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Chapter 20

Carbon Trading and the City

Maxine Newlands

Introduction

Carbon markets and emissions trading are rapidly growing areas of financial

investment. The City of London pioneered ‘emissions trading instruments’ with the

Netherlands, and the EU. 1 Emissions trading is a commoditisation of carbon, sold

through new environmental policy instruments (NEPIs). NEPIs include market-based

instruments – eco-taxes, emissions trading, voluntary agreements; companies and

organisations set their own environmental policies, such as “moral–suasion” (Wurzel,

2010) eco-labels, eco-audit schemes, and benchmarking (the UK does not use eco-

labels). The policy and regulatory approaches to environmentalism as a non-regulatory,

market-based approach to manage climate change, entices investment.

Market-driven environmentalism emerged in the 1970s, the same period as

stagflation in the UK economy. The global crisis led to an exploration of new markets,

and a rethinking of the economic benefits of engaging with underdeveloped markets. In

the UK, environmentalism slowly emerged as a component in the thinking of political

and economic institutions. The first mention of ‘environmentalism’ in the Queens

Speech took place in 1971 (McCormick, 1991) and a new Government Department for

the Environment was established in the same year (DoE, 1971), signalling its

emergence as a new economic and social area of policy development. Over the

subsequent 40 years, economics and environmentalism have coalesced in the

1
They were followed by Austria, Finland, France and Ireland (Eire).
 2

formulation of a series of national and international policies (Agenda 21, Brundtland

Commission, Kyoto Protocol). These polices have now become ‘embedded’ in global

industrial and institutional practices.

In the UK, the Conservative (1979-1997) and New Labour Governments (1997-

2010) understood the potential of embracing environmentalism as a means to regenerate

existing and create new markets 2. Blair and Brown used NEPIs, such as emissions

trading, for creating a carbon-budget. The aim was to make fundamental reforms to the

energy markets and create a new financial institution in the form of a green bank. These

‘green’ initiatives were central in making London as the key location for green markets

and new, creative NEPIs. This chapter will suggest that in an era of scepticism about

‘traditional’ investments, ‘green’ markets could enable the City to re-assert itself in

global markets. New ‘green’ markets created through UK and EU governance – green

or eco-taxes, and emissions trading - could create new industries which may contribute

to economic growth. As global leaders in emission and carbon trading, London’s

markets, and politicians could re-establish themselves in the global markets. Yet, as

this work will argue , green markets’, and ‘green banking’ are a ‘fictitious capital’ that

could give false hope in regenerating London as a competitive, global city.

Environmentalism and the Emergence of New Financial Markets

We are living in a society founded on high-carbon production. Toffler (1982)

would argue we are living in a ‘third wave’ era of a post-industrial, technologically led

society, with rapid growth reliant on a high carbon economy. Since the Cold War there

has been a “more accelerated industrial development” (Finger, 2008: 44) creating a
2
New Labour was following in the footsteps of Former Prime Minister, Margaret Thatcher. In
1988, Thatcher’s speech to the Royal Society suggested that business and science could work to together
to find solutions to ozone depletion.
 3

society based on mass consumption, production, media and the growth of technological

advances. This ‘Third Wave’ (Toffler, 1982) post-industrial, technologically driven

society, like its predecessors, is dependent on a high-carbon economy to grow. The

increase in consumption means that ‘increases in energy use, the transportation of

goods, the heating of houses, the powering of industries, and so on’ would all call into

question our use and abuse of fossil fuels (Newell & Paterson 2010:14). The

responsibility for a high carbon-dependent society is attributed to human activity that

relies on fossil fuels. The fourth Intergovernmental Panel on Climate Change’s (IPCC)

report clearly lays the blame for climate change and global warming on anthropocentric

industrialisation, ‘most of the observed increase in global average temperatures since

the mid twentieth century is very likely due to the observed increase in anthropogenic

greenhouse gas concentrations’ (Solomon et al, 2007:10). The IPCC, a subsidiary of

the United Nations, European Union (EU) states and increasingly other large

organisations, are accepting that mass production on a global scale has led to an

increase in greenhouse gases that affect the global climate.

The consequence of a high-carbon consuming society, according to Stern, is that

it will eventually, ‘kill itself as a result of the hostile environment it will create –

hundreds of millions displaced. Likely consequences are extended, severe and global

conflicts. It is not a credible medium-term option for growth’ (Stern, 2011). Lord Stern

of Brentwood’s report The Economics of Climate Change: The Stern Review (2006a) set

out to establish the economic impacts of ignoring climate change. Since the 1970s

economics has been seen as a solution to climate change, with the City of London

leading the way through emissions trading schema.

Why is Emissions Trading Fictitious Capital?

 4

Trading in emissions, unlike other more tangible forms of exchange, emphasises

the relationship between the actual and the hypothetical product. Market-driven targets

for the reduction of pollution and emissions levels, as defined by the European Union

(EU), literally constitute the buying and selling of the atmosphere. The air we breathe

now has a price tag. The commoditisation of the atmosphere came about from a

decision made by Margaret Thatcher in the 1980s, she placed London at the heart of

emerging market of emissions’ trading as a fictitious capital (Marx, 1981: 1); as much

carbon trading is based on the potential to pollute, and as such the markets can bid and

deal on the advance of capital. According to the Friends of the Earth’s report 3 (2009)

carbon trading ‘results from action by governments to create this new commodity – the

right to emit carbon – and then to limit the availability of this right in order to create

scarcity and therefore a market for it’. (Source: Clifton, 2009). The report goes on to

say, ‘the development of secondary markets involving financial speculators and

complex financial products based on the financial derivatives model brings with it a risk

that carbon trading will develop into a speculative commodity bubble’ (Clifton, 2009:

32). The creation of a carbon market bubble ‘is what Marx referred to as “fictitious

capital” – capital without any real value, which only serves to create asset bubbles,

temporarily helping the bankers and stock-brokers to make a tidy profit (Booth, 2009).

Thus the potential fictitious capital of carbon trading is its appeal to the markets because

it provides new financial opportunities. However, Soros along with Stiglitz’s warns if

carbon trading is handled incorrectly, the trading in this form of ‘fictitious capital’ could

‘create another opaque market for derivatives, similar to those that helped bring the

global economy to its knees last autumn’ (Granfield, 2009).

3
The report ‘A Dangerous Obsession: A Research Report the Evidence against Carbon Trading
and for Real Solutions to Avoid a Climate Crunch, available online at
http://www.foe.co.uk/resource/reports/dangerous_obsession.pdf (accessed July 2011)
 5

Concurrent with the growth of carbon markets in London, the UK Parliament

passed the Climate Change Act (2008).The Act set out the state mechanisms for market-

based solutions to climate change; and led by the City of London, emissions trading

became the dominant mechanism of trade. The trading in emissions is trading on the

volume of pollution a company may or may not emit over a given period. Emissions

trading is “[t]he development of credit” (Marx 1981:527), which speculates on either

the volume of pollution or the insurance against climate change as a “multiplication and

growth of these mutual advances” (Marx 1981:527), thus making it fictitious capital.

The potential carbon production generated by individual countries, allows each state to

trade with other states to gain an ‘advance’ on their levels of pollution. Thus,

companies, governments and institutions gain capital by funding companies, by

‘advancing capital’ through the potential to under or over pollute.

For example, if the UK buys X amount of permits based on what they estimate

will be annual emissions per annum, but either use under or over their allotted permits,

the markets can speculate on the number of permits used over the number of permits

remaining and gain capital on the possibility of a state underestimating or overusing

their allotted permits. The state can also trade with other states to buy or sell permits.

As Marx notes, the trading on advances means that ‘it is easier to obtain advances on

unsold commodities’ such as pollution levels, and ‘the more these advances are taken

up and the greater is the temptation to manufacture commodities or dump these already

manufactured on distant markets, simply to receive advances of money on them’

(Marx,1981:533). Indeed, there have been recent accusations of energy companies

buying up permits, and then shelving the plans the permits were due to cover, yet still

trading the permits, despite not creating any emissions. Thus companies buy carbon
 6

credits or permits, and if they under or over use these permits they can either purchase

more or sell them on to gain a surplus. The commoditisation of the atmosphere becomes

‘fictitious capital’ (Marx, 1981) when the mechanism to regulate and trade in emissions

is based on the potential value of pollution. Thus, the atmosphere becomes a non-

tangible product to be bought and sold, with the City of London in the vanguard.

London was central to both the domestic and international policies and

regulations that were coming out of governments and the UN. Initially, the European

Union took the lead in carbon trading, with London pioneering emissions trading

instruments to establish itself as the centre of the carbon market economy. The

Alternative Investment Market (AIM) established in 1995 as a subsidiary of the London

Stock Exchange, placed London at the forefront of the expanding carbon market. By

2009 the City of London housed ‘80 [percent] of the world’s carbon market broking

companies and 75 [percent] of all carbon trading desks’ (Blake, 2009). Today, London

houses many global carbon trading organisations, including: ‘Thompson Reuters Point

Carbon’; ‘Climate Change Capital’, an investment company with funds worth US$1.5

billion, that advises investors in any “financial opportunity associated with a low carbon

economy”; 4 the ‘European Climate Exchange’ (ECX); the London carbon trading

exchange; and ‘ICap Energy’- an energy brokerage company with assets of £101

million 5 ($202 million) in 2007. In December 2009 the global carbon market was worth

£75 billion (US$120 billion, €85billion (PWC). 6 A year later (2010) the carbon markets

had expanded by $50 billion to an estimated €121 billion ($170 billion). However, the

4
http://www.climatechangecapital.com/about-us/company-overview.aspx see for more
information / accessed May 2011
5
http://www.icapenergy.com/AboutUs.aspx accessed May 2011
6
http://www.ukmediacentre.pwc.com/content/detail.aspx?releaseid=3524&newsareaid=2 - May
2011?
 7

emergence of carbon markets is not a new phenomenon, but develops out of key

political strategies. The next section will examine how London pioneered carbon

trading by tracing the role of state and capital to aid market driven solutions to climate

change.

State Mechanisms, Capital and Emissions Trading

A global shift in addressing the problem of climate change developed Post-1945

with the creation of three new types of international institutions that transformed the

relationship between the state and the development of climate change policy. Globally,

these three key institutions began connecting the markets to energy consumption: The

United Nations (UN); the Bretton-Woods Institute, influenced by the Chicago School;

and the General Agreement on Tariffs and Trade (GATT). The Bretton-Woods

Institutes (July 1944) is comprised of two financial organisations – the International

Monetary Fund (IMF), and the International Bank for Reconstruction and

Development (IBRD) which later became part of the World Bank . Both the IMF and

the World Bank’s roles were to support the UN, and ‘actively contribute to the

financing’ of UN development projects. GATT’s role was to ‘open markets for further

industrial development, the underlying assumption being that trade not only leads to

development (which leads to peace) ‘but also weakens nation-states’ (Finger, 2008: 45),

with each organisation impacting on the state’s role.

At an institutional level, the UN’s role (late 1980s onwards) was becoming

perfunctory, reduced to mainly crisis management and security. Environmentally, the

UN’s role was less focused on policy and more on the opportunity ‘for UN

intervention...to prove its usefulness. Such environmental security threats might include
 8

earthquakes, flood or famines’ (Finger, 2008: 45). Where the UN had failed, the

Bretton-Woods Institutes stepped in, and began the process of translating the UN’s

environmental remit ‘it into its own commercial logic’. The ‘gradual adoption and

integration of the Rio process into World-Bank-led ‘sustainable development’ (Finger,

2008: 51) is one example of the World Bank adopting the UN’s environmental role.

Although the UN had made steps toward defining climate change controls, the IMF and

the World Bank took control over climate change solutions and realised climate

change problems could in fact offer ‘further opportunities of industrial development,

investment, and overall economic growth…using environmental problem solving as one

more argument for further technological and economic development’ (Finger, 2008:

51). Capital, represented by the IMF and World Bank, began to replace the state’s role

in addressing the impact of a high carbon economy, and also began to develop new

markets. Thus the environment became ‘not only an additional investment opportunity,

but also an opportunity for Northern Transnational Corporations (TNCs) and

governments to offset some of their environmental wrongdoings’ (Finger, 2008: 51).

By the mid 1980s climate change was becoming a ‘globally recognised risk and

thus a topic for news media’ (Lester 2010: 67). In the United States, Al Gore, proposed

a new Global Marshal Plan to tackle climate change. Gore argued (1992) that economic

solutions could address the issues of climate change, through a green ‘Global Marshall

Plan which must, like the original, focus on strategic goals and emphasise actions and

programs that are likely to remove the bottlenecks presently inhibiting the healthy

function of the global economy’(1992:297). Gore believed that only a large scale

Marshall-style plan could generate ‘binding commitments by industrial nations to

accelerate their own transition to an environmentally responsible pattern of life’

 9

(1992:297). In the UK British Prime Minister, Margaret Thatcher, also took an interest

in climate change primarily from a state and capital perspective, after British scientists

found a hole in the ozone layer. Thatcher’s ‘markets, monetarism and authoritative’

form of government (Luke, 1993: 159), like Gore, looked toward enterprise to find

solutions to global warming and the depleting ozone layer by encouraging business

leaders to work with scientists. Thatcher proposed that a neoliberal solution could be

found between industry, academics and scientists, with industry:

[helping] our academics to spot commercial applications …Industry is

becoming more scientific-minded: scientists more industry-minded. Both have a

responsibility to recognise the practical value of the ideas which are being

developed (Thatcher, 1988: 72).

Moreover, Lester(2010) argues that Thatcher’s ‘appropriation of the risk of

climate change’ helped to ‘support a case for nuclear energy over coal and thus weaken

the coal industry’ (2010:67). The result of Thatcher’s approach to climate change led to

industry devising corporate environmental strategies which developed into green

consumerism. Thatcher’s ‘green’ speech (Anderson, 2008) to the Royal Society in

1988 set out plans to give the responsibility to solve ‘global warming’ to businesses

working with science. Critics argued that Thatcher’s proposal for business and science

to find a solution to the hole in the ozone layer (1988) devolved responsibility from

state to business. Thatcher’s speech centred on addressing the ’absence of leadership on

the international environment’ (McCormick, 1992: 65), suggesting that British business

take leadership over climate change solutions. Thatcher also stressed the need for
 10

international cooperation in tackling climate change and global warming, whilst

reminding the world it was ‘British scientists [who] had discovered a thinning of the

ozone layer over the Antarctic’ (McCormick, 1992: 104).

The impact of Thatcher’s speech gave greater media coverage to climate change

solutions, but to the detriment of scientists who were replaced by ‘political actors [who]

increasingly sought to shape the agenda’ (Carvello and Burgess, 2005). Political parties

came to realise that climate change solutions no longer meant ‘conservation’, but were

increasingly linked to socio-political and economic issues. However, there was a fair

amount of questioning over what some thought was Thatcher’s sudden move towards

environmental discourse. Former head of Friends of the Earth, Jonathan Porritt,

suggests that ‘making statements on the international environment …involved far fewer

policy commitments than statements on the domestic environment’ (McCormick, 1991:

66). Indeed, until the ‘green’ speech it was clear that Thatcher’s administration in its

early years had greater enthusiasm for war than climate change solutions. In discussions

on the Falklands War in 1982, Thatcher defined climate change solutions as

‘humdrum’, in comparison to dealing with conflict – it was more ‘exciting to have a real

crisis on your hands’ (Robinson, 1992:177). Yet her ‘green’ speech served a useful

purpose in pushing forward her own ‘style of how the nation should be run’ (Robinson,

1992: 176). Thatcher was reacting to global changes in the understanding of how

climate change was encroaching on economic, social and political discourses. At the

time the ‘green’ speech was made against the “backdrop of drought in the United States

and unusual weather patterns” (Grubb, 1998: 01), environmentalism was slowly

becoming more prominent in the media (Anderson,1997, Lester, 2010). Yet, it would be
 11

ten years before Thatcher’s ambition for a business-led, economic solution became the

key approach to climate change.

Initially, Thatcher adopted climate change solutions to push through a neoliberal

economic agenda and remove any lingering socialist values left from the previous

Government. Thatcher wanted to move society away from what she saw as a draining

and weakening of British society, by replacing socialist and liberal ideology with ‘self-

reliance and personal responsibility’ (Hall, 1988: 47). Climate change gave her the

opportunity to place responsibility for addressing global warming on to businesses,

paradoxically through the use of state mechanisms and economic instruments via, for

example, moral appeals not to use CFCs aerosols; the banning of environmentally

harmful activities, or improvements in recycling facilities (Jacobs,1991:122-123). At

the same time, global climate change policies guided policy-makers to create new

markets through governance and NEPIs such as emissions and carbon trading. The

Climate Change Act (2008) formalised market driven climate change solutions,

focusing on create new markets based on ‘fictitious capital’ of carbon and pollution ,

from which emerging and potential forms of fictious capital could be generated, such as

carbon emissions, pollution trading, through futures and options trading, spread-betting

and hedge funds. Yet, it was Thatcher’s economic policy approach that defined the City

of London’s role in forging the relationship between state and capital to find solutions

to climate change.

The conflating of state and capital interests as a solution to climate change

continued under the New Labour Government (1997-2010). Prime Minister Tony Blair

and Chancellor Gordon Brown continued linking state policies to the interests of capital

in seeking climate change solutions. This capital led approach understood the potential
 12

of embracing climate change solutions as a means to regenerate and create new

financial products and markets. 7 Blair and Brown used NEPIs, such as emissions

trading, to create a carbon-budget, to make fundamental reforms to the energy markets

and create new financial institutions. The ‘tipping point’ (Gladwell, 2000) came in

2005, when the three major parties, New Labour, Conservative and Liberal Democrat,

incorporated environmental governance into their party manifestos.

The impetus for the Conservatives came from Steve Hilton, the key advisor

whose ‘inspirations are the Green movement and the flowering of grass-roots politics’

(The Times, 2009). Hilton as both an environmental strategist and ardent cyclist,

convinced Conservative Party leader, David Cameron to take up cycling, ensuring the

press were in attendance. Under Hilton’s guidance, the Conservatives launched their

environmental rhetoric during the local elections (May 2006) with a new branding

slogan - ‘Vote Blue, Go Green’.

The campaign was a clear signal that the Conservative Party was co-opting

climate change solutions as part of its political manifesto, and the first indication that it

was shifting towards an environmental discourse in their party policy. This

‘Themenklau’- the stealing of green ideas by grey parties’ (Dryzek, 1997:189) presented

climate change solutions as central to Conservative language and political discourse.

This was reinforced with a new logo, dropping the blue torch for a green tree, and by a

highly choreographed media strategy. Cameron was photographed by journalists on the

Norwegian fjords and when cycling to the Palace of Westminster (April 2006). As the
7
New Labour were following in the footsteps of former Prime Minister, Margaret Thatcher. In
1988 Thatcher’s speech to the Royal Society suggested that business and science could work to together
in finding solutions to ozone depletion.
 13

instigator of the ‘Vote Blue, Go Green’ campaign, Hilton was strategically shifting the

Conservatives away from their traditional terrain, edging into Liberal Democrat

territory, and importantly using climate change solutions to win seats. The campaign

was a deliberate attempt to move the Conservative Party away from the ‘sleazy’ and

corrupt image of the 1990s, and beat Labour to the eco-vote (Jacobs, 2010), with Hilton

and Cameron particularly seeking the eco-vote in marginal seats.

Responding to changes in global governance and partly fearing a public

backlash, New Labour’s Chancellor, Gordon Brown, took radical steps by creating the

UK’s first Climate Change Bill (2007). Encouraged by New Labour’s former

Environment Secretaries, David and Ed Miliband and Special Advisor Michael Jacobs

(see Jacobs, 1991; Stern, 2006), Brown took ‘radical’ steps to reduce carbon emissions

and began the process of developing the Climate Change Act. The Act (2008) 8,

followed on from United Nations legislation to address the issues of climate change.

One of the earliest policies was the Montreal Protocol (1987) banning the use of

chlorofluorocarbon (CFC); Agenda 21- ratified at the Earth Summit, Rio De Janerio,

Brazil (1992). Agenda 21 set out for the UN ‘the first draft of the ‘Earth Charter’, a

vision for an environmentally sustainable planet’ (Cox, 2006 78). As a result enterprises

increasingly found new ways to incorporate environmentalism into business plans.

What connected all three parties was that all offered an economic solution to

environmental problems, through seeking to develop new financial markets.

Governments still had a role in legislating, with carbon markets and emissions trading

8
The Climate Change Act received Royal Assent on 26 November 2008 from
http://www.theccc.org.uk/about-the-ccc/climate-change-act (Accessed, May 2011)
 14

becoming rapidly growing areas in market investment. Global Environmental

Governance policies and developing market-led initiatives supported, in turn, by UN

initiatives such as Agenda 21 (2003), the Brundtland Commission (1989) and the Kyoto

Protocol (1992), meant environmentalism became ‘embedded’ in global industrial and

institutional practices. At the forefront of this development was the City of London.

Climate Change and Fictitious Capital: An Economic Solution to Climate Change?

Trading in emissions on a global scale was an idea first developed in the UK by

Michael Grubb (1998), and developed by the City of London, and the UK government.

Grubb drew on an earlier North American plan to address the problem of acid rain and

identified that any decline in emissions needed a multilateral approach between

countries and global companies rather than individuals, states or regions. Grubb

proposed a new emissions trading scheme (ETS) or ‘cap and trade’ – ‘the buying and

selling of pollutant entitlements’ (Newell and Patterson, 2010: 96) – that focused on a

division of emissions between countries, through a system of ‘contraction and

convergence’ first developed by London company the Global Commons Institute (GCI).

The ‘contraction and convergence’ model argues that if emissions are lessened

in the largest polluting countries, while increasing the emissions allowance in

developing countries, it would create an equilibrium in global emissions. The

mechanisms for contraction and convergence’ came from the London markets through

the trading of emissions. Formalised through the Kyoto Protocol, the mechanism to

lessen carbon emissions: were 1) Clean Development Mechanisms; 9 2) Emissions

9
CDM project activity might involve, for example, a rural electrification project using solar
panels or the installation of more energy-efficient boilers. The mechanism stimulates sustainable
development and emission reductions, while giving industrialized countries some flexibility in how they
meet their emission reduction or limitation targets.
 15

Trading Schemes; and 3) Joint Implementation. 10 , with London taking the lead in

emissions trading schemes and new environmental policy instruments, alongside Global

Environmental Governance and Public Private Partnerships.

Global Environmental Governance (GEG) is governance that goes beyond the

state, but not at the exclusion of the state; and involves multiple actors and mechanisms.

GEG emerged out of market-driven, public and private partnerships (PPPs) as the main

economic implementation of global environmental policies such as Agenda 21 (United

Nations, 2003) and the Millennium Development Goals (United Nations, 2005). 11 12

GEG acts as a bridging tool between public and private partnerships. The public (state)

mode of hierarchical government lies within the regulation of networks and markets.

States, at national and European levels, formulate policies and regulations (such as

emissions trading systems), regulated through law and city networks. The private

sector’s role is acted out through markets and networks, voluntary carbon markets and

corporate responsibility. Governments use the state mechanisms of regulations to beat

corporations, institutions and organisation into endorsing environmental policies. Yet,

at the same time, they allow companies to set their own benchmarks, through voluntary

10
The mechanism known as ‘joint implementation’, defined in Article 6 of the Kyoto Protocol,
allows a country with an emission reduction or limitation commitment under the Kyoto Protocol (Annex
B Party) to earn emission reduction units (ERUs) from an emission reduction or emission removal project
in another Annex B Party, each equivalent to one tonne of CO2, which can be counted towards meeting
its Kyoto target. Joint implementation offers Parties a flexible and cost-efficient means of fulfilling a part
of their Kyoto commitments, while the host Party benefits from foreign investment and technology
transfer. (http://unfccc.int/kyoto_protocol/mechanisms/joint_implementation/items/1674.php) accessed
March 2001
11 In 2010, the “UN Summit on the Millennium Development Goals concluded with the adoption of a
global action plan to achieve the eight anti-poverty goals by their 2015 target date and the announcement
of major new commitments for women’s and children’s health and other initiatives against poverty,
hunger and disease” (United Nations, 2011).
12
At present there are 344 PPPs registered with the United Nations Commission on Sustainable
Development (CSD). A CSD report into the benefits of PPPs for environmental governance argues that
PPPs benefit green issues, because they ‘provide incentives to the private sector to adopt green criteria’
whilst avoiding ‘politically correct ‘add ons’ tha t mean nothing’ (United Nations, 2009).
 16

agreements on environmental policies. However; it is the hybrid nature of PPPs that

raises concern around levels of accountability and legitimacy.

Critics of PPPs argue that the division of responsibility between state and capital

means a lack of any strong regulation. Without a state-led approach, entrepreneurs and

business have no boundaries or regulations to adhere to. The state’s decision to hand

over responsibility to business means the state becomes limited in how much

regulation it can impose on business to address the problems of climate change. The

emergence of GEG is interest led, not environmental, and there is a lack of effectiveness

in measuring the success of any GEG schemes. The hybrid nature of PPPs absolves

both state and private enterprises of the responsibility to find solutions to climate

change. The state’s inability to regulate policy procedure leads to a lack of legitimacy in

environmental claims, and limited accountability for the acts of either governments or

corporations. This ‘dispersal of reasonability’, from hierarchical to networks systems,

means that there is a tendency for indigenous or marginalised groups to be excluded or

negated in any eco-centric deals. Thus, GEG goes beyond the state, through engagement

with private organisations and corporations. The role of private companies means that

GEG transgresses both national and international boundaries, and there is a gradual

emerging of a transnational public sphere. This approach creates two problems—it is

open to accusations of greenwashing (Beder, 2001), and corruption – and is an ideal

breeding ground for fictitious capital.

Problems of Emissions Trading

 17

Accusations of corruption emerge around companies who after purchasing

permits, shelve plans intended for the permits, leaving surplus permits to sell on the

markets. For example, steel manufacturer Corus, after being given emissions permits for

development at their Teesside plant, shelved their plans, leaving them able to sell the

unused permits for an estimated profit of £250 million (Clover, 2010). Moreover, with

the global recession came a decrease in demand for energy. Companies and institutions

that couldn’t raise capital through bank loans were able to generate funding by ‘selling

their allowance-gambling that they would be able to buy […] back when customers

returned’ (Clover, 2010). Moreover, once the third phase of ETS comes into effect in

2013, organisations with remaining permits will ‘carry over 1.8 billion

permits…obviating the need to buy any new credits before 2016’ (Schiller, 2011). This

profiteering on permits shows how a reduction in energy consumption means a decrease

in emissions freeing up more permits to sell on the carbon markets. Moreover, the

reliance on networks and trade in non-tangible products leaves the systems open to

abuse. In February 2011, the ETS system and nine participating countries were subject

to a cyber attack. A series of phishing emails convinced many companies to sell their

emissions allowance, and the ‘Financial Times Deutschland’ reported that one firm had

lost €1.5 million as a result’ (Carbonwatch, 2011). 13 However, these examples of fraud

fail to deter the growth of emissions trading, thus avoiding detriment to London’s

market.

Globally, emissions trading schemes are being adopted by numerous

governments as a policy ‘veil’ to reduce pollutants. Australia is currently debating

whether to introduce a carbon-tax in an attempt to reduce emissions. However, public

13
http://www.carbontradewatch.org/articles/cyber-scam-artists-disrupt-emissions-trading-across-
eu.html
 18

support is low, with 60 percent of the population against the tax (ABC News, 2011) 14

and of the “30 percent who say they support the carbon tax, only 12 percent are

"strongly in favour" of it” (ABC News). The Australian Government originally

proposed an emissions trading scheme to be introduced in 2013, but instead have opted

for the introduction of a carbon tax ahead of a move to emissions trading by 2015. The

scheme was delayed due to a ‘lack of a breakthrough at last year's Copenhagen climate

talks’ (Kirk, 2010) and because of a lack of support from Australia’s Labor and Green

Party; despite climate change being a concern for two thirds of the Australian

population. Yet other countries are trialling similar schemes in the BRICS 15 nations

Conclusion

In examining how London has turned to emissions trading as a new market,

through relations between state and capital; this chapter has charted the political

adoption of climate change discourse to regulate and grow new markets under the rubric

of addressing climate change. The City of London found itself in a niche market, which

began in the early 1990s, and has excelled since 2005; emissions and carbon trading are

one of the few successes to emerge from the global recession. Thus emissions trading is

a form of fictitious capital because it relies on what Marx terms advancing capital,- the

procurement of capital based on a projected income a product may or may not generate

(Marx, 1981). Carbon and emissions trading may take the form of fictitious capital, as

its foundation is trading in the potential to pollute. Industrialised countries can trade

with each other over how much, or how little each country contributes to emissions in

14
http://www.abc.net.au/news/stories/2011/05/04/3207006.htm?section=justin
15 15
BRICS (Brazil, Russia, India, China and South Africa). BRICS, an acronym coined by the
investment bank Goldman Sachs, account for 45% of the world’s economic growth between them.
 19

the atmosphere. London and the EU, alongside the UN, have developed neoliberal

schema that privileges capital over the state in the authorisation of solutions to climate

change.

Politically, new environmental policy instruments become attractive because

they generate new income from new markets, whilst appearing to encourage an eco-

centric society. Indeed, the rationale for the Climate Change Act came not from any

sense of environmental urgency, but from the political urgency to maintain a hegemonic

position through governance and government. Therefore, the development of NEPIs in

combination with GEG and PPPs has helped London lead the way in the fictitious

capital of carbon trading. The passing of the Climate Change Act and Lord Stern’s

conflating of economics with energy to develop new markets show the role of the state

and its relation to capital. The state maintains a stance which allows capital to find

solutions to climate change, and in return climate change opens up new investment

opportunities and the development of new markets under the gentle ‘suasion’ of

regulation and volunteer markets.

The problem with a capital, market-led approach is the lack of responsibility and

accountability for climate change that it imparts. The consequences of increases in

global temperature and subsequent flooding and famine are that states retain

responsibility for finding solutions whilst enterprise prioritises the use of climate change

to find new and emerging markets.

London remains the market leader, housing the key influential organisation that

charts the ebb and flow of the carbon markets. The City of London and the Thatcher

government sowed the seeds of success in the 1980s, securing London as a leader in
 20

climate change solutions. As climate change increasingly moves up the political and

media agenda, there is greater pressure on states to find solutions. The model introduced

by Thatcher, and later expanded upon by Blair, Brown and Cameron of a market-led

solution, appeals to many states, including the BRICS 16 and Australia. The challenge to

London is to retain the title as the world’s leader in carbon trading, as the market

expands on a global scale, whilst seeking to avoid excessive financial speculation in our

environment’s future.

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