Designing policies in uncertain contexts: Entrepreneurial capacity and the case of the European Emission Trading Scheme

Date01 July 2019
Published date01 July 2019
AuthorIshani Mukherjee,Sarah Giest
Subject MatterArticles
untitled Article
Public Policy and Administration
2019, Vol. 34(3) 262–286
Designing policies in
! The Author(s) 2017
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uncertain contexts:
DOI: 10.1177/0952076717730426
Entrepreneurial capacity
and the case of the
European Emission
Trading Scheme
Ishani Mukherjee
Institute of Water Policy, National University of Singapore,
Sarah Giest
Leiden University, The Netherlands
The paper focuses on enterprising agents in policy formulation and design by looking at
their capacity of dealing with different levels of uncertainty. In climate policy specifically,
different degrees and types of uncertainties pose a challenge to policymakers. Policy
entrepreneurs and the combination of their analytical, operational and political compe-
tences are a relevant component in reducing ambiguity in policy design and translating
broad policy goals to operational programmes and specific policy instruments. Using the
case of the European Emission Trading Scheme, we suggest that the success of policy
entrepreneurs in catalysing policy change is determined by their capacity to work
against multiple kinds of uncertainty. This ‘uncertainty mitigating’ capacity on the part
of policy entrepreneurs rests significantly on balancing managerial expertise and political
acumen. We conclude that entrepreneurial capacity goes beyond current definitions in
the literature, involving the balance among analytical, operational and political compe-
tences to navigate a politicized policy context.
entrepreneurial capacity, policy entrepreneurs, uncertainty
Corresponding author:
Ishani Mukherjee, Institute of Water Policy, National University of Singapore, 469C Bukit Timah Road,
Singapore 259772, Singapore.

Mukherjee and Giest
Controlling anthropogenic greenhouse gas emissions for the mitigation of climate
change remains one of the major environmental policy goals of present times.
Achieving this goal means managing various levels of uncertainty both in terms
of the policy problem, its repercussions and the policy responses that it warrants
based on a collaborative global ef‌fort. Governments around the world have taken a
variety of steps to contribute towards abating the ill ef‌fects from climate change, a
quintessential ‘wicked problem’ of environmental policy. Policy programmes for-
mulated for climate change mitigation need to address a variety of policy design
and policy capacity considerations in order to successfully meet their aims and
avoid failures while functioning under various degrees of uncertainty. While
policy failures may result from shortcomings during any of the stages of the pol-
icymaking process, failures in policy formulation and design specif‌ically can result
from ‘attempting to deal with wicked problems without appropriately investigating
or researching problem causes or the probable ef‌fects of policy alternatives’
(Howlett, 2009). In addition to being susceptible to such process-oriented failures,
programme contexts requiring the enforcement, f‌lexibility and coordination of
multiple government and market policy elements – such as those dealing with
climate change mitigation – can also be susceptible to ‘political’ failures
(McConnell, 2010a, 2010b). In such cases, the capacity of governance agents and
enterprising policy actors to navigate through sources of technical or political
hindrances, correctly diagnose the range of ambiguities and arrive at solutions is
paramount to how successfully matching policy objectives with policy means can
be achieved in various policymaking contexts. Especially, policy entrepreneurs may
f‌ind themselves in opportune positions to catalyse policy change and move the
policy design process forward. Little has been done to date to explicitly look at
the various capabilities and capacities of enterprising policy actors that can def‌ine
their function during policy formulation and beyond agenda setting in the policy
process until recently (e.g. Cairney and Jones, 2015; Jones et al., 2016).
Furthermore, the discussion of specif‌ic capacities of entrepreneurs during policy-
making and instrument design beyond agenda setting, remains emergent, and a
body of knowledge that this particular paper inspires to build on (Jones
et al., 2016).
There is agreement among policy scholars that with both technical as well as
political factors determining policy success, avoiding failure during policy formu-
lation requires analytical, operational and political competences on the part of
policymakers and enterprising policy agents. These skills are fundamental towards
deriving lessons from existing and past attempts at policy formation (Howlett and
Ramesh, 2015a; Little, 2012; Radaelli and Dunlop, 2013; Wilkinson, 2011), as well
as understanding governance capacities (Wellstead et al., 2011), in order to detect
and amend the root causes that undermine sound policy design (Howlett and
Ramesh, 2015b). That is, the essence of ef‌fective policy design lies in matching
broad policy goals (e.g. environmental conservation) with broad instrument

Public Policy and Administration 34(3)
logics (e.g. command-and-control regulation or market-based policy), matching
programme-level objectives (e.g. specif‌ic watershed protection targets) with types
of policy instruments (e.g. individual contracts or monetary compensation mech-
anisms) and matching specif‌ic instrument settings (e.g. calculation of environmen-
tal baselines) and on-the-ground calibrations (e.g. adjustments to compensation
levels) (Mukherjee and Howlett, 2016). Mismatches between such aims and
means, ‘often result when critical governance capacities are def‌icient, leading to
the compromised success of the entire instrument design process that follows’
(Mukherjee and Howlett, 2016: 35).
In addition, there is much discussion in policy studies on entrepreneurial behav-
iour on topics such as political agenda setting, policy change and reform (Mintrom
and Norman, 2009), dating back to the origins of the concept in John Kingdon’s
Multiple Streams Framework (MSF) (Kingdon, 1995). In the MSF, putting items
on the government agenda is attributed to the fortuitous ‘coupling’ of streams of
problem, policy and political events by policy entrepreneurs who make signif‌icant
resource investments, employ strategies such as bargaining and issue framing, and
seek access to decision makers surrounding a particular policy issue (Jones et al.,
2016). While giving rise to a growing body of empirical work that looks at the role
and specif‌ic position of policy entrepreneurs vis-a`-vis others agents in the policy
Using the multi-level policy programme of the European Emission Trading
Scheme (EU ETS) – the largest of its kind in the world – as a critical example of
policy design, this paper focuses on distinguishing the dif‌ferent dimensions of entre-
preneurial capacity – analytical, operational and political – that can be decisive
during the formulation of a major policy instrument. We argue, that when analys-
ing the role of policy entrepreneurs beyond agenda setting and into policy formu-
lation, one of the necessary capacities of successful policy entrepreneurs has to do
with how they are able to help guard against uncertainties that are built into the
design process. These uncertainties can include a possible mismatch with existing
policies, existing institutions or the larger political context. In the area of climate
change policy specif‌ically, there is also the inherent uncertainty surrounding the
ef‌fectiveness of certain instruments, their combination and their design to keep step
with changing climate problems and mitigation targets.
The European Commission of‌f‌icially introduced the EU-wide tradeable permit
scheme for carbon dioxide emissions in 2005 as one f‌lexible instrument in the
Kyoto protocol and it represents the world’s f‌irst large-scale greenhouse gas trad-
ing programme (Betz and Sato, 2006; Hof‌fmann et al., 2008; Saikku and
Soimakallio, 2008). Following a ‘cap and trade’ model of pollution abatement,
the ETS is a market-based instrument in which carbon permits are allocated to
f‌irms and can then be traded among them (Bausch et al., 2016). The companies are
in turn required to report their emissions and to hand in the according allowances.
The goal is to create a market incentive to reduce emissions while at the same time
(Krukowska, 2015).

Mukherjee and Giest
This example is used to highlight the uncertainties that can af‌fect policy design
processes and how entrepreneurial capacities are able to address them. The policy
entrepreneur in this case is the European Commission (Braun, 2009; Egenhofer,
2007; Skjærseth and Wettestad, 2010). Especially in the climate change f‌ield, scho-
lars increasingly see institutions as the main origin of entrepreneurial activity rather
than individuals.
The paper proceeds by looking at current research on policy entrepreneurs in
relation to uncertainty and capacities. The ETS is used throughout the paper to
highlight aspects of the theoretical framework. Entrepreneurial capacities are then
discussed vis-a`-vis the stages of policy formulation and design, which are repre-
sented in the case as three phases linked to planning, designing and implementing
the scheme. The analysis matches capacities and design stage and uses these f‌ind-
ings to...

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