoretical, and comparative not purely descriptive.

What the Case Study Must Include

Historical Period & Background (Concise)

• Launch of the EU ETS in 2005
• Early oversupply problem
• Key reforms (backloading, Market Stability Reserve MSR)
• EUA price evolution and major crises (COVID, energy shock)

Keep historical narrative brief; focus on underlying dynamics.

Competing Explanations (Core Requirement)

The essay must critically assess at least two different theoretical explanations:

Liberal / Market-Based Explanation :

• Carbon trading as a market-driven solution
• Price signals shaping firm behavior
• Efficiency through incentives and competition

Critical / State-Centric Explanation:

• Strong EU institutional intervention
• Policy reforms shaping outcomes
• Carbon pricing as political-economic governance

The paper must compare these perspectives explicitly and critically.

Global Political Economy Framework

The analysis should clearly connect to:

• State vs market power
• Global governance and regulation
• Political control over economic systems
• Historical dynamics of economic development

Implications & Contradictory Legacies (Course Requirement)

Evaluate:

• Effectiveness in reducing emissions
• Market volatility and policy dependence
• Economic and political consequences of carbon markets

Sources & Literature Expectations

• Use a variety of academic sources (books, journal articles, policy papers).
• Demonstrate familiarity with relevant historical and theoretical debates in Global Political Economy.
• Show critical engagement with literature, not just summary.

Writing Style Expectations

• Analytical and critical tone
• Strong theoretical grounding
• Continuous comparison between explanations
• Clear integration of politics and economics throughout the analysis.

Recommended Analytical Structure

1- Introduction

• Provide a brief explanation of the EU ETS.
• Clearly state the research question.
• Explain that the paper will compare two perspectives: the liberal market-based view and the state-centric/critical political economy view.

2-Historical Background (Concise)

• Launch of the EU ETS in 2005.
• Early oversupply problem.
• Key reforms and policy changes.
• EUA price evolution and major crises.

Keep this section brief it should provide context, not a long narrative.

3- Liberal / Market-Based Perspective

• Carbon trading as a market mechanism.
• Incentives and price signals influencing firms.
• Efficiency through competition and trading.
• Link the analysis to relevant GPE theories.

4- State-Centric / Critical Perspective

• Strong EU institutional intervention.
• Policy reforms such as MSR and cap tightening.
• Governance and regulatory power shaping the market.

5-Discussion (Most Important Section)

• Critically compare the two perspectives.
• Discuss whether the carbon market is truly market-driven.
• Evaluate the extent of political and regulatory control over price formation and outcomes.

6- Conclusion

• Avoid presenting one side as completely right or wrong.
• Conclude that the EU ETS reflects a hybrid system combining market mechanisms and regulatory governance.