Up the Financier: Studying the California Carbon Market

ENGAGEMENT co-editor Chris Hebdon catches up with University of Kentucky geographer Patrick Bigger.

Patrick Bigger at the Chicago Board of Trade

Patrick Bigger at the Chicago Board of Trade

 

How would you explain your dissertation research on the California carbon market?

At the broadest level, my research is about understanding how a brand new commodity market tied to environmental improvement is brought into the world, and then how it functions once it is in existence. Taking as a starting point Polanyi’s (1944) observation that markets are inherently social institutions, my work sorts though the social, geographical, and ideological relationships that are being mobilized in California and brought from across the world to build the world’s second largest carbon market. And those constitutive processes and practices are no small undertaking.

Making a multi-billion dollar market from scratch is a process that entails the recruitment and hiring of a small army of bureaucrats and lawyers, the creation of new trading and technology firms, the involvement of offset developers and exchange operators who had been active in other environmental commodities markets, and learning from more than fifty years of environmental economics and the intellectual work of think tanks and NGOs. There are literally tens of thousands of hours of people’s time embodied in the rule-making process, which result in texts (in the form of regulatory documents) that profoundly influence how California’s economy is performed every day. These performances range from rice farmers considering how much acreage to sow in the Sacramento Delta to former Enron power traders building new trading strategies based on intertemporal price differences of carbon futures for different compliance periods in California’s carbon market.

My work uses ethnographic methods such as participant-observation in public rule-making workshops and semi-structured interviews with regulators, industry groups, polluters, NGOs, and academics to try to recreate the key socio-geographical relationships that have had the most impact on market design and function. It’s about how regulatory and financial performances are intertwined, as events in the market (and in other financial markets, most notably the deregulated electric power market in California) are brought back to bear on rule-making, and then how rule-making impacts how the market and the associated regulated industrial processes are enacted. And the key thing is that there isn’t some isolated cabal of carbon’s ‘masters of the universe’ pulling the strings––it’s bureaucrats in cubicles, academics writing books, and offset developers planting trees out there making a market. And they’re people you can go observe and talk with.


Who are buying and selling these carbon credits?

That’s a trickier question than it seems. Most of the credits (aka allowances) are effectively created out of thin air by the California Air Resources board which then distributes them via either free allocation or by auction to anyone who requests authorization to bid. A significant proportion of those are given away directly to regulated industries to ease their transition to paying for their carbon output. Another way the auction works is that electric utilities are given almost all the credits they need to fulfill their obligation, but they are required to sell (consign) those permits in the auction, while they are typically also buyers. This is to prevent windfall profits, like what happened in the EU, for the electric utilities. The utilities must return the value of what they make selling their permits at auction to ratepayers, which they have done to the tune of $1.5 billion so far.

More to the spirit of the question though, it’s a pretty big world. Literally anyone can buy California Carbon on the Intercontinental Exchange (ICE), based in Chicago. From what I’ve been told, a lot of allowances pass through Houston because there is a major agglomeration of energy traders there, and carbon is often bundled into transactions like power purchase agreements that are traded over-the-counter (OTC). There’s an interesting division in who buys their credits where––companies that must comply with climate regulations tend to buy through the auction, while people trading for presumably speculative purposes tend to buy on the exchange. This isn’t even getting into who produces, sells, and buys carbon offsets, which is another market entirely unto itself. To attempt to be succinct, I’d say there is a ‘carbon industry’ in the same sense that Leigh Johnson (2010) talks about a ‘risk industry’; a constellation of brokers, lawyers, traders, insurers, and industrial concerns, and the size of these institutional actors range from highly specialized carbon traders to the commodities desk at transnational investment banks.


Would you be able to outline some ways your research could affect public policy? And how is it in dialogue with environmental justice literature and engaged scholarship?

There are a number of ways that my work could be taken up by policy makers, though to be clear I did not set out to write a dissertation that would become a how-to-build-a-carbon-market manual. Just being around regulators and market interlocutors has provided insights into the most challenging aspects to market creation and maintenance, like what sorts of expertise a bureaucracy needs, how regulators can encourage public participation in seemingly esoteric matters, or the order which regulator decisions need to be made. Beyond the nuts-and-bolts, there’s a fairly substantial literature on ‘fast policy transfer’ in geography that critiques the ways certain kinds of policy become wildly popular and are then plopped down anywhere regardless of geographical and political-economic context; I am interested in contributing to that literature because California’s carbon market was specifically designed to ‘travel’ through linkages with other sub-national carbon markets. I would also note that there are aspects of what I’m thinking about that problematize the entire concept of the marketization of nature in ways that would also be applicable to the broader ecosystem service literature and the NGOs and regulators who are trying to push back against that paradigm.

As far as the EJ literature is concerned, I’ll admit to having a somewhat fraught relationship. I set out to do a project on the economic geography of environmental finance, not to explicitly document the kinds injustices that environmental finance has, or has the potential, to produce. As a result some critics have accused me of being insufficiently justice-y. I’d respond by noting that my work is normative, even if it isn’t framed in the language of environmental justice; it certainly isn’t Kuhnian normal science. But EJ arguments, if they are any good, do depend on empirical grounding and I would hope that my work provides that.

At the Chicago Board of Trade.

“I’d be really happy if scholars of other markets could find parallels to my work that demonstrated that all markets, not just environmental ones, were as much about the state as they are about finance.”

 

Your advisor Morgan Robertson has written about “oppositional research,” and research “behind enemy lines,” drawing on his experience working inside the Environmental Protection Agency. What has oppositional research meant for you?

I think about it as using ethnographic methods to poke and prod at the logics and practices that go into building a carbon market. I think for Morgan it was more about the specific problems and opportunities of being fully embedded in an institution whose policies you want to challenge. That position of being fully ‘inside’ isn’t where I’m at right now, and it’s a difficult position to get into either because you just don’t have access, because the researcher doesn’t want to or isn’t comfortable becoming a full-fledged insider, or because academics often just don’t have time to do that sort research. It’s also contingent on what sort of conversational ethnographic tact you want to take––when you’re fully embedded you lose the option of performing the research space as a neophyte, which can be a very productive strategy. One thing that I will mention is that oppositional research is based on trust. You must have established some rapport with your research participants before you challenge them head-on, or they may just walk away and then you’ve done nothing to challenge their practices or world view, you’ve potentially sewn ill will with future research participants, and you won’t get any of the interesting information that you might have otherwise.


How about the method of “studying up”?

For starters, the logistics of ‘studying up’ (Nader 1969) are substantially different than other kinds of fieldwork. There’s lots of downtime (unless you’re in a situation where you’ve got 100% access to whatever you’re studying, e.g.  having a job as a banker or regulator) because there aren’t hearings or rule-making workshops everyday, or even every week, and the people making the market are busy white-collar people with schedules. I feel like I’ve had a really productive week if I can get 3 interviews done.

Beyond the logistics, one of the most challenging parts of studying a regulatory or financial process you’re not fully onboard with is walking the line between asking tough questions of your research participants and yet not alienating them. It has been easy for me to go in the other direction as well––even though I think carbon markets are deeply problematic and emblematic of really pernicious global trends toward the marketization of everything, I really like most of my research participants. They’re giving me their time, they tell me fascinating stories, and they’ve really bent over backward to help me connect with other people or institutions it never would have occurred to me to investigate. And that can make it tough to want to challenge them during interviews. After a while, it’s also possible to start feeling you’re on the inside of the process, at least as far as sharing a language and being part of a very small community. There aren’t many people in the world that I can have a coffee with and make jokes about one company’s consistently bizarre font choices in public comments documents. So even though the market feels almost overwhelmingly big in one sense, it’s also very intimate in another. I’m still working out how to write a trenchant political-economic critique with a much more sympathetic account of regulatory/market performance. Even many guys in the oil-refining sector are deeply concerned about climate change.


Would you ever take a job in a carbon trading firm?

Absolutely. There’s a rich literature developing that gets into the nuts and bolts of many aspects of finance, including carbon trading in the social studies of finance/cultural economics that overlaps with scholarship in critical accounting and even work coming out of some business schools. Some of those folks, like Ekaterina Svetlova (see especially 2012), have worked or done extended participant observation in the financial institutions that are being unpacked in broader literatures around performative economics and have provided useful critiques or correctives that is helping this literature to mature.

However, much of this work is subject to the same pitfalls as other work in the social studies of finance, especially the sense that scholars ‘fall in love’ with the complexity of their research topic and the ingenuity of their research participants qua coworkers and ultimately fail to link them back to meaningful critiques of the broader world. All that said, I’m not sure I’ve got the chops to work in finance. I’d be more interested in, and comfortable with, working in the environmental and economic governance realm where I could see, on a daily basis, how the logics of traders meet the logics of regulation and science.


What advice would you give to scholars who may do research on carbon markets in the future?

Get familiar with the language and logics of neoclassical economics. Really familiar. Take some classes. If you’re studying neoliberal environmental policy, it shouldn’t come as a surprise that regulation is shot through with the logics of market triumphalism at a level that just reading David Harvey (2003, 2005) probably wouldn’t prepare you for. A little engineering, or at least familiarity with engineers, wouldn’t be amiss either.

On a really pragmatic level, if you can get access, get familiar with being in an office setting if you haven’t spent much time in one. Being in a new kind of space can be really stressful and if you’re not comfortable in your surroundings you might not be getting the most out of your interviews.

If you’re studying a carbon market specifically, take the time to understand how the electricity grid works. I lost a lot of time sitting through workshops that were well over my head dealing with how the electric power industry would count its carbon emissions. I would have gotten much more out of them if I’d had even a cursory understanding of how the electricity gets from the out-of-state coal-fired power plant to my toaster.

Don’t expect to just pop in-and-out of fieldwork. Make yourself at home. Take some time to figure out what the points of tension are. That’s not to say you must do an ‘E’thnography, but taking the time at the beginning to understand the playing field will make it easier to understand the maneuvering later.

Read the specialist and general press every single day. Set up some news aggregator service to whatever market or regulation you’re looking at. It’s what your participants will be reading, and if they aren’t then you’ll really look like you know what you’re doing.


What are broad implications of your research?

I think starting to come to grips on the creation, from nothing, of a commodity market worth more than a billion dollars could have all sorts of impacts I can’t even imagine. I’d be really happy if scholars of other markets could find parallels to my work that demonstrated that all markets, not just environmental ones, were as much about the state as they are about finance, and not just in the way that Polanyi wrote about them. I’d also like to help people think through the relationship between the economic structures that people build, and then how they inhabit them through economic ideology, the performance of that ideology and their modern representation, the economic model. In some ways this is reopening the structure-agency debates that have been simmering for a long time. I also want to provide more grist for the mill in terms of unpacking variegated neoliberalisms––there are quite a few examples I’ve run across in my work where discourses about the efficiencies of markets run up against either the realpolitik of institutional inertia or perceived risks to the broader economy (which can be read as social reproduction).

In terms of policy, I hope that regulatory readers of my work will think about the relative return on investment (if I can appropriate a financial concept) in deploying market-based environmental policy as opposed to direct regulation, particularly around climate change. We’re in a situation that demands urgency to curb the worst impacts of carbon pollution, so it is of the utmost importance that the state take dramatic action, and soon. That said, wouldn’t it be interesting if this carbon market ended up accomplishing its goals? If it does, then I hope my work would take on different kinds of significance.

* * *

Harvey, David. 2003. The New Imperialism. New York: Oxford University Press.

Harvey, David. 2005. A Brief History of Neoliberalism. New York: Oxford University Press.

Johnson, Leigh. 2010. Climate Change and the Risk Industry: The Multiplication of Fear and Value. Richard Peet, Paul Robbins and Michael Watts, eds. Global Political Ecology. London: Routledge.

Nader, Laura. 1969. Up the Anthropologist: Perspectives Gained from Studying Up. Dell Hymes, ed. Reinventing Anthropology. New York: Random House.

Polanyi, Karl. 1944. The Great Transformation. Boston: Beacon.

Svetlova, Ekaterina. 2012. On the Performative Power of Financial Models. Economy and Society 41(3): 418-434.

 

 

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