(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 amended Directive 2008/87/EC so 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 with reference to the
economic theory of federalism in order to ascertain whether the latter provides a justification beyond the political and legal arguments provided by the European institutions
and the Member States.