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Area (2007) 39.

4, 431–442

Neoliberalism, climate governance and the scalar


Blackwell Publishing Ltd

politics of EU emissions trading


Ian Bailey
School of Geography, University of Plymouth, Drake Circus, Plymouth PL4 8AA
Email: ibailey@plymouth.ac.uk

Revised manuscript received 21 June 2007

The neoliberalisation of international climate policy through devices such as emissions


trading has led to a significant restructuring of governance competencies between
supranational, national and non-state actors. This article explores the implications of this
restructuring for the scalar politics of climate governance by examining the European
Union emissions trading scheme, the world’s largest multi-state carbon-trading scheme.
Analysis shows that although the member states were prepared to accede to a common
legal framework for emissions trading, its implementation has been characterised by
intense sovereignty disputes over emissions allowances. The article concludes by
reflecting on the scalar politics of international climate governance in an unevenly
regulated and competitive world.

Key words: climate policy, neoliberalism, emissions trading, European Union, scale,
regimes

has perhaps been less whether neoliberal or


Introduction command-and-control approaches are ‘superior’
Ten years on from the signing of the Kyoto Protocol, and more whether states (and corporations and
the emerging political consensus seems to be that individuals) are genuinely prepared to accept a
the most effective and efficient way to protect the more communal approach to climate issues, even
global climate system is to assign property rights for if this compromises current or future economic
greenhouse-gas emissions and to trade these rights prospects and/or national sovereignty.
on international markets (Liverman 2004). Numerous However optimistic or cynical one is about emissions
national and international emissions trading schemes trading, there is little doubt that the international
have been, or are being, introduced as a result: in institutionalisation of this variant of neoliberalism
the UK and Australia; via the so-called Kyoto flexibility has major implications for the role of the state in
mechanisms;1 and even the European Union (EU), climate governance. On the one hand, effective
once a stern critic of emissions trading, has a international trading requires governments to accede,
fully-fledged carbon trading scheme. Much recent in some form or another, to supranational regimes
geographical scholarship on neoliberalism has been and authority; conversely, it implies significant
critical of neoliberalism as an approach for dealing entrustment of competencies to the private sector,
with environmental problems, and of the apparent with governments increasingly assuming the role of
agnosticism of many neoliberal reforms to social market managers (Peck 2001). While this reallocation
justice and distributional equity (Mansfield 2001 of functions challenges conventional (mis)concep-
2004; McCarthy and Prudham 2004; Bakker 2005; tualisations of the state as the dominant spatial unit
McCarthy 2005; Castree 2006; Mansfield and Haas of all political and economic organisation (Agnew
2006). Nevertheless, the chief sticking point in 2005), geographical scholarship on the politics of
climate policy implementation over the past decade scale has criticised suggestions that globalisation

Area Vol. 39 No. 4, pp. 431–442, 2007


ISSN 0004-0894 © The Author.
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
432 Bailey

and neoliberalism have led to a substantive diminution


of state sovereignty and state interests (howsoever Regimes and scales of international
defined) as key reference points for understanding environmental politics
contemporary governance trends (Brenner 2000 2001; The rapid rise of environmental issues on the politi-
Jessop 2000 2004; Brenner and Theodore 2002; cal agenda has been accompanied by an attendant
Swyngedouw et al. 2002). Attention has thus shifted growth in scholarly interest in international
from the idea of fixed and hierarchically-ordered environmental regimes (Krasner 1983; Kütting 2000;
governance scales toward more complex and inter- Patterson 2000). Eckersley (2006) nevertheless
woven forms of political economic interaction contends that mainstream international relations has
wherein the state remains an important ‘scale as tended to treat the environment as merely a new
dimension’ (Mansfield 2001 2005, 471). political problem that can be accommodated within
Nevertheless, much remains to be learned about its prevailing positivist epistemologies of neorealism
how the international institutionalisation of market and regime theory (neoliberal institutionalism), rather
instruments is altering the scalar politics of climate than as a new theoretical challenge in its own right.
governance and how these changes affect the pro- To re-cap briefly, neorealists regard the international
spects for such regimes to deliver more cooperative system as essentially anarchic and characterised by
climate protection strategies. The aim of this paper inter-state competition for resources and influence
is to explore how tensions between inter-state co- (Keohane 1984; Patterson 2000). Thus, power rela-
operation and competition are being managed within tions and state capabilities are the dominant factors
climate policy by examining the implementation of governing international relations and collective
the EU emissions trading scheme (EU ETS), the world’s action is structurally constrained by fears of losses
largest multi-state, multi-sector carbon trading scheme. to other states unless it can be induced or coerced
Prima facie based on its status as a supranational by a hegemonic state actor, and even then remains
polity with an established – if complex – legal identity, vulnerable to distributional shifts in power (Collard-
the EU would appear to be relatively well-equipped to Wexler 2006). While neorealism provided a reason-
coordinate the activities of its member states compared ably robust account of Cold-War security relations,
with international institutions like the United Nations the emergence and durability of various multilateral
(UN). Indeed, the very existence of the EU ETS rep- environmental ‘regimes’ under the aegis of the UN
resents a significant accomplishment in multi-scale and the EU (Vogler 2005; Thompson 2006; Ward
climate governance. As the following sections show, 2006) led to renewed interest in how international
however, although the EU’s political structures greatly institutions regularise inter-state relations through
facilitated the creation of the higher tiers of this the creation of mutually agreed principles, norms, rules,
regime covering the logic and legal framework of values and policy-making procedures (Kütting 2000).
emissions trading, significant problems have emerged According to regime theorists, the mutually reinforc-
during the scheme’s implementation. These experi- ing qualities of these regimes gradually displace
ences indicate the need for closer scrutiny of the competition as the primary driver of international
complex scalar politics of international neoliberal relations as governments learn shared values, and
climate governance, and their implications for inter-state the regime gains normative cohesion as these values
cooperation to reduce greenhouse-gas emissions. become ingrained within governments (Joyner 2005).
Since my ambition is to examine the scalar poli- Although both schematics provide useful insights
tics of international emissions trading as opposed into how power, interests and ideas shape regime
to critiquing market-based climate policies, I focus behaviour, their inattention to the possible scalar
mainly on the scale literature rather than the neo- configurations of these variables caused by cultural
liberal nature literature. Thus, the next section begins diversity, economic globalisation, the spatial and
by exploring key analytical frameworks developed social interconnectedness of environmental problems
within geography and other disciplines to analyse or the countervailing forces of resurgent nationalism
the politics of scale in international environmental and regionalism, has provided scope for important
regime-building. I then outline the genesis of the EU geographical contributions to the analysis of inter-
ETS, its legal structures, and the difficulties arising national environmental governance (Mansfield 2001).
during its implementation, before reflecting on the The notion of scale as a means of deciphering the
main lessons on the scalar politics of climate govern- structuration of governance has received much
ance gained from the EU ETS. attention from geographers in recent years, with

Area Vol. 39 No. 4, pp. 431–442, 2007


ISSN 0004-0894 © The Author.
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
Neoliberalism, climate governance and EU emissions trading 433

discussions on the theoretical and ontological pro- back into accounts of neoliberalism and broader
perties (and even the validity) of scale production political economic change. (2005, 471)
(see Marston et al. 2005 and associated discussion),
and how these elucidate the shifting interplays be- Rather than trying to uphold the image of states
tween supranational, national, regional and local marginalised by neoliberalism and globalisation, the
‘scale’ actors (Brenner 2000 2001; Brenner and national remains an important dimension of political-
Theodore 2002; Jessop 2005; Swyngedouw et al. economic practice, even if it is no longer analytic-
2002; Mansfield and Haas 2006). ally useful or empirically accurate to visualise it as
Space constraints prevent a detailed review of an isolable and discrete spatial scale (Jessop 2004).
this literature; however, a common theme therein is Relating these insights to environmental governance
the difficulties of assigning rigid spatial scales or first requires identification of the main scales-as-
hierarchies to certain processes, whether to deter- dimensions relevant to international regime-building.
mine political jurisdictions or simply to make pheno- First, and most obviously, there are the geophysical,
mena comprehensible (Cidell 2006). Although most economic and social territories overseen by gov-
governance regimes involve some hierarchy of geo- ernments; second, there are the selective norms,
political scales and power relations (Brenner 2001; responsibilities and obligations created by state
Swyngedouw et al. 2002; Jessop 2005), geographical affiliations to multilateral institutions; and, third,
questioning of the conceptualisation of states as there are the incorporeal scales of ‘the market’,
isomorphic and indivisible sovereign rulers over expressed in terms of installations, corporations,
discrete territories has gathered momentum as neo- sectors and capital markets, each with varying levels
liberalism and globalisation have refashioned state of connectedness to physical or self-referential spaces.
structures through the upwards and downwards In addition to relations between these systems, one
rescaling of powers to international, regional and must also consider the temporalities of environmental
local entities (Jessop 2002; Peck and Tickell 2002; regime-building in terms of, first, the institutional,
Agnew 2005). At the same time, empirical investiga- cultural, political and economic legacies that inform
tions of ‘actually existing neoliberalism’ (Brenner state evaluations of multilateral cooperation2 and,
and Theodore 2002, 349) in response to literature second, regime evolution from the initial accept-
de-emphasising the national stress that such ‘glocal- ance of regime norms and goals through to policy
isation’ has neither ended state power nor eroded negotiation, the signing of agreements, their entry
the production of the national as a relevant scale. into force, and formal (legal) and practical imple-
Rather, as Mansfield (2001) and Mansfield and mentation (Christiansen and Wettestad 2003;
Haas (2006) argue, states continue to play a crucial Thompson 2006).3
role in constituting and shaping globalisation, and Although the importance of the national to these
in reasserting jurisdictional powers even as state regimes is self-evident, state behaviour during differ-
boundaries and scales become more porous as a ent stages of regime formation and implementation
result of devolution, de-regulation, privatisation, trade remains an under-explored aspect of environmental
liberalisation and various other quasi-market reforms governance. On the one hand, affiliation implies a
(Mason 2001; Peck 2001; Dalby 2002; Liverman preparedness to accept new configurations of state-
2004; McCarthy and Prudham 2004). supranational cooperation. Conversely, the compe-
What materialises, then, is a view of scale as multiple titive vulnerabilities created by these configurations
forms of scalar structuration, which, although not coupled with the delegation of key decisions to
devoid of hierarchy, is socially and geographically footloose market forces create an inherent tension
constructed as mosaics of interaction, rather than as with traditional conceptions of territorial statehood
stable scalar arrangements or pyramids of extent or and self-determination. The remainder of the paper
influence (Brenner 2001). Thus, the main emphasis now examines how these tensions have been managed
is on dynamic actor relations (scales-as-dimensions in the implementation of the EU ETS.
(Mansfield 2005, 471)) instead of superordinate and
subordinate layers. The crucial advantage of this
approach, as Mansfield puts it, is that The Kyoto Protocol and the initiation of
the EU emissions trading scheme
we no longer need to downplay one scalar dimension Despite the EU being a signatory to over 60
in favor of others, and we can incorporate the national multilateral environmental agreements, international

Area Vol. 39 No. 4, pp. 431–442, 2007


ISSN 0004-0894 © The Author.
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
434 Bailey

environmental diplomacy remains an area of shared


competence with the member states, and, thus,
internal differences must be resolved prior to agree-
ing a negotiating mandate (Vogler 2005). Respons-
ibility for implementing international agreements is
also shared, with the Commission overseeing com-
pliance with common policies agreed by the Council
of Ministers, and national and regional governments
controlling most aspects of practical implementation
(Gupta and Ringius 2001). In the pre-Kyoto nego-
tiations, EU and member-state delegates were
nevertheless united in their support for mandatory
emissions cuts by developed nations, and in their
scepticism toward the excessive use of international
emissions trading which, they argued, provided a
licence for governments to avoid domestic cuts in
greenhouse-gas emissions (Damro and Luaces Méndez
2003). At the same time, the EU’s defence of a
‘bubble’ arrangement, allowing it to reapportion its
aggregate Kyoto target between its member states,
provoked accusations of double standards from US
and Canadian negotiators on the grounds that it
allowed wide differentiation within the EU while Figure 1 The EU burden sharing agreement (per cent
denying similar rights to other countries (Sbragia change in emissions from 1990 baseline)
with Damro 1999). Source: European Environment Agency (2006, 12) © EEA,
The EU’s opposition to emissions trading also Copenhagen, 2005, used with permission
encountered strong opposition from the US, the
‘economies-in-transition’ and other members of the
JUSSCANNZ alliance,4 which argued that green- BSA target independently, but that emissions trading
house gases affect the climate system regardless across all states and sectors could reduce costs by
where they are released and what mattered, there- a3.0 billion per annum and lessen competitive dis-
fore, was maintaining a flexible approach. Faced tortions, while other studies indicated that meeting
with the prospect of destroying the Kyoto Protocol the Kyoto target without trading could increase
by obstructing a measure which it perceived (mis- annual welfare costs in some EU states by 0.6 –5 per
takenly as it turned out) would persuade the USA to cent (Viguier et al. 2003).
accept emissions targets, the Council crafted an Spurred by these assessments and concerning
internal compromise which accepted the logic of emissions trends (Figure 2), the Commission began
emissions trading provided it remained supplemen- producing optimistic policy documents on emissions
tary to domestic action and coordinated measures, trading and in 2001 developed a formal proposal
including binding commitments to emissions cuts. for a directive establishing the EU ETS (European
For a fuller account of these negotiations, see Grubb Commission 2001). Although this represented an
et al. (1999, 89– 96). important step toward the creation of an EU climate
Having agreed to reduce its overall emissions to 8 regime, the Commission still needed to resolve a
per cent below 1990 levels by 2008 –2012, the EU number of key issues, including: rules for the alloca-
moved swiftly to redistribute this target between the tion, trading, surrender and banking of permits,
member states under the EU Burden Sharing Agree- whether the preliminary phase (2005–2007) should
ment (BSA) (Figure 1) and began to reappraise its be mandatory or voluntary, and the scheme’s poten-
stance on emissions trading following the publication tial conflicts with the UK’s voluntary trading scheme
of several reports on the Kyoto targets. One study by and proposed Kyoto arrangements (Christiansen and
Capros and Mantzos (2000), for instance, estimated Wettestad 2003). It also had to overcome lingering
that the annual cost of the protocol to the EU would suspicion in member states like Germany, whose
be a9 billion by 2010 if each state implemented its domestic policies were strongly oriented towards

Area Vol. 39 No. 4, pp. 431–442, 2007


ISSN 0004-0894 © The Author.
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
Neoliberalism, climate governance and EU emissions trading 435

Figure 2 Distance to target for the EU-15 in 2003


Note: Negative figures denote progress in advance of EU Kyoto and BSA targets; positive figures indicate shortfalls
Source: European Environmental Agency (2005) © EEA, Copenhagen, 2005, used with permission

industry self-commitments and energy taxes (Bailey carbon/energy taxes, where several states objected
and Rupp 2005). to the sovereignty encroachment implied by pooled
Considering its complexity and sovereignty impli- taxation measures (Zito 2000).
cations, the emissions trading directive was negoti- The compromise text, agreed in December 2003,
ated with surprising speed and efficiency. Wettestad created a cap-and-trade scheme for carbon dioxide
(2005) attributes this to three factors. First, the EU (CO2) emissions, with mandatory participation from
debate on emissions trading was more mature than January 2005 for over 12 000 installations that met
was outwardly evident as a result of emissions ana- the requirements shown in Table 1.5 However, tem-
lysis, the lack of effective common policies, and the porary opt outs to 2007 were negotiated for certain
high profile of emissions trading at Kyoto. Second, sectors in some member states, notably the UK, to
the Commission acted as a proficient policy entre- allow the full operation of its trading scheme.
preneur, utilising the complexity and uncertainty of The aluminium sector was also granted a blanket
the climate issue to persuade reluctant member states exemption on the grounds that global aluminium
that the EU ETS was a plausible and progressive pricing by the London Metal Exchange meant that
instrument for achieving the EU’s climate goals. European manufacturers would need to absorb any
Third, the USA’s withdrawal from the protocol in additional costs generated by the EU ETS, making
2001 provided the EU with an opportunity to show Europe a less attractive location for the industry
global leadership by demonstrating the possibilities (Kruger and Pizer 2004). In keeping with subsidiarity
of this instrument, though another factor was un- requirements, national emissions caps for affected
doubtedly a desire to avoid a repeat of the deadlock sectors were to be set by member-state governments
that occurred over proposals for harmonised EU using national allocation plans (NAPs) covering two

Area Vol. 39 No. 4, pp. 431–442, 2007


ISSN 0004-0894 © The Author.
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
436 Bailey

Table 1 Sectors covered by the EU ETS

Activities

Energy activities
Combustion installations with rated thermal input exceeding 20 MW (except hazardous or municipal waste)
Mineral oil refineries
Coke ovens
Production and processing of ferrous metals
Metal ore (including sulphide ore) roasting or sintering installations
Installations producing pig iron or steel (primary or secondary fusion) including continuous casting, with
capacity exceeding 2.5 tonnes hour−1
Mineral industry
Installations producing cement clinker in rotary kilns with capacity exceeding 500 tonnes day−1 or lime in
rotary kilns or other furnaces with capacity exceeding 50 tonnes day−1
Installations for glass, including glass fibre with melting capacity over 20 tonnes day−1
Installations producing ceramic products by firing with production exceeding 75 tonnes day−1 and/or kiln
capacity exceeding 4 m3 and with setting density over 300 kg/m3
Other activities
Industrial plants producing:
1. pulp from timber or other fibrous materials
2. paper and board with production capacity exceeding 20 tonnes day−1

Source: Official Journal of the European Communities (2003, 38)

phases, the scheme’s trial period (2005–2007) and allocations to installations must reflect their abatement
the Kyoto commitment period (2008–2012). Installa- potential (including technological potential) and
tions may then trade permits freely between sectors must not be higher than they are likely to need.
and member states to concentrate abatement where
it can be achieved most cheaply, but each April
installations must surrender allowances correspond- The implementation of the EU ETS
ing to their actual emissions that year. The penalty Phase-one allocations
for non-compliance is a40 per tonne of excess CO2 The UK was the first member state to submit its draft
during phase one, rising to a100 per tonne in phase NAP in January 2004 in the hope this would provide
two (Official Journal of the European Communities a template for other NAPs and lead to a relatively
2003). In order to assuage fears about the economic harmonised approach on key issues (Environmental
impacts of allocations, the directive also permits 95 Data Services (ENDS) 2004). However, the govern-
per cent of allowances to be issued free of charge ment soon discovered that its provisional figures
during phase one; this reduces to 90 per cent in underestimated the UK’s projected emissions for phase
phase two. one and requested an increase in its allocation from
Having established this legal-procedural frame- 736 to 757 million tonnes of CO2 (MtCO2). When this
work, the next stage was the submission of phase- was rejected by the Commission without scrutiny
one NAPs detailing national emissions caps and the because the application was lodged after the
methods used to distribute allowances to affected deadline for amendments, Britain launched legal
installations. To guide this process, Annex III of the proceedings to force the Commission to consider
directive provides criteria for the preparation of the detail of the proposal. However, the Court of
NAPs, the most important of which state that plans First Instance upheld the Commission’s judgement
must reflect the country’s actual and projected and the government decided not to pursue further
progress towards Kyoto and BSA targets. NAPs must court action (ENDS 2006).
also not discriminate between companies or sectors The UK’s hope that other member states would
and must be consistent with other Community adhere to its NAP methodology also proved baseless
policies. In addition, the guidelines stipulate that when most governments issued generous allowance

Area Vol. 39 No. 4, pp. 431–442, 2007


ISSN 0004-0894 © The Author.
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
Neoliberalism, climate governance and EU emissions trading 437

allocations to their key industries. In the event, only Environment Agency 2006). The Commission also
Germany and Slovenia did not allocate more allow- recommended that allocations by states on course
ances than they emitted at the time, while Finland, to meet their Kyoto targets, like the UK, should not
Lithuania, Luxembourg and Slovakia each allocated exceed those in phase one, and demanded that all
allowances more than 25 per cent above recent states offer more robust information on their NAPs
emissions. Collectively, phase-one allocations agreed and other measures to reach Kyoto targets (European
by October 2004 exceeded emissions during 1998– Commission 2005b). However, cracks in the process
2002 by 3 per cent for countries that reported histo- soon appeared when the Commission was forced
rical emissions, creating short-term over-supply in to postpone the original June 2006 submission date
the emissions market and depressing allowance for phase-two NAPs because most member states
prices and trading (Grubb et al. 2005). When the indicated that they would miss this deadline. Even
scheme came into operation in January 2005, the so, in October 2006 the Commission issued first warn-
Commission was still contesting the Czech, Polish, ing letters to Austria, the Czech Republic, Denmark,
Italian and Greek NAPs, and the latter two were only Hungary, Italy, Portugal, Slovenia and Spain for late
agreed in May and June 2005 (European Commission submission, while France, Estonia, Greece, Lithuania
2005a). and Poland received formal warnings for not
Various justifications were given for these liberal providing historical emissions data needed to
allocations, foremost of which was concern over the establish permitted emissions levels. Germany and
competitive impacts of carbon prices on energy- and Luxembourg had already received first warnings in
export-dependent industries like steel and cement. April 2006 and were sent final letters in October
Several studies also indicated that the EU ETS was (European Commission 2006a). The Commission
likely to trigger short- to medium-term rises in ele- also opened legal proceedings against Luxembourg
ctricity prices (Sijm 2005; Green 2005; Linares et al. for not communicating its future greenhouse-gas
2006), while others noted that stricter allocations for projections or its general policies to address climate
energy providers would create an unacceptable change.
double penalty for sectors that were already paying In October 2006 the Environment Commissioner,
national energy-consumption taxes (Department for Stavros Dimas, sought to force the issue by inform-
the Environment, Food and Rural Affairs (DEFRA) ing ministers attending an EU Environment Council
2006). However, Grubb et al. (2005) blamed most meeting that the draft NAPs received at the time
over-allocations on insufficient governmental scrutiny amounted to a 15 per cent increase in allowance
of industrial claims about competitive disadvantage allocations compared with verified emissions for 2005,
and inadequate guidance from the Commission to significantly higher than the EU’s Kyoto targets
ensure the coordination, comparability and trans- (Dimas 2006). He added that if member states put
parency of NAP methodologies. They also noted more allowances into the market than were needed
that many ‘business-as-usual’ emissions forecasts to cover real emissions, this would depress carbon
(the baseline used to calculate allocations) may prices, weaken incentives to invest in abatement,
have been inflated by industry to protect against and negate the system of fines introduced for non-
uncertainty and to facilitate target achievement, and compliance. In November 2006, in what Dimas
also by governments to minimise the asymmetrical called ‘a credibility test for Europe’, the Commission
political risks of under-allocations caused by the rejected nine of the ten phase-two NAPs submitted
different emissions targets agreed (or not) by other at the time because they planned for larger allowance
countries inside and outside the Kyoto Protocol. issues for 2008–2012, despite reporting substantial
surpluses in 2005–2007 (European Commission
More problems in phase two 2007a) (Table 2). France, anticipating a similar fate,
Having finally resolved outstanding phase-one withdrew its NAP on the eve of the appraisal to
problems, the Commission signalled its determination revise it, while the Belgian and Dutch NAPs were
to take a tougher stance during phase two by also rejected in January 2007, with Dimas insisting on
proposing an annual EU-wide cap of 2.06 billion emissions reductions of 7.6 per cent and 5.1 per cent
allowances – a 6 per cent reduction from phase respectively below their original phase-two NAPs.
one – and cuts of 15–25 per cent for countries that Although the Commission has limited powers to
were projected to miss their BSA targets (Austria, enforce a more centralised approach, its assertiveness
Denmark, Spain, Finland and Italy) (European has paid some dividends. In February 2007, the

Area Vol. 39 No. 4, pp. 431–442, 2007


ISSN 0004-0894 © The Author.
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
438 Bailey

Table 2 Summary of national allocation plans submitted by November 2006 (million tonnes of CO2)

Member state Phase 1 2005 verified Phase 2 member Phase 2 Commission


cap 2005–7 emissions state proposed proposed cap 2008–12
cap 2008–12

Belgium 62.1 55.9 63.3 58.5


Germany 499.0 474.0 482.0 453.1
Greece 74.4 71.3 75.5 69.1
Ireland 22.3 22.4 22.6 21.2
Latvia 4.6 2.9 7.7 3.3
Lithuania 12.3 6.6 16.6 8.8
Luxembourg 3.4 2.6 4.0 2.7
Malta 2.9 2.0 3.0 2.1
Netherlands 95.3 80.4 90.4 85.8
Slovakia 30.5 25.2 41.3 30.9
Sweden 22.9 19.3 25.2 22.8
UK 245.3 242.3 246.2 246.2

Source: European Commission (2007a, 8)

Commission approved Slovenia’s NAP as consistent be regarded as largely foreseeable (Jordan 1999).
with its Kyoto commitments and its potential to Even so, the Commission will need to fight a strong
reduce emissions, though Slovenia has relatively rearguard action to ensure NAPs are endorsed early
undemanding targets under the protocol (European enough to prevent some member states from having
Commission 2007b). However, a number of member to make more widespread use of the Kyoto flexibility
states have sought to overturn Commission decisions. mechanisms to meet their BSA targets than the EU
In February 2007, Slovakia lodged a complaint would wish given its commitments to strong domes-
against the Commission’s demand that it reduce its tic action and proving the viability of international
allocation from 41.1 to 30.9 MtCO2 per year, arguing emissions trading. Forecasts in 2006 suggested that
that the Commission had no competence to dictate at least 10 member states will need to utilise Kyoto
how national quotas are calculated. It also noted mechanisms (Table 3) and that, overall, around 32.5
that the Commission’s calculations did not reflect per cent of the EU’s reduction commitment may be
the strong growth of the Slovak economy or the met this way (European Environment Agency 2006).
decommissioning of reactors at the Bohunice nuclear Although there is little indication that EU ETS is in
plant agreed as part of Slovakia’s accession treaty danger of unravelling, further blows to its credibility
(EurActiv 2007a). In May 2007, Poland and the may increase pressure for a taxation or mandatory-
Czech Republic also announced legal proceedings, targets approach (Grubb et al. 2005), though past
claiming that the Commission’s conditions for experience suggests that it would be extremely hard
accepting their NAPs – which included reductions to navigate either of these through the EU policy
of 26.7 per cent and 14.8 per cent to their proposed process.
allocations – were discriminatory and would pre- Moving forward, the Commission has sought to
vent their industries from catching up with Western restore policy momentum by setting out its agenda
Europe, adding that the complicated model for for the EU ETS beyond 2012 (European Commission
calculating emissions and lack of data transparency 2006b). These proposals, which it claims are intended
prevented adequate consultation on emissions levels to ‘build a global carbon market’, include expand-
(EurActiv 2007b). Finally, in April 2007, the Hungarian ing emissions trading to air transport, harmonising
government issued a statement that it could not rule member-state allocations under an EU-wide cap (set
out court action against the Commission for ‘order- by the Commission), the inclusion of more green-
ing’ a 12 per cent cut in its NAP 2 allocation house gases, and expanding the auctioning of
(EurActiv 2007c). allowances. Whether these are realistic ambitions
Given the EU’s chequered history on environ- depends ultimately on the member states’ willing-
mental policy implementation, these disputes might ness to accept greater central direction from the

Area Vol. 39 No. 4, pp. 431–442, 2007


ISSN 0004-0894 © The Author.
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
Neoliberalism, climate governance and EU emissions trading 439

Table 3 EU-15 targets and emissions based on national projections

Country Target Gap to target (per cent relative to base-year emissions)


(per cent from
baseline) With existing With additional All PAMs and All PAMs, KMs
policies and PAMs Kyoto and carbon sinks
measures mechanisms
(PAMs) (KMs)

Austria –13.0 27.8 16.3 7.4 6.5


Belgium –7.5 8.7 6.8 0.9 NA
Denmark –21.0 25.2 NA 18.7 18.0
Finland 0.0 9.9 –1.9 –5.3 – 4.0
France 0.0 6.4 0.5 NA 0.0
Germany –21.0 1.2 0.0 NA NA
Greece 25.0 9.7 –0.1 NA NA
Ireland 13.0 16.6 NA 10.2 6.4
Italy –6.5 20.4 10.6 2.8 0.7
Luxembourg –28.0 5.6 NA –18.0 NA
Netherlands –6.0 9.6 6.7 –2.6 –2.8
Portugal 27.0 19.7 15.7 12.6 3.1
Spain 15.0 15.0 NA 29.3 27.4
Sweden 4.0 –5.0 NA NA –7.9
UK –12.5 –6.3 –10.7 NA –11.3
EU-15 –8.0 7.4 3.4 0.8 0.0

NA = Data not available or not presented


Source: European Environmental Agency (2006, 22) © EEA, Copenhagen, 2005, used with permission

Commission and the reactions of other countries to understanding of the scalar politics of international
EU emissions trading. neoliberal climate governance.
In relation to rescaling, the study revealed minimal
evidence that the institutionalisation of international
Conclusion: state territories and collective neoliberal climate regimes has substantively margin-
climate-governance regimes alised the state as a key axis of political-economic
Post-Kyoto, the EU was intent on demonstrating to negotiation. Although shifts in governance scale,
the US and other sceptical nations the feasibility style and substance are occurring as a result of the
and benefits of early collective action on climate EU ETS, the case also clearly illustrates the continued
change. Despite its initial distrust of emissions importance of the state – and state interests – to this
trading, it recognised that this instrument provided new environmental-economic ‘paradigm’ (Jessop
much-needed flexibility to climate policy and moved 2002; Mansfield 2001). Each element of the scheme
to create a scheme that it hoped would provide a required the unanimous approval of the member
template for wider international cooperation on states, while a decision has yet to be reached as to
emissions trading (Michaelowa and Butzengeiger whether the Commission has the executive authority
2005). In the event, implementation of the EU ETS to order governments to rewrite their national allo-
has led to protracted disputes between the Com- cation plans. However, a key characteristic of this
mission and the member states over emissions dynamic has been the shifting nature of state scalar
allocations and, although it is too soon to predict orientations during different stages of regime forma-
the impact of these disputes on the long-term tion. During discussions on the concept and legal
performance of the EU ETS, the case highlights framework of EU emissions trading, the overriding
broader geopolitical stresses between the ideals and priority was to demonstrate unity of purpose to the
realities of inter-state cooperation on climate outside world; however, this accord has progres-
change that both challenge and enrich our sively corroded as states have adopted a more

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440 Bailey

territorial focus to safeguard their major industries (and coercion is unlikely to be the answer) or more
from the competitive effects of uneven global and nations volunteer to break the mould (as the UK
European emissions targets and the ‘spatial infide- is arguably seeking to do), the prospects of inter-
lity’ of corporations and investment markets. Claims national carbon trading making a serious contribution
to territorial emissions ‘entitlements’ never lurked to reducing emissions seem rather bleak. Finally, it
far beneath the surface of negotiations but their should be remembered that this article has only
temporary suspension made it possible for the Com- explored tensions during the allocation of emissions
mission to lay the foundations of a binding climate allowances and it remains to be seen how future
regime, while their re-emergence has forced it to conflicts between market, state and regime orienta-
operate at the very limit of its powers to prevent the tions will be managed as emissions trading unfolds.
scheme from losing credibility. Current disputes may be just a foretaste of more
Admittedly, tensions between regime and state acrimonious struggles to come as companies and
interests are neither new nor unique to neoliber- governments discover the full competitive implica-
alism, and many of the political dynamics of the tions of international market instruments in an
EU ETS bear a distinct resemblance to impenitent unevenly regulated and competitive world.
neorealism. Nevertheless, the institutionalisation of
neoliberal climate policies at the international level
is intensifying and producing new patterns of inter- Acknowledgements
action between supranational, national and non-state The research for this article was supported by grants from the
actors. Traditional hierarchies remain important to Economic and Social Research Council (Ref. R000223774)
these dynamics; however, the story is far from one and the British Academy. My sincere thanks also go to Jon
of simple dialectics or state domination, but, rather, Shaw, Geoff Wilson and the anonymous referees for their
reflects complex and fluctuating scalar orientations insightful comments on earlier versions. All remaining
and contested power relations, as new rules and errors and misinterpretations are my own.
roles are adopted to oversee emissions markets, and
national governments attempt to reconcile their
Notes
principled allegiance to climate cooperation with
the protection of territorial interests against the often 1 International emissions trading, Joint Implementation and
obscure scalar operations and allegiances of market the Clean Development Mechanism.
actors. As Peck observes, globalisation 2 As Jessop points out, ‘globalization is not a homogeneous
or homogenizing process . . . it does not emanate from,
does not mean that territoriality itself in somehow less nor is it initiated from, all points on the globe; and it does
relevant, but rather that a more complex set of not develop evenly’ (2000, 356).
territorialization processes are at work in, around, and 3 Measures of regime effectiveness are themselves highly
through the national state. (2001, 450; original emphasis) contestable and can be interpreted in various ways, includ-
ing solving political problems by reaching political accom-
while ‘thinking in terms of multidimensional scalar modation, achieving set policy goals (unambitious or
relations, rather than shifts from one scalar regime otherwise), or actually solving the problem (Kütting 2000).
to another’ (Mansfield 2005, 472) provides a richer 4 JUSSCANNZ consists of developed-world states that are
description of the fluctuating scalar nature of inter- heavily reliant on fossil fuels (USA, Canada, Australia) or
national climate governance from one stage of regime have highly efficient energy-supply systems with little
scope for major emissions cuts without significant economic
formation to the next.
burdens (Japan, Switzerland, Norway, New Zealand).
By exploring the EU ETS, this study has sought to
5 An installation is defined in the directive as a stationary
contribute to, and to connect, parallel debates on technical unit where one or more named activities are car-
neoliberalism, climate governance and the politics ried out and other associated activities with a technical
of scale. In addition, two key policy messages emerge connection with activities on that site which could have an
from the study. The first is that state acceptance of effect on emissions.
the principle of collective climate governance,
whether by neoliberal or other means, provides few
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