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

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432 Bailey
and neoliberalism have led to a substantive diminution
of state sovereignty and state interests (howsoever
defined) as key reference points for understanding
contemporary governance trends (Brenner 2000 2001;
Jessop 2000 2004; Brenner and Theodore 2002;
Swyngedouw et al. 2002). Attention has thus shifted
from the idea of fixed and hierarchically-ordered
governance scales toward more complex and inter-
woven forms of political economic interaction
wherein the state remains an important ‘scale as
dimension’ (Mansfield 2001 2005, 471).
Nevertheless, much remains to be learned about
how the international institutionalisation of market
instruments is altering the scalar politics of climate
governance and how these changes affect the pro-
spects for such regimes to deliver more cooperative
climate protection strategies. The aim of this paper
is to explore how tensions between inter-state co-
operation and competition are being managed within
climate policy by examining the implementation of
the EU emissions trading scheme (EU ETS), the world’s
largest multi-state, multi-sector carbon trading scheme.
Prima facie based on its status as a supranational
polity with an established – if complex – legal identity,
the EU would appear to be relatively well-equipped to
coordinate the activities of its member states compared
with international institutions like the United Nations
(UN). Indeed, the very existence of the EU ETS rep-
resents a significant accomplishment in multi-scale
climate governance. As the following sections show,
however, although the EU’s political structures greatly
facilitated the creation of the higher tiers of this
regime covering the logic and legal framework of
emissions trading, significant problems have emerged
during the scheme’s implementation. These experi-
ences indicate the need for closer scrutiny of the
complex scalar politics of international neoliberal
climate governance, and their implications for inter-state
cooperation to reduce greenhouse-gas emissions.
Since my ambition is to examine the scalar poli-
tics of international emissions trading as opposed
to critiquing market-based climate policies, I focus
mainly on the scale literature rather than the neo-
liberal nature literature. Thus, the next section begins
by exploring key analytical frameworks developed
within geography and other disciplines to analyse
the politics of scale in international environmental
regime-building. I then outline the genesis of the EU
ETS, its legal structures, and the difficulties arising
during its implementation, before reflecting on the
main lessons on the scalar politics of climate govern-
ance gained from the EU ETS.
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
Regimes and scales of international
environmental politics
The rapid rise of environmental issues on the politi-
cal agenda has been accompanied by an attendant
growth in scholarly interest in international
environmental regimes (Krasner 1983; Kütting 2000;
Patterson 2000). Eckersley (2006) nevertheless
contends that mainstream international relations has
tended to treat the environment as merely a new
political problem that can be accommodated within
its prevailing positivist epistemologies of neorealism
and regime theory (neoliberal institutionalism), rather
than as a new theoretical challenge in its own right.
To re-cap briefly, neorealists regard the international
system as essentially anarchic and characterised by
inter-state competition for resources and influence
(Keohane 1984; Patterson 2000). Thus, power rela-
tions and state capabilities are the dominant factors
governing international relations and collective
action is structurally constrained by fears of losses
to other states unless it can be induced or coerced
by a hegemonic state actor, and even then remains
vulnerable to distributional shifts in power (Collard-
Wexler 2006). While neorealism provided a reason-
ably robust account of Cold-War security relations,
the emergence and durability of various multilateral
environmental ‘regimes’ under the aegis of the UN
and the EU (Vogler 2005; Thompson 2006; Ward
2006) led to renewed interest in how international
institutions regularise inter-state relations through
the creation of mutually agreed principles, norms, rules,
values and policy-making procedures (Kütting 2000).
According to regime theorists, the mutually reinforc-
ing qualities of these regimes gradually displace
competition as the primary driver of international
relations as governments learn shared values, and
the regime gains normative cohesion as these values
become ingrained within governments (Joyner 2005).
Although both schematics provide useful insights
into how power, interests and ideas shape regime
behaviour, their inattention to the possible scalar
configurations of these variables caused by cultural
diversity, economic globalisation, the spatial and
social interconnectedness of environmental problems
or the countervailing forces of resurgent nationalism
and regionalism, has provided scope for important
geographical contributions to the analysis of inter-
national environmental governance (Mansfield 2001).
The notion of scale as a means of deciphering the
structuration of governance has received much
attention from geographers in recent years, with
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 Neoliberalism, climate governance and EU emissions trading 433
discussions on the theoretical and ontological pro-
perties (and even the validity) of scale production
(see Marston et al. 2005 and associated discussion),
and how these elucidate the shifting interplays be-
tween supranational, national, regional and local
‘scale’ actors (Brenner 2000 2001; Brenner and
Theodore 2002; Jessop 2005; Swyngedouw et al.
2002; Mansfield and Haas 2006).
Space constraints prevent a detailed review of
this literature; however, a common theme therein is
the difficulties of assigning rigid spatial scales or
hierarchies to certain processes, whether to deter-
mine political jurisdictions or simply to make pheno-
mena comprehensible (Cidell 2006). Although most
governance regimes involve some hierarchy of geo-
political scales and power relations (Brenner 2001;
Swyngedouw et al. 2002; Jessop 2005), geographical
questioning of the conceptualisation of states as
isomorphic and indivisible sovereign rulers over
discrete territories has gathered momentum as neo-
liberalism and globalisation have refashioned state
structures through the upwards and downwards
rescaling of powers to international, regional and
local entities (Jessop 2002; Peck and Tickell 2002;
Agnew 2005). At the same time, empirical investiga-
tions of ‘actually existing neoliberalism’ (Brenner
and Theodore 2002, 349) in response to literature
de-emphasising the national stress that such ‘glocal-
isation’ has neither ended state power nor eroded
the production of the national as a relevant scale.
Rather, as Mansfield (2001) and Mansfield and
Haas (2006) argue, states continue to play a crucial
role in constituting and shaping globalisation, and
in reasserting jurisdictional powers even as state
boundaries and scales become more porous as a
result of devolution, de-regulation, privatisation, trade
liberalisation and various other quasi-market reforms
(Mason 2001; Peck 2001; Dalby 2002; Liverman
2004; McCarthy and Prudham 2004).
What materialises, then, is a view of scale as multiple
forms of scalar structuration, which, although not
devoid of hierarchy, is socially and geographically
constructed as mosaics of interaction, rather than as
stable scalar arrangements or pyramids of extent or
influence (Brenner 2001). Thus, the main emphasis
is on dynamic actor relations (scales-as-dimensions
(Mansfield 2005, 471)) instead of superordinate and
subordinate layers. The crucial advantage of this
approach, as Mansfield puts it, is that
we no longer need to downplay one scalar dimension
in favor of others, and we can incorporate the national
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back into accounts of neoliberalism and broader
political economic change. (2005, 471)
Rather than trying to uphold the image of states
marginalised by neoliberalism and globalisation, the
national remains an important dimension of political-
economic practice, even if it is no longer analytic-
ally useful or empirically accurate to visualise it as
an isolable and discrete spatial scale (Jessop 2004).
Relating these insights to environmental governance
first requires identification of the main scales-as-
dimensions relevant to international regime-building.
First, and most obviously, there are the geophysical,
economic and social territories overseen by gov-
ernments; second, there are the selective norms,
responsibilities and obligations created by state
affiliations to multilateral institutions; and, third,
there are the incorporeal scales of ‘the market’,
expressed in terms of installations, corporations,
sectors and capital markets, each with varying levels
of connectedness to physical or self-referential spaces.
In addition to relations between these systems, one
must also consider the temporalities of environmental
regime-building in terms of, first, the institutional,
cultural, political and economic legacies that inform
state evaluations of multilateral cooperation2 and,
second, regime evolution from the initial accept-
ance of regime norms and goals through to policy
negotiation, the signing of agreements, their entry
into force, and formal (legal) and practical imple-
mentation (Christiansen and Wettestad 2003;
Thompson 2006).3
Although the importance of the national to these
regimes is self-evident, state behaviour during differ-
ent stages of regime formation and implementation
remains an under-explored aspect of environmental
governance. On the one hand, affiliation implies a
preparedness to accept new configurations of state-
supranational cooperation. Conversely, the compe-
titive vulnerabilities created by these configurations
coupled with the delegation of key decisions to
footloose market forces create an inherent tension
with traditional conceptions of territorial statehood
and self-determination. The remainder of the paper
now examines how these tensions have been managed
in the implementation of the EU ETS.
The Kyoto Protocol and the initiation of
the EU emissions trading scheme
Despite the EU being a signatory to over 60
multilateral environmental agreements, international
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

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

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

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 Neoliberalism, climate governance and EU emissions trading 437
allocations to their key industries. In the event, only
Germany and Slovenia did not allocate more allow-
ances than they emitted at the time, while Finland,
Lithuania, Luxembourg and Slovakia each allocated
allowances more than 25 per cent above recent
emissions. Collectively, phase-one allocations agreed
by October 2004 exceeded emissions during 1998–
2002 by 3 per cent for countries that reported histo-
rical emissions, creating short-term over-supply in
the emissions market and depressing allowance
prices and trading (Grubb et al. 2005). When the
scheme came into operation in January 2005, the
Commission was still contesting the Czech, Polish,
Italian and Greek NAPs, and the latter two were only
agreed in May and June 2005 (European Commission
2005a).
Various justifications were given for these liberal
allocations, foremost of which was concern over the
competitive impacts of carbon prices on energy- and
export-dependent industries like steel and cement.
Several studies also indicated that the EU ETS was
likely to trigger short- to medium-term rises in ele-
ctricity prices (Sijm 2005; Green 2005; Linares et al.
2006), while others noted that stricter allocations for
energy providers would create an unacceptable
double penalty for sectors that were already paying
national energy-consumption taxes (Department for
the Environment, Food and Rural Affairs (DEFRA)
2006). However, Grubb et al. (2005) blamed most
over-allocations on insufficient governmental scrutiny
of industrial claims about competitive disadvantage
and inadequate guidance from the Commission to
ensure the coordination, comparability and trans-
parency of NAP methodologies. They also noted
that many ‘business-as-usual’ emissions forecasts
(the baseline used to calculate allocations) may
have been inflated by industry to protect against
uncertainty and to facilitate target achievement, and
also by governments to minimise the asymmetrical
political risks of under-allocations caused by the
different emissions targets agreed (or not) by other
countries inside and outside the Kyoto Protocol.
More problems in phase two
Having finally resolved outstanding phase-one
problems, the Commission signalled its determination
to take a tougher stance during phase two by
proposing an annual EU-wide cap of 2.06 billion
allowances – a 6 per cent reduction from phase
one – and cuts of 15–25 per cent for countries that
were projected to miss their BSA targets (Austria,
Denmark, Spain, Finland and Italy) (European
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Environment Agency 2006). The Commission also
recommended that allocations by states on course
to meet their Kyoto targets, like the UK, should not
exceed those in phase one, and demanded that all
states offer more robust information on their NAPs
and other measures to reach Kyoto targets (European
Commission 2005b). However, cracks in the process
soon appeared when the Commission was forced
to postpone the original June 2006 submission date
for phase-two NAPs because most member states
indicated that they would miss this deadline. Even
so, in October 2006 the Commission issued first warn-
ing letters to Austria, the Czech Republic, Denmark,
Hungary, Italy, Portugal, Slovenia and Spain for late
submission, while France, Estonia, Greece, Lithuania
and Poland received formal warnings for not
providing historical emissions data needed to
establish permitted emissions levels. Germany and
Luxembourg had already received first warnings in
April 2006 and were sent final letters in October
(European Commission 2006a). The Commission
also opened legal proceedings against Luxembourg
for not communicating its future greenhouse-gas
projections or its general policies to address climate
change.
In October 2006 the Environment Commissioner,
Stavros Dimas, sought to force the issue by inform-
ing ministers attending an EU Environment Council
meeting that the draft NAPs received at the time
amounted to a 15 per cent increase in allowance
allocations compared with verified emissions for 2005,
significantly higher than the EU’s Kyoto targets
(Dimas 2006). He added that if member states put
more allowances into the market than were needed
to cover real emissions, this would depress carbon
prices, weaken incentives to invest in abatement,
and negate the system of fines introduced for non-
compliance. In November 2006, in what Dimas
called ‘a credibility test for Europe’, the Commission
rejected nine of the ten phase-two NAPs submitted
at the time because they planned for larger allowance
issues for 2008–2012, despite reporting substantial
surpluses in 2005–2007 (European Commission
2007a) (Table 2). France, anticipating a similar fate,
withdrew its NAP on the eve of the appraisal to
revise it, while the Belgian and Dutch NAPs were
also rejected in January 2007, with Dimas insisting on
emissions reductions of 7.6 per cent and 5.1 per cent
respectively below their original phase-two NAPs.
Although the Commission has limited powers to
enforce a more centralised approach, its assertiveness
has paid some dividends. In February 2007, the
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
with its Kyoto commitments and its potential to
reduce emissions, though Slovenia has relatively
undemanding targets under the protocol (European
Commission 2007b). However, a number of member
states have sought to overturn Commission decisions.
In February 2007, Slovakia lodged a complaint
against the Commission’s demand that it reduce its
allocation from 41.1 to 30.9 MtCO2 per year, arguing
that the Commission had no competence to dictate
how national quotas are calculated. It also noted
that the Commission’s calculations did not reflect
the strong growth of the Slovak economy or the
decommissioning of reactors at the Bohunice nuclear
plant agreed as part of Slovakia’s accession treaty
(EurActiv 2007a). In May 2007, Poland and the
Czech Republic also announced legal proceedings,
claiming that the Commission’s conditions for
accepting their NAPs – which included reductions
of 26.7 per cent and 14.8 per cent to their proposed
allocations – were discriminatory and would pre-
vent their industries from catching up with Western
Europe, adding that the complicated model for
calculating emissions and lack of data transparency
prevented adequate consultation on emissions levels
(EurActiv 2007b). Finally, in April 2007, the Hungarian
government issued a statement that it could not rule
out court action against the Commission for ‘order-
ing’ a 12 per cent cut in its NAP 2 allocation
(EurActiv 2007c).
Given the EU’s chequered history on environ-
mental policy implementation, these disputes might
be regarded as largely foreseeable (Jordan 1999).
Even so, the Commission will need to fight a strong
rearguard action to ensure NAPs are endorsed early
enough to prevent some member states from having
to make more widespread use of the Kyoto flexibility
mechanisms to meet their BSA targets than the EU
would wish given its commitments to strong domes-
tic action and proving the viability of international
emissions trading. Forecasts in 2006 suggested that
at least 10 member states will need to utilise Kyoto
mechanisms (Table 3) and that, overall, around 32.5
per cent of the EU’s reduction commitment may be
met this way (European Environment Agency 2006).
Although there is little indication that EU ETS is in
danger of unravelling, further blows to its credibility
may increase pressure for a taxation or mandatory-
targets approach (Grubb et al. 2005), though past
experience suggests that it would be extremely hard
to navigate either of these through the EU policy
process.
Moving forward, the Commission has sought to
restore policy momentum by setting out its agenda
for the EU ETS beyond 2012 (European Commission
2006b). These proposals, which it claims are intended
to ‘build a global carbon market’, include expand-
ing emissions trading to air transport, harmonising
member-state allocations under an EU-wide cap (set
by the Commission), the inclusion of more green-
house gases, and expanding the auctioning of
allowances. Whether these are realistic ambitions
depends ultimately on the member states’ willing-
ness to accept greater central direction from the

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

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440 Bailey
territorial focus to safeguard their major industries
from the competitive effects of uneven global and
European emissions targets and the ‘spatial infide-
lity’ of corporations and investment markets. Claims
to territorial emissions ‘entitlements’ never lurked
far beneath the surface of negotiations but their
temporary suspension made it possible for the Com-
mission to lay the foundations of a binding climate
regime, while their re-emergence has forced it to
operate at the very limit of its powers to prevent the
scheme from losing credibility.
Admittedly, tensions between regime and state
interests are neither new nor unique to neoliber-
alism, and many of the political dynamics of the
EU ETS bear a distinct resemblance to impenitent
neorealism. Nevertheless, the institutionalisation of
neoliberal climate policies at the international level
is intensifying and producing new patterns of inter-
action between supranational, national and non-state
actors. Traditional hierarchies remain important to
these dynamics; however, the story is far from one
of simple dialectics or state domination, but, rather,
reflects complex and fluctuating scalar orientations
and contested power relations, as new rules and
roles are adopted to oversee emissions markets, and
national governments attempt to reconcile their
principled allegiance to climate cooperation with
the protection of territorial interests against the often
obscure scalar operations and allegiances of market
actors. As Peck observes, globalisation
does not mean that territoriality itself in somehow less
relevant, but rather that a more complex set of
territorialization processes are at work in, around, and
through the national state. (2001, 450; original emphasis)
while ‘thinking in terms of multidimensional scalar
relations, rather than shifts from one scalar regime
to another’ (Mansfield 2005, 472) provides a richer
description of the fluctuating scalar nature of inter-
national climate governance from one stage of regime
formation to the next.
By exploring the EU ETS, this study has sought to
contribute to, and to connect, parallel debates on
neoliberalism, climate governance and the politics
of scale. In addition, two key policy messages emerge
from the study. The first is that state acceptance of
the principle of collective climate governance,
whether by neoliberal or other means, provides few
guarantees that commitments will be honoured if
these are seen to threaten states’ territorially-defined
interests. The second is that unless greater policy
attention is paid to finding ways to bridge this gap
Journal compilation © Royal Geographical Society (with The Institute of British Geographers) 2007
(and coercion is unlikely to be the answer) or more
nations volunteer to break the mould (as the UK
is arguably seeking to do), the prospects of inter-
national carbon trading making a serious contribution
to reducing emissions seem rather bleak. Finally, it
should be remembered that this article has only
explored tensions during the allocation of emissions
allowances and it remains to be seen how future
conflicts between market, state and regime orienta-
tions will be managed as emissions trading unfolds.
Current disputes may be just a foretaste of more
acrimonious struggles to come as companies and
governments discover the full competitive implica-
tions of international market instruments in an
unevenly regulated and competitive world.
Acknowledgements
The research for this article was supported by grants from the
Economic and Social Research Council (Ref. R000223774)
and the British Academy. My sincere thanks also go to Jon
Shaw, Geoff Wilson and the anonymous referees for their
insightful comments on earlier versions. All remaining
errors and misinterpretations are my own.
Notes
1 International emissions trading, Joint Implementation and
the Clean Development Mechanism.
2 As Jessop points out, ‘globalization is not a homogeneous
or homogenizing process . . . it does not emanate from,
nor is it initiated from, all points on the globe; and it does
not develop evenly’ (2000, 356).
3 Measures of regime effectiveness are themselves highly
contestable and can be interpreted in various ways, includ-
ing solving political problems by reaching political accom-
modation, achieving set policy goals (unambitious or
otherwise), or actually solving the problem (Kütting 2000).
4 JUSSCANNZ consists of developed-world states that are
heavily reliant on fossil fuels (USA, Canada, Australia) or
have highly efficient energy-supply systems with little
scope for major emissions cuts without significant economic
burdens (Japan, Switzerland, Norway, New Zealand).
5 An installation is defined in the directive as a stationary
technical unit where one or more named activities are car-
ried out and other associated activities with a technical
connection with activities on that site which could have an
effect on emissions.
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