Chapter 2 : A critical Geography of CDM

Chapter 2

A critical geography of the CDM

By Michael K. Dorsey and Gerardo Gambirazzio




This chapter considers the main carbon market players and their geographical constellations: host countries, buyers, consultants, validators and verifiers. With a mapping of these actors, we can more critically examine emerging carbon markets, especially the Clean Development Mechanism (CDM) and the European Union Emissions Trading Scheme (EU-ETS). These are the forces that draw Africa into the market, and simultaneously into the myth that emissions trading can appropriately address the present and future crises of global warming, extreme weather events, and rising socio-economic and political repression from North to South.

This chapter disentangles the web of firms and states involved in one portion of the world’s largest formal, state-mandated carbon marketplace, by deploying an extended set of multi-methods research techniques. These findings include the results of more than three field seasons of ethnographic data collection at United Nations Framework Conventions on Climate Change (UNFCCC) conference of the parties (COPs) meetings and related satellite events (i.e., annual IETA meetings, myriad NGO side-events, inter alia). The ethnographic data gives nuance and context to the competitive intelligence-driven analysis of publicly available data focused on CDM projects, disaggregated by type, carbon credits obtained, geographical location of firms, projects and various participants involved. We purposely restrict the analysis to ‘very basic’ structural and non-statistical assessments, to underscore an ‘any-one-can-do-this’ mandate. Such ‘simple’ analyses also fortify and legitimate our arguments for basic changes in the collection of data to better enable subsequent analysts to innovate on our path-breaking. Network Analysis theories inspire the methods and approach herein.

We believe this to be the first multi-method, actor-network assessment of the formal carbon market industrial complex. The findings are disturbing. For example, in one data snap-shot, we learn nine actors from a space of more than 5000 control 50 percent of EU Certified Emission Reduction Credits (CERs). The world’s largest ‘free-market’ experiment to manage the atmosphere by creating a new commodity for trade is emerging as an ‘oligonomy’, a combination of an oligopoly in which there are only a few sellers, and an oligopsony in which there are only a few buyers. In this context, prospects for Africans to negotiate are terribly adverse, which is one reason why Africa has recorded so few CERs compared to other regions. Numerous other challenges and problems abound and are considered.


Setting the stage


Proponents of the establishment of a global carbon market argue such a market can and should play a role in reducing carbon emissions to the degree necessary to stave off the harmful effects those emissions are having on the global climate and vulnerable communities across the globe (Aldy and Stavins 2007, Figueres 2000, Tietenberg 2006). Complicating matters further, global carbon market proponents also expect the carbon market to be a key instrument capable of addressing and solving complex environmental and economic problems (Giddens 2009, Yamin 2005, Ackerman and Stanton 2010, Ackerman 2009) . In effect the carbon market is charged (or burdened) with the dual mission of assisting developing nations to establish sustainable economies while simultaneously reducing carbon emissions globally.

In an idealized neoliberal capitalist form, the global carbon market that some interlocutors desire exists at a transcendental level, and operates without workers and without geographic location. As Jos Delbeke, the European Commission, Director General for Climate Action, describes the role of the state: ‘Our role is to keep the regulatory structure as simple as possible and let the market play.’ Such desires-as-edicts ignore the realities that define markets at various local to global scales. Carbon market advocates variously seek to create a global market system that is structured to maximize investment returns, while minimizing risk, and have it be subject to minimal, if any, governmental regulation of labor, finance, and trade (Harvey 1993, Harvey 2005, Labatt and White 2007, Smith 1991, McCarthy and Prudham 2004). Nascent research to date, however, on both trading schemes and offset projects reveal a significant gap between the desires of traders and what is currently happening with regard to the development of policies to reduce greenhouse gas emissions. As economist Michael Grubb of the University of Cambridge observes:

Having created a market-based mechanism to cut carbon a lot of people seem to expect it to behave in a non-market way and deliver poverty alleviation, deliver sustainable development co-benefits. But fundamentally, you create a market, it’s behaving the way markets do, it chases where are the most cost effective things, where can they make the most profits and I think that anyone who didn’t expect a market instrument to behave in that way didn’t understand what they were doing.[1]

As research on carbon markets and the commodification of nature shows, the global reality is that the emissions market and its investors across the globe are finding that countries are developing a mismatch of policy proposals to address climate change and (energy consumption) that attempt to serve their national interest against the interest of global investors (Harvey 2006b). This is felt strongly at the local level where communities are resisting national reforms imposed by government elites and global institutions such as the World Bank. And some of those local solutions, as in the case of China, may not be ideal for those who wish to develop a global carbon market and its investors (Allan 2010). The risk level is tremendous and the possibility exists that financial returns are held to a minimum.

Beyond hegemonic ideals, proponents of a global carbon market have turned time and again to the structure and (dys)function of the EU-ETS, which has been pedestalized by the global market proponents, inter alia. In this chapter we analyze that market. The data we collected help us shed light on how the EU-ETS market is structured both geographically and by sector, among participating private firms and states. The data also elaborate how the market is funded, how financing is accomplished, the sources of this financing, and where the financing is directed (i.e., the types of projects funded). Moreover, studying the financing structure of the market help us identify and understand the relationships among the various scales in this market, which include corporations, private investors, international firms, local firms, labour/workforce, the United Nations, and supranational, national and regional entities and organizations.

The research question is: How does one move beyond the abstract discussion about markets, specifically the EU-ETS, to better understand market (dys)function in a political economic context? As such, we developed a series of questions and methodologies designed to understand how this market has developed across time and space and how emission reductions and sustainable development, the twin objectives of the CDM, fit into the scheme of international policies drafted at various scales and global investors. As such we wanted to reveal and expose bare the structure of the market into its most elementary components: the players involved in project development, investment, trading, verification and certification of emission reduction/offsets.

One of the most revealing findings of our research is that this market is a series of markets operating in various geographical and economic scales. It is remarkably small and is controlled by a small number of players with little competition among them to be found. A very small number of market actors control very large portions of overall market activity, in dollar terms and/or in terms credit allocation. We suspect this may have a deleterious effect on overall competition in the market. Moreover, despite an expectation that the market would be organized and interconnected with the actors working in concert to assure market efficiencies, what we found is that the actors involved tend to be working in completely different spheres and scales with some projects being funded through private financing, some being funded through state support and some finding their financial support through institutional investors, with all of the market working across a landscape of different national rules and uneven and differential state rules (e.g. China). Moreover, we found that the most ardent supporters of emissions trading are the ones controlling the largest share of the market.

Market abstractions from market power


The market serves its purpose by allowing economic theorists to understand economic transactions in a purely abstract way. The institutions and individuals and the relationship of the actors that make up the market are not studied in neoliberal economic theory. The only thing that is analyzed is the transaction (Lie, 1997). Because the constitution of a market itself is not studied, there are bound to be chasms between the markets in the abstract and the actual markets. The economic approach ignores race, class, ethnicity, gender and other sociological factors that affect markets and how they work (Lie , 1997:344). Thus, this lack of understanding of the various actors that constitute a market and how that market works, particularly in the context of the carbon market is the void we seek to fill with our research.

Noel Castree notes the need to analyze the constitution of a market governing an economic transaction. Neoliberalism cannot be properly applied nor understood if it is assumed that it is a single principle or policy (Castree 2007). Instead,  actors ‘are operative at different geographical scales – all the while attending to the myriad connections between markets, states, quasi-state actors, civil society, workers, the natural environment and other things besides’ (p. 18). We agree with Castree that adequate analysis requires a more complex view, not glossing over geography, scales of governance, and firm/project locations.

Thus, building upon studies of the carbon markets by MacKenzie (2007, 2007) and the sociological studies of the market by John Lie (1997), as well as David Harvey’s economic geography, we get an understanding of the structure of the carbon market, not looking at the structure of the markets itself but rather at the players within the market across space and time.

Data visualizations


2.1 Carbon market entities which control more than 20% of credits

Source: Dartmouth College Climate Justice Project


In the first slide (Figure 2.1; Tables 2.1 and 2.2), we see a graphical representation of the top piece of the CDM market. The roles the entities play in the market are denoted by color: host countries are brown, buyers are green, validators are red and verifiers are white. While no consultant companies are party to 20 percent or more of the credits generated in this period, our convention is to denote them in blue (as we do in our third slide). The size of the circles is proportional to the percent of the credits that the entity is party to. The precise percentages are shown in the tables at the top left (Table 2.1). Connections are drawn between two entities if they participate in projects together. The size of the combined participation is indicated in the lower table (Table 2.2). The central graph shows all possible connections while the eight pictures surrounding the central one show connections for individual entities.

Considering the connectivity of the various entities we make the following observations:

  • China is connected to all the entities, indicating that all of these entities have projects in China.


  • Both buyers (Switzerland and Enel) are connected to all other entities.


  • DNV (as a verifier) is connected to all other entities except the other verifier JQA. The same is true for JQA, which is connected to everything but DNV.


  • Each validator is connected to every entity except other validators.

In aggregate, we conclude that this graph is as connected as the project relationships allow. In other words, it is as complete a graph as possible subject to the constraints of the business relationships.

In Fig 2.2 we see a graphical representation of the top piece of the CDM market. The roles the entities play in the market are again denoted by color: host countries are brown, buyers are green, consultants are blue, validators are red and verifiers are white. The size of the circles is again proportional to the percent of the credits that the entity is party to. The precise percentages are shown in the tables above. Connections are drawn between two entities if they participate in projects together. The size of the combined participation is indicated in the table in the right panel. The central graph shows all possible connections while the surrounding pictures show different aspects of the structure.


2.2 Carbon market entities which control more than 15% of credits



From the perspective of the host countries, China is most densely connected, hosting projects with all other entities other than the other host country, India. India’s sparser connections are shown on the upper right of Figure 2.2. The validators DNV and JQA roughly split the relationships with the other entities with DNV being dominant. Their connection patterns are shown in the lower right and upper left graphs of Fig. 2a. All verifiers are connected with all other entities except other verifiers. By lowering our cutoff (from 20 percent (Fig. 1) to 15 percent involvement (Fig. 2a)), these pictures now include 7 more entities, including two consultant firms: Tsinghua University and SEPA-FECO (the Foreign Economic Cooperation Office of the State Environmental Protection Agency). Considering the two connection patterns (shown in the lower and center left regions), we see that both facilitate projects in China, but with a different choice in validator as well as a somewhat different collection of buyers.

From this information we make the following observations:


  • While this graph (Fig. 2a-b) is not as connected as the previous cut (Fig. 1), most entities are connected to one another.


  • The exceptions to this center on host geography – India’s partners are smaller than the entire network while China has partnerships with all entities. For example, we see that JQA (the Japan Quality Assurance Organization) validates none of the Indian projects.


  • The role of consultants emerges in this cut. The two consultants facilitate projects in China. As we will see from further cuts, Tsinghua University is something of a specialist in Chinese projects almost exclusively for Switzerland, Mitsubishi and Mitsui & Co. While SEPA-FECO, also focusing on Chinese projects, assists a much more diverse set of buyers.

The next figure (Fig 2b.) provides a snapshot of the cut of the network given by including those entities who are party to at least 10 percent of the credits. The green cluster on the lower left are buyers that buy primarily (if not exclusively) credits associated with Chinese projects. Although not completely evident from the graph, this snapshot provides evidence of the claims above: Tsinghua University gains only one new connection while SEPA-FECO is connected to almost all of the nodes in the cluster on the lower left.



Towards oligonomy


In contrast to the previous figures , we create Fig 2.3 of the carbon market by looking at the entities which, in aggregate, control at least 90 percent of the credit market. In other words, for each class of entities, we look for the smallest group in that class which participates in credit projects which exhaust at least 90 percent of the total credits. The full graph is shown on the far left (Fig. 3a). In the middle two columns, we show illustrations of all the connections of individual entities.





2.3 Carbon market entities which control more than 90% of credits


Source: Dartmouth College Climate Justice Project



      Examining these illustrations, in Fig 2.3, we make the following observations. First regarding host countries:

  • As we saw before, China is dominant and has connections with virtually every other entity. Other host countries are less connected.


  • An observation we made previously is echoed here: Tsinghua University and SEPA-FECO specialize in Chinese carbon projects.


  • The collection of entities connected to the non-Chinese countries shows a degree of specialization. For example, Rhodia and Perspectives are only consultant for projects in Brazil and South Korea. PricewaterhouseCooper consults for projects in India and Brazil.


  • In aggregate, these observations seem to reflect the progression in the CDM from projects in China first, then opening India and later in other countries.

Regarding validators and verifiers, we observe the following:

  • Most of these companies have the unfortunate habit of acting on both sides of the equation, as both verifier and validator.


  • The Japanese JQA seems to specialize to hosts China and South Korea.


  • The verifiers do not seem overly specialized.


Regarding consultants:


  • As discussed above, some of the consultants seem specialized by host country.


  • Moreover, several seem to have a preferred validation and/or verification firm. Only CAMCO and WB-CF vary their validators and verifiers substantially.


Regarding credit buyers:


  • Buyers show mild specialization in host country but little else.


  • Choice and number of consultant firms seem to be directly related to the size of the buyer’s share of the market.





In the twenty years since the UNFCCC was established and the nations of the world agreed that there was a need to stabilize greenhouse gas concentrations in the atmosphere at a level that will avoid dangerous rates of climate change, the understanding that something must be done about climate change has become widely accepted globally (Agrawala 1998). In fact, the agreement that something needed to be done about carbon emissions unleashed a tidal wave of actors of every conceivable stripe into the arena of climate change management. From governance to market forces, activists and scholars, from scientists, to environmentalists, to private sector actors, to NGO’s, an entire industry was created to manage climate change (Boykoff et al. 2009).

Although controlling carbon emissions was identified as the goal in the UN’s findings in 1992, all environmental fields impacting some element of nature including water, air and land saw a surge in advocacy and became industries in their own right. Thus the end of the 20th century was characterized by the rise of the terra-markets – environmental or eco-markets that seek to commodify and control formerly common property matter: water, ecosystems, the atmosphere, by the rules, confines and diktats of a neoliberal market ethos (Gomez-Baggethun et al. 2010, Lohmann 2006, McCarthy and Prudham 2004, Martinez-Alier 2007, Castree 2003). The outcome of these efforts have their genesis in the debt-for-nature swaps of the 1980s and manifest today not just in carbon markets, but also in programs like payment for ecosystem services, to the latest instantiations of Reduced Emissions from Deforestation and Degradation (REDD) and REDD+, as well as more complex forward markets in emissions trading credits to biodiversity derivatives, habitat trading and beyond (deGroot, Wilson and Boumans 2002, Costanza et al. 1997, Boyd 2007). Despite the fact that traditionally governments have regulated air, water and ground pollution, neoliberal forces and advocates have had a strong influence on the management of environmental problems on a global scale resulting in the privatization of environmental management (Bakker 2009, Igoe and Brockington 2007, Roberston 2007).

In sum, the private sector has swept in and, in many cases, governments have given control over these areas to the private sector and market-based solutions. However, in spite of the recognition that the need to address carbon emissions was dire in 1992 and despite the significant international interest in addressing the issue, little of significance has been accomplished and carbon emissions have not been reduced. To the contrary, only economic stagnation or crises have been show to be effective against the growth of emissions.

Despite that, the appetite for a market approach to environmental problems is stronger than ever and has grown out of several international agreements that can trace their origin to the UN 3rd Conference of Parties (COP 3) in Kyoto, Japan in 1997.  In the early 2000s, the seeds of a carbon market blueprint were planted across several European nations, which in conjunction with private industries and utilities, established pilot programs to test the idea of the establishment of a carbon market to address environmental concerns[2] (the UK and Denmark – EU adopted it as a result of the US rejecting it). The creation of the emission reduction scheme as a market place has since been the axis upon which all international agreements on climate change and emission reduction turn. It should not then be surprising that the International Emissions Trading Association[3] (IETA) would spearhead global efforts to create a global market and that it would host dignitaries, investors and bankers to have these discussions at multiple COPs and other international venues.

After the collapse of the global financial markets in the last few years, the reality that decisions made by investment bankers on Wall Street can have a devastating effect on a pensioner’s ability to survive not only in Michigan but also in Ireland, for instance, has led many economists and others to study how reality fails to meet those expectations of continuous growth. Driven by a growing global economy, two key markets experienced incredible booms followed by devastating busts that were felt internationally because of the ever growing interconnectivity of markets due to globalization.

The first recent instance of the boom-bust cycle we speak of resulted from the ‘new economy’ of the 1980s which gave birth to the ‘’ economy that made the US’ Silicon Valley rich for the first time, followed by a collapse that left paper-millionaires paupers overnight. Venture capitalists lost the capital they invested in the market depleting the funding available to help start-up companies find the capital needed either to become established or to expand and grow (Henwood 2003). The effect of the collapse of the economy was also somewhat softened by the emergence of what former President George W. Bush characterized as ‘the economy of responsibility’ through which the global real estate market experienced a historic boom as investors from around the globe rushed to loan anyone and everyone money to buy real estate and build houses that were overpriced and that they could not afford. The result of this irresponsible growth was a collapse in 2008. The effects of this recent collapse are still unfolding as the world struggles to find its bottom. What has made the effects of the housing market collapse so devastating is the nature of the investors. Many of those who poured money into the mortgage market were institutional investors investing public pension fund assets into the market. Thus, the debacle of the housing market has impacted not only home owners and banks, but municipalities, states and other public investors who now have to make up the losses experienced as a result of the housing market’s collapse.


Market failures


In both instances described above, the structure of each market was characterized by the geographic location of the institutions involved and by the far-reaching impacts of each market on the financial sector and on the global economy, particularly the case of the housing market. In attempting to understand how the global financial crises developed, economists and others who study markets have spent a considerable amount of time examining those markets and comparing them to the economic models that were developed to predict outcomes in an attempt to identify where the market failed to comply with the economic model.

Citing the work of Garcia-Parper and the argument she presents in her study of a strawberry auction market established in France, MacKenzie, Muniesa and Siu (2007: 8) observe in the introduction to their book Do Economists Make Markets?, that economic sociology and anthropology should focus on how markets are constructed and maintained (and on the role of economic theory, material devices, procedures, physical architectures, linguistic codes, and so on, in the construction and functioning of markets), rather than focusing simply on demonstrating ways in which concrete marketplaces differ from economists’ ‘abstract’ markets.’ We interpret MacKenzie, et al. to mean that how market’s work (or not) in the real world is often not the same as how the models that economists create ‘predict’ they should work.

The aim of this chapter is to present a critical analysis of the structure of the EU-ETS carbon market. We do so by drawing on the work of economic geography theories on space and finance capital (Martin 1999, Harvey 2006a, Lee, Leyshon and Williams 2003) and most significantly, by examining the actors involved in the IETA gatherings from Poznan, Copenhagen and Cancun. Specifically, we use the work of MacKenzie (2007) on the creation of the emissions markets and we seek to advance to his insightful work on the creation of these markets by adding a few critical elements that contribute to the understanding of how the structure of the market has developed since its inception in 2005. Moreover, MacKenzie’s work is important as a decoder of the myth of the success claimed by economists of the sulphur market in the US (Dorsey 2007). For MacKenzie, the sulphur market implemented by the EPA was not a success because it reduced emissions, but rather because it dealt with the political conditions which heavily subsidized those industries and enforced strict emission standards before entering the trading market (2007).

Over the past two decades, concern over anthropogenic carbon emissions and their impact on the environment and the world population, has given rise to a global effort to mobilize emission abatement measures under the auspices of the United Nations to counter the climate crises in accordance with United Nations’ own scientific body, the IPCC’s recommendations. The analysts’ focus has been primarily on three main fronts. The first being globalization of finance capital, focusing specifically on the development and/or the credit boom of the past decade. Second, researchers have emphasized the commodification of nature as part of the neoliberal mantra (Bakker 2009, Castree 2008) While their knowledge has contributed to our understanding of the process of neoliberalization of capital and nature, we have yet to understand a separate aspect of the engine of social relations and accumulation, namely specifically, how these actors and institutions involved in the carbon market are transforming the economic and social geographies across the globe. The third front of analysis is the global environmental justice movements formed by the conjunction of academics and activists.

The invisible hand is often rather visible. We seek to show the nuts and bolts of the entire carbon market, the social interactions and connections that influence the formation and functioning of those markets. Jasper, Spash, Callon, and MacKenzie et. al., to some extent, examine social and political relationships in the development and operation of the sulfur and carbon markets. However, the social relationships as they elaborate them are still looked at on at a global level without a close examination of the actors in the market and their connections and relationships at lesser scales. At the end of their analysis we still do not know who the players in the market are, how they relate to one another, how the actors relate to the other complex governance processes, nor do we understand the geographical impact of the market, i.e., the tensions and contradictions that emerge from the global markets.

In short, the critical analyses, are full of thick descriptions but crucially lack ‘very basic’ structural or statistical assessments, of an empirical nature, of the type ‘any-one-can-do-this’ – and thus should. Such ‘simple’ analyses also fortify and legitimate our arguments for basic changes in the collection of data, as well as a rethink of the carbon markets and CDM mechanisms themselves.


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[2]. The extensive research of Jon Sjaerseth and JørgenWettestad (2010a, 2008a, and 2010b) on the policy making process of the EU-ETS details the transformation that occurred in the European Union from 1997 to 2010. This transformation, they argue revolves around the EU’s skepticism in matters of market approaches to solving environmental problems. They attribute this reluctant acceptance of markets on emissions to the United States’ rejection of the Kyoto Protocol under the Bush Administration.

[3]. IETA is the leading emissions trading organization. It is a non-profit organization that serves as the representative of emission trading interests across the globe. For more information please see: