An Inconvenient Truth:The Policy-Making Process of the European Union Emissions Trading System

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An Inconvenient Truth: The Policy-Making Process of the

European Union Emissions Trading System

Daan Stoop 6075487 Master Thesis June 2015

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List of abbreviations

BP British Petroleum

CDM Clean Development Mechanism

CEECs Central and Eastern European countries

CER Certified Emission Reduction

DG Directorate General

ECCP European Climate Change Programme

EEA European Environment Agency

EFET European Federation of Energy Traders ENVI European Parliament Environment Committee

ERU Emission Reduction Unit

ET Emissions trading

EU ETS European Union Emissions Trading System

EU European Union

GHG Greenhouse gases

IMF International Monetary Fund

JI Joint Implementation

LDC Least Developed Countries

MEP Member of the European Parliament

NAP National Allocation Plan

NGO Non-governmental organisation

UK United Kingdom

UN United Nations

UNFCC United Nations Framework Convention on Climate Change

US United States

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Acknowledgements

I would like to use this opportunity to express my gratitude to my supervisor Mr. Dr. P.W. Zuidhof for guiding me through the process of writing this master thesis. His seminars, advices and assistance have inspired, supported and motivated me during the research- and writing process. In specific his ability to metaphorically explain difficult theoretical and empirical cases has been extremely useful in making this analysis more profound, interconnected and comprehensive. Furthermore, these insights made it easier to overcome hurdles in formulating the exact theoretical perspective of the thesis.

I would also like to thank Mr. Drs. D. Kramer and Mr. P. Ter Veen for their input on my research subject. The discussions with both of them provided more detailed background information on the research topics. Their contribution has supported me to focus on additional theoretical and empirical fields that eventually strengthened the analysis.

Thank you, Daan Stoop

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Introduction

On 1 January 2005, the European Union (EU) adopted a new environmental policy. From that day on, the European Union Emissions Trading Scheme (EU ETS) entered into force. The policy aimed to reduce the Union’s greenhouse gases (GHGs) in line with the Member States’ Kyoto Protocol obligations. The EU ETS was not a regular type of policy. The EU ETS was new in a much more broader and fundamental sense. Within the policy framework of the EU, the EU ETS constituted a whole new way of dealing with environmental policies. The form, structure and functioning of the EU ETS policy introduced a radical new approach towards environmental issues. This new approach consisted of the introduction of a market to address the problems related to climate change. With the start of the EU ETS more than 11.000 installations would trade carbon emissions certificates among each other to meet their annual emissions reduction targets. The coming into existence of the European carbon market formed a significant change in the EU’s environmental governance. Never before had the EU approached environmental challenges from a market perspective. Within the EU, tax measures had always been the common measure to keep industries’ carbon emissions as low as possible.

Based on the EU’s usual position towards market-based measures within the environmental field, the introduction of the EU ETS can be seen as a major breakthrough. When in the 1990s, during the Kyoto Protocol negotiations, the US proposed to introduce a market-based instrument to ratify the Kyoto targets, the EU fiercely rejected this proposal. Surprisingly, the idea of an EU carbon market as the instrument for Member States to mitigate climate change became a serious policy option in 1998. With the 1998 policy paper and 2000 Green Paper, the European Commission (henceforth; the Commission) took the striking initiative to implement the EU ETS. Not only the Commission suddenly seemed to seriously consider a market-based approach as an effective way to address the climate change issue. It is however quite remarkable to construct a market in domain that, on the first hand, has no relation with economics, market prices, market actors or any other indicator that is related to trade markets. It is for a good reason that questions arise when equivalent tons of emissions become tradable goods. Despite this peculiar aspect of the EU ETS, Member States did not seriously oppose the market-based EU ETS during the subsequent policy-making process. Member States, industries, NGOs and EU institutions indeed debated heavily on the exact implementation of the EU ETS, but there have not been many serious efforts to reconsider the market-based approach. The fact that not even a single Member State proposed to adopt an alternative policy proves how this new type of environmental policy was suddenly and relatively easy accepted within the EU.

Despite a broad consensus that the introduction of market-based solutions to environmental problems should be the most effective way to mitigate climate change, the EU ETS was faced with serious problems during its first two trading phases. Similar to introducing the EU ETS,

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policy-makers again used the same method to approach these problems. It is especially this way of approaching policy problems that plays a pivotal role within the EU ETS. The recent history of the EU ETS shows the sequence of remarkable policy problems and policy fixes to salvage the EU carbon market. Market-based measures play a dominant role within the development of the EU ETS, both during its coming into existence and following policy reforms. Within this thesis, policy fixes are regarded as the outcome of the interplay between ideas, interest, institutions and the accountability aspect of policies that play a determinant role in the EU ETS policy-making processes. The EU ETS’ development shows that these policy fixes attempt to solve or repair problems, but eventually lead to new policy problems within the medium- and long term.

During its first trading phase between 2005 and 2008, the market collapsed halfway due the overallocation of emissions allowances to the market. For the first trading phase, Member States needed to determine what amount of allowances they would need each year. Member States’ generously calculated the amount of allowances needed, allocated them for free, creating a huge oversupply on the market. As an effect, market prices dropped to nearly zero. These problems needed to be solved. It is exactly at this point of the development of the EU ETS that the role of policy fixes becomes increasingly interesting. While other research does not explicitly take notice of the attempt of the EU to solve the occurring policy problems, it is pivotal to become aware of what exactly happens in the EU ETS. From a rationalistic view, one could expect that Member States, NGOs or the European Parliament (henceforth; the Parliament) would severely question the further existence of the EU carbon market because of the arisen problems. However, as striking as the Commission’s proposal and the Member States’ easy approval to institute the EU ETS, the European carbon market was reformed quite easily as well. What actually happened in the policy-making process was first the easy and broadly supported introduction of a carbon market, that is the first policy fix, as the only effective and successful policy solution available, but within a few years already the attempt, the second policy fix, of policy-makers to salvage the EU ETS.

Within this remarkable paradox, the most surprising fact was the nature of the policy fixes, and thereby the adopted measures, during the market’s development. When previously implemented market measures proof to be ineffective, it seems quite contradictory to adopt additional market measures to solve the occurring problems. However, this is what became a pattern in the EU ETS policy-making process. After the first reforms were adopted for the second trading period, the Commission already pronounced a key reform round for the post-ratification trading phase, starting in 2013. In 2008, the following policy fix aimed to harmonise the EU ETS to enhance its efficiency and predictability. Member States could not decide on their own annual cap anymore. A centralised EU-wide cap would determine the amount of allowances to be allocated. Contrary to the 2005-2013 period, allowances would be gradually allocated by means of auctions, and no longer for free. The last key reform was the tightening of Member States’ use of external carbon credits. Previously, the EU supported the recognition of carbon credits earned in developing countries projects. After a proposal

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of the Commission to restrict the use of international carbon credits, it was decided to introduce an EU-wide cap on these external credits. Again the paradoxical pattern becomes visible. While the Commission had proposed to create a link with external carbon credits in 2004, not even a few years later this step needed to be revised already. Taken these remarkable policy fixes together, the important question arises what the rationale behind this paradoxical pattern is. It is highly interesting to know how the interplay between ideas, institutions, interests and the accountability aspect, i.e. the policy fix, during consecutive policy-making processes repeatedly led to the adoption of additional market measures which in the medium- and long term led to new problems again. It seems pivotal to explain the role of the policy fix to understand the remarkable development of the EU ETS.

However, to understand these policy failures and the seemingly constant need of market reregulation within the EU ETS, it is necessary to find out what the drive behind the sequence of policy failures and policy fixes is. Therefore, it is important to understand that the policy fixes entail more than only an attempt, which is the outcome of the interplay between dominant ideas among policy actors, the interests at stake, the involvement of several institutions and the aspect that policies needed to be accountable, to solve problems. A fix means more than only ´to solve´ or ´to repair´. Based on the seemingly continuous need of market-based solutions in the EU ETS, it is claimed that the sequence of policy fixes also increasingly substantiated the use of market-based measures to solve policy problems. In this sense, a policy fix also means ´to fasten´ and ´to tie´ market-based measures as the common solution within the policy-making processes of the EU´s environmental governance.

In addressing a public problem with a market approach, the EU ETS however is not unique. The construction of markets within different policy areas became increasingly popular during the 1980s and especially in the 1990s. The environment was one of the latest and followed only after the introduction of market forces to public transport, health care and education. Despite the economic crisis of the late 1980s the market remained the focal point of governmental policies to solve the crisis. With the reregulation of markets, governments aimed to reform their economies in order to foster economic growth. This reregulation indicates the importance of policy fixes within these policies as well. The use of again market-based policy fixes, and thereby the reintroduction of additional market measures, has also been visible during the EU ETS’ reform rounds.

The spread of market-based policies during previous decades has often been seen as the outcome of neoliberalism. Due to the non-simultaneous and uneven spread of market-based policies in a wide range of political, economic and social fields, the term neoliberalism has always been controversial. Nonetheless, there is no doubt that the increasing implementation of markets and subsequent market reforms indeed took place on a large scale during the last decades. Based on the similar development and the role of policy fixes within both the EU ETS and neoliberal policies during the last decades, the EU ETS is regarded as the empirical evidence of the repeated use of market-based measures to solve recurring problems in a wide range of policy fields. This thesis therefore studies the fitful development of neoliberal environmental governance. More specifically, it

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seeks to explain why failing market solutions have been fixed with further market solutions. To explain how neoliberal environmental governance became increasingly inscribed and embedded within the EU, this thesis studies the policy fixes that increasingly determined the fitful development of the EU ETS. It does so by explaining the interplay between ideational, institutional, interest and accountability related factors that commonly determined the outcome of policy fixes. Therefore, this thesis seeks to understand how these policy-fixes helped to anchor and embed neoliberal environmental governance. Against this background, this thesis aims to contribute to the overall understanding of the widespread and endless expansion of neoliberal policies in multiple policy areas and locations. Within this analysis, policy fixes play a central role. To explain why the development of the EU ETS has been jerking along, the role of ideas, institutions, interests and the accountability aspect of policies within the policy-making process needs to be analysed. Commonly these determinants played a dominant role in, first, addressing the climate change issue by a market approach and, secondly, in the sequence of attempts to safeguard the further existence of the EU ETS by implementing additional market-based measures. The interplay of these policy determinants within the neoliberal policy fix determine how neoliberal environmental governance in the EU works.

To use policy fixes to explain how neoliberal environmental governance works, it has to be taken into account what the role of neoliberalism has been within the four determinants of the neoliberal policy fix and, furthermore, how this repeatedly led to the use of additional neoliberal measures to approach EU ETS’ policy failures. Therefore, this thesis uses Michel Foucault’s governmentality concept to outline the increasing and seemingly natural spread of market thinking within the four determinants of policy fixes. To understand the fitful embedding of neoliberalism in the environmental policy space, the explanation of neoliberalism as the politics of deregulation, liberalisation, and privatisation is not enough. To understand the increasing dominance of market thinking and economic behaviour, it is necessary to explain the power relations between the governing entity and the governed. Based on the governmentality concept, it is shown how the mentality behind governance increasingly influenced the governed’ behaviour. The essence of governmentality is Foucault’s definition of ‘conduct of the conduct’. Because conduct both means to lead and to behave, Foucault indicates that the power relation between the government and the governed also shapes the behaviour of the individual. The neoliberal governmentality does not shape social action by coercion and obedience, but instead shapes a discursive framework in which institutions, organisations and individuals try to approach both economic and public issues. The significance of market thinking within these four policy fixes shows how the neoliberal solution became common sense in policy-making processes and thereby shaped the EU’s environmental policy.

Taken into account the perspectives of the theoretical framework on neoliberalism, with a primary focus on its everlasting spread and jerkily development, the question arises how this subjugation to the market and fitful development evolved within the EU ETS. Therefore, the second chapter outlines the development of the EU ETS and focuses especially on the remarkable interplay

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between policy problems and subsequent proposals to address these problems by another market approach. The description of the EU ETS does not only provide a better understanding of carbon emissions trading in Europe. It also brings to the fore that the EU ETS is the example of the spread of neoliberal market thinking in the EU’s policy-making processes, even in the environmental field. In addition, the development of the EU ETS proves how the problems of oversupply, low market prices and freeriding were allocated to introduce additional measures to improve the functioning of the market. In specific the insights that neoliberalism entailed further subjugation to the market and the necessary incompleteness of neoliberal policies help to understand the contradictory relationship between policy crisis and policy fixes within the development of the EU ETS.

Explaining the increasing dominance of market-based measures within the EU ETS does touch upon the contradictory relationship between policy failures and policy fixes within this policy. However, the second chapter primarily describes this pattern. It raises the awareness of this pattern within the EU ETS and proves that this pattern was dominated by market-based ideas. It also shows that it diminished policy-maker’s room to opt for alternative policy measures not related to market thinking. Such an explanation though does not explain thoroughly how this pattern of policy fixes further embedded neoliberalism. Therefore, the final chapter zooms into a deeper level of the last EU ETS reform to explicitly explain the role of policy fixes in the fitful development of the EU ETS. Based on the words and deeds of the actors involved in the reform round on the use of external carbon credits in the EU ETS, it becomes clear how the diffusion of the political economic rationality of neoliberalism increasingly determined social action within the four determinants of the neoliberal policy fix. By focusing primarily on policy-making processes that led to the remarkable restriction on the use of external carbon credits, it becomes visible how this policy fix indicates the further embeddedness of neoliberalism within the EU’s environmental governance.

Altogether this thesis aims to explain how neoliberal environmental governance is made. Within this explanation the neoliberal policy fix is central in understanding the jerky development of the EU ETS. By outlining the increasing dominance of market thinking within the four determinants of the neoliberal policy fix, it is proven how neoliberalism is further embedded within EU policy-making. Whereas other studies only label the EU ETS a neoliberal policy, this thesis first takes a step back to understand what neoliberalism actually entails. Furthermore, the development of the EU ETS is used to unravel the inconvenient truth of neoliberal environmental policy-making processes. In the end, this analysis proves that the development of the EU ETS is the telling example of the omniscient and omnipotent status of neoliberalism in contemporary policy-making.

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1. Neoliberal environmental governance

Within the EU, environmental policy issues had always been tackled by tax measures until the late 1990s. Following the withdrawal of US President Bush’ administration from the Kyoto Protocol negotiations, the EU however seriously considered to introduce a new way to approach the climate change issue. With the installation of a carbon market for EU Member States, the Commission wanted to provide Member States and industries an interesting and cost-effective instrument to ratify the Kyoto targets. The switch from tax-based approaches to the implementation of a carbon market, marked a significant change in the EU’s environmental governance. Never before the EU had introduced such a market-based policy within the environmental field. When the EU adopted the EU ETS as its new policy to address the problems related to global warming, the highly remarkable opportunity was created to earn money by combating climate change. Within the EU ETS, Member States could sell or buy equivalent tons of carbon emissions among each other. What in fact happened was the commodification of the environment. Member States’ emissions suddenly became tradable goods. As an effect, industries apparently had to consider the environment as part of their cost-benefit analysis since the climate change issue was addressed by a market-based approach.

In line with previous market-based approaches within a variety of policy fields in multiple locations, the EU ETS is another proof of the uneven but endless spread of neoliberal policies. Since the 1970s, political decisions increasingly led to the spread of market-based approaches within the economic, political, social and environmental policy field. Take for example the decision to abandon the monetary system of the ‘Gold Standard’ in 1973, the signing of the Single European Act in 1986 to complete the internal market and the adoption of the euro in 1992 (Engelen, 2014; 54).These developments all indicate the gradually increasing importance of the market. Like the EU ETS, these developments can be labelled as ‘more markets, less state’. Furthermore, the EU ETS’ fitful development is similar to the sequence of policy fixes to safeguard the further existence of the euro within the EU. The question arises what the driver behind these market-based policy fixes has been. Furthermore, it is highly interesting to know how these policy fixes further enacted and embedded the neoliberal policy solution within the governance of the EU.

To explain the anchoring and embeddedness of the neoliberal environmental policy, this chapter studies the neoliberal policy fixes that eventually led to the continuous adoption of market-based measures within the environmental governance of the EU. It does so by first explaining the neoliberal governmentality that increasingly affected the four determinants of the neoliberal policy fix. Based upon Foucault’s insight that the neoliberal governmentality shapes a discursive framework in which policy issues are being approached, it becomes visible how the ideational, institutional, interest- and accountability related factors of policy fixes became increasingly framed within a

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neoliberal perspective. Therefore, this chapter seeks to indicate how the market rationale diffused within the four determinants of neoliberal policy fix.

To demonstrate the increasing significance and dominance of market-thinking within the policy fix, the first part of this chapter explains the neoliberal governmentality. Subsequently, it is possible to outline how this governmentality affected ‘social action’ within the policy fix. Within this thesis, this chapter therefore increases the awareness of the dominance of neoliberalism within the EU’s environmental policy-making processes. To analyse the role of policy fixes within the fitful embedding of neoliberalism in the EU ETS, the following chapters outline the development of the EU ETS and specifically the role of policy fixes within this development. However, it is first important indicate the subjugation to market-thinking within the neoliberal policy fix.

1.1 Neoliberalism

Due to an increasing use as an analytical concept by academics, a frequent used criticism by left-wing politicians and an enhanced popular search term on the internet, neoliberalism has become a widely known and familiar term since the last decade (Peck and Theodore, 2009; 96) (Zuidhof, 2014, 193). Despite the increasing use of ‘neoliberalism’, the term remained quite controversial since no politician, businessman, banker, journalists or columnist has ever proclaimed to be neoliberal. Due to this relatively unclear background, a quite generic popular narrative has evolved around neoliberalism. However, by only focusing on the common characteristics of neoliberalism, it will not be able to expose the diffusion of the market rationale within the four determinants of the neoliberal policy fix. Furthermore, when the popular narrative on neoliberalism is taken for granted, it will not be able to indicate the neoliberal policy fix’ role in further fixing market-based approaches within the EU’s environmental governance. In the popular narrative, neoliberalism is often outlined as an ideology or policy agenda of ‘more markets, less state’ (Zuidhof, 2014; 194). The programmes of monetarism, supply-side economics, liberalisation of world trade, deregulation and privatisation processes that characterise Western countries’ economic policies since the 1970s are regarded as essential elements of neoliberalism (Zuidhof, 2014; 194).

According to Zuidhof, the popular narrative indeed touches upon the important features of neoliberalism, but does not further examine the relationship between markets and neoliberalism. Therefore, Zuidhof focuses not only on neoliberalism’s visible and tangible components, but on the way the market is conceived by policy-makers during different decennia in order to bring to the fore the real meaning of neoliberalism. As a first step in unravelling neoliberalism´s essence, Zuidhof argues that until the 1970s classical liberal economic policy-makers conceived the market differently compared to neoliberal policy-makers since the 1970s (Zuidhof, 2014; 204).

Classical liberals’ central question in policy-making was the question to what extent the government had to regulate markets (Zuidhof, 2014; 204). These more traditional orientations focused on a market free of governmental influences. According to classical liberals, the market existed as a

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natural phenomenon (Zuidhof, 2014; 204). This naturalistic vision did not question whether or not the market existed, but to what extent this market needed to be regulated. During the 1970s the policy-makers’ market perception changed significantly. In contrast to classical liberalism, within neoliberalism the market was regarded as a constructed phenomenon. (Zuidhof, 2014; 204). This vision brought along a different governmental approach towards policies. According to Zuidhof, governments increasingly regarded themselves responsible to construct a well-functioning market. Subsequently, when the market would be constructed properly it would be able to operate freely without governmental interference.

The different conception of markets also brought along a different evaluation of governmental policies. Governments were no longer evaluated on their capability to restrain their influence in the market, but on their competence to successfully construct markets (Zuidhof, 2014; 205). Due to this shift, the constructions of markets became the norm in governmental policies since the 1970s. Governments increasingly focused on the implementation of markets for a wide range of public problems. This neoliberal ‘market fundamentalism’ implied, on the one hand, that governments gradually subordinated themselves to the market and, on the other hand, increasingly started to act as a market (Zuidhof, 2014, 206). According to Jamie Peck, this period of market fundamentalism first started with forms of roll-back neoliberalism (Peck, 2010; 22). During this period, markets became increasingly free of regulatory influences. This period marked the end of Keynesian welfare politics. In addition, the construction of markets became increasingly popular among policy makers during the roll-out form of neoliberalism (Peck, 2010; 23). It was especially during this phase, that markets were regarded as a panacea for almost every public problem. (Zuidhof, 2014; 206). Against this background, the EU ETS can be regarded as the empirical evidence of this development. The implementation of carbon markets to approach climate change can be regarded as a primary example of market fundamentalism in practice (Zuidhof, 2014; 205).

1.2 Neoliberalism and crises

As a result of this market fundamentalism, there have been introduced numerous market-based policies within multiple places and different policy fields during the last decades. To a large extent, these policies have in common that after a certain period a sequence of policy fixes is needed to reinvent the market to make it perform to the optimum effect. Since 2005, several audits, revisions, consultations and reform rounds have already taken place within the EU ETS. Apparently, the policy fix does not safeguard the optimal functioning of the European carbon market for the long run. Despite the continuous use of market-based measures, both during its coming into existence and subsequent reform rounds, the need to adopt additional market measures remains present. Based on the remarkable development of the EU ETS, this section aims to outline what the seemingly contradictory relationship between policy problems and policy fixes is. It is highly interesting to

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figure out whether the outcome of policy fixes already predetermines the future need of an additional policy fix.

During the financial and economic crisis of 2008, the existence of the so-called ‘free-market project’ was questioned severely. According to Peck and Theodore (2009), neoliberalism’s political, economic and social role was never before debated with such urgency (Peck and Theodore, 2009; 94). Triggered by influential actors, like former French President Nicolas Sarkozy, who interpreted the 2008 crisis as the terminal moment for neoliberalism, Peck and Theodore focused on the relationship between neoliberal governance and crises. They acknowledged that during previous crises, neoliberal governance was able to manage problems by making adjustments in the neoliberal policy, discourse and strategy (Peck and Theodore, 2009; 95). Peck argues that neoliberalism always has had the ‘adaptive capacity’ to enable itself to be a ‘mutating regime of market rule’ (Peck and Theodore, 2009; 95). This means that neoliberal policies have the capacity to solve political and economic problems, that emerge as an result of the previously adopted neoliberal approach, by implementing further neoliberal measures. As an effect, on the one hand, no other forms of governance will be implemented as an alternative and, on the other hand, the additional neoliberal solutions enhance the political legitimacy of neoliberal governance.

To outline their position on the nature of neoliberalism, Peck and Theodore clarify important assumptions regarding the ‘mutually constitutive relationship between neoliberalisation and crisis’ (Peck and Theodore, 2009; 95) They argue that neoliberalisation processes do not work towards an utopian end state of free-market regulation, because neoliberalism is necessarily incomplete (Peck and Theodore, 2009; 96). The authors outline that during the last decades of neoliberalisation, policy approaches were characterised by market fundamentalism. This market fundamentalism has been the conviction that ‘markets are self-correcting, allocate resources efficiently, and serve the public interest well’ (Peck and Theodore, 2009; 98; Stiglitz, 2008; 1-2). To shape these neoliberal policies, policy-makers used a ‘grab-bag’ of neoliberal ideas and applied them on the given policy issue at stake (Peck and Theodore, 2009; 98; Stiglitz, 2008; 1-2).

Theodore and Peck actually demonstrate that these market-based policies are not shaped to endeavour an optimal functioning, self-regulating market. Instead, the necessarily incompleteness of neoliberalisation processes brings along policies which repeatedly have to cope with problems. Due to the uneven development of neoliberalism, neoliberal policies are faced with different problems during different stages. Taken the necessarily incompleteness of neoliberalism into account, Peck and Theodore argue that neoliberalism, in fact, should be regarded as an ‘hegemonic restructuring ethos’ (Peck and Theodore, 2009; 104). According to the authors, the characteristic spirit of neoliberalisation is a ‘dominant pattern of incomplete and regulatory transformation’ (Peck and Theodore, 2009; 104). This pattern, or spirit, is manifested in neoliberalism’s attitude and aspirations. By conceiving neoliberalism in this way, Peck and Theodore argue that policies shaped in accordance with the notion of market fundamentalism in reality benefit from policy failures. This explanation outlines why

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neoliberalism and crisis are mutually constitutive to each other. This observation finds common ground with Naomi Klein’s argument about ‘disaster capitalism’ (Klein, 2007; 6). In her book The Shock Doctrine, Klein argues that during the past decades human and environmental disasters have been accompanied with the introduction of ground-breaking free-market policies. According to Klein, crises are being allocated as the perfect opportunity to implement market-based policies (Klein, 2007; 6). These insights enable to understand and explain the function of policy fixes within the EU ETS; how they are used to implement additional market-based measures. It offers the insight why neoliberal political and economic crises repeatedly have led to an intensification of neoliberal re-regulation. Peck and Theodore add that due to neoliberalism’s restructuring ethos, its history is characterised by social struggles and institutional transformations and thereby the uneven ascendency, consolidation and crisis-driven adaptation of neoliberalism (Peck and Theodore, 2009; 104).

In neoliberalism’s gradual transformation as a regulatory project, the roll-out phase has been characterised by the implementation of additional neoliberal measures that were indeed the reaction to policies deficiencies and contradictions of neoliberalism’s own making (Peck and Theodore, 2009; 106). This classification has to be seen in light of the above mentioned grab-bag of neoliberal ideas that were implemented in various places and policy spaces during the roll-back phase of neoliberalism. Furthermore, the typology of neoliberalism’s roll-out phase relates back to neoliberalism’s alleged necessarily incompleteness. Taken these two perspectives into account, it becomes clear that the roll-out phase was a period in which the neoliberal policies, that were selected from the so-called grab-bag, eventually caused crises. These policies could not have been successful in any case due to neoliberalism’s necessarily incompleteness. As a response to these problems, another process of neoliberalisation took place in which additional neoliberal measures were adopted to solve policy failures. On the basis of neoliberalism’s adaptive capacity to react and reconstruct its policies in accordance with other neoliberal ideas, Peck and Theodore conclude that ‘the project of neoliberalisation can only be understood as a politically, (re)constructed, nonlinear, and indeed mongrel phenomenon’(Peck and Theodore, 2009; 105).

1.3 Neoliberal governmentality

To explain neoliberal environmental governance as a political construction driven by the working of policy fixes, a closer look at the way of thinking, reasoning and the values and convictions behind this governance is needed. Furthermore, to understand both why policy fixes were repeatedly used to repair policy failures and how these policy fixes further tied the neoliberal solution as the common solution within the EU ETS, it is necessary to know how these policy fixes were shaped. Based upon Michel Foucault’s governmentality concept, the neoliberal design of the policy fix’ four determinants comes to the four. The way these ideational, institutional, interest- and accountability related factors

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have increasingly been shaped by the neoliberal rationality eventually demonstrates how a policy fix continuously fixes the neoliberal solution within the EU policy-making.

1.3.1 Governmentality

To approach the EU ETS from a neoliberal environmental governmentality perspective, it is important to outline Foucault’s notion of governmentality. Foucault used governmentality as a guideline to analyse the genealogy of the modern state (Lemke, 2001; 191). The concept governmentality is used to understand the different power relations during different era’s, ranging from the Ancient Greeks to contemporary neoliberalism (Lemke, 2001; 191). Foucault regarded governmentality as the most relevant notion to unravel these power relations, because governmentality both refers to the ‘government’ and the ‘mentality’ that underpins the particular form of government. Without taking into account the rationality that legitimises and supports the form of power, it would not be able to substantially understand power relations.

To get a better understanding of the power relations in a given era, it is useful to divide the term governmentality into two pieces. On the one hand, with the term government, Foucault does not only refer to its political meaning, confined to the notion of an institution. Rather, Foucault conceives the broader and more historical meaning of government. The term government is placed in a more general context, including philosophical, religious, medical and pedagogic fields (Lemke, 2001; 191). So to understand neoliberalism as a governmentality, it has to be taken into account that the term government is used to explain the management or control of any subject, i.e. the guidance of the family, the children, the household and the soul (Lemke, 2001; 191; Foster, 2009; 2). On the other hand, mentality refers to the capability of the government to define ‘a discursive field in which exercising power is rationalised’ (Lemke, 2001; 191). This means that on the basis of a political rationality a discourse is created that portraits certain concepts, objects, borders, arguments and justifications that become the framework to address problems (Lemke, 2001; 191). As an effect, the political rationality creates agencies, institutions, legal forms, procedures and technologies which further ‘enable […] to govern the objects and subjects of [this particular] rationality’ (Lemke, 2001; 191).

Taken the insights on the terms government and mentality into account, Foucault comes to the heart of the concept governmentality by defining it as ‘the conduct of the conduct’ (Lemke, 2001; 191; Foucault, 1982; 789). According to Foucault, the term conduct is one of the best ways to come to terms with the particularity of power relations (Foucault, 1982; 789). Foucault argues that conduct is an equivocal term that both means ‘to lead’ and ‘to behave’ (Foucault, 1982, 789). By defining governmentality as the conduct of the conduct, Foucault implies that power practices are aimed to shape the behaviour of the governed (Foster, 2009; 3). In other words, this classification means that power practices guide the conduct of the governed, and sometimes even determine the outcome of the governed’ behaviour (Foucault, 1982; 789). The power to direct the actions of others does not

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necessarily entail coercion or a situation in which the conducting actor and the governed are two adversaries. Instead, the definition conduct of the conduct ranges from ‘governing the self’ to governing others’ within a rationalised discursive field (Lemke, 2001; 191).

Because the notion of governmentality reveals the power relations between the different layers within society, it is an extremely useful concept to understand the rationalised discursive field in which ideas were proposed, institutions operated, interests were at stake and accountability aspects were taken into account. This concept enables to get a grasp on the effect of the neoliberal governance on the policy fix’ four determinants. The way these determinants where shaped, and the neoliberal discursive framework in which they operated, tells how these fixes enacted and embedded the neoliberal solution.

1.3.2 Neoliberal governmentality

Whereas the notion of governmentality functions as a guideline to understand the power relations during a certain era within the genealogy of the modern state, Foucault marks neoliberalism as the contemporary form of governmentality. Based on Wendy Brown’s interpretation of Foucault’s notion of the neoliberal governmentality, the EU ETS as a form of a neoliberal policy comes to the fore. According to Brown, neoliberalism is not only about a set of economic policies, such as facilitating free trade. Neoliberalism also contains a social analysis which can be brought to the fore by a governmentality approach. Brown shows that neoliberalism involves the enhancement and propagation of market values to all institutions and social action (Brown, 2003; 3).

First, Brown argues that in neoliberalism, the political area is being submitted to an economic rationality (Brown, 2003; 4). This means that all dimensions of human life are projected in terms of a market rationality. This entails that environmental policies and climate change abatement actions are being reconsidered in terms of profit. This is not simply done by assuming that all aspects of human life are being cast in the market rationality. Rather, neoliberalism develops institutional practices that emulate market thinking. Furthermore, neoliberalism produces rational economic individuals and introduces the market rationale for decision making in all areas of society (Brown, 2003; 4). In other words, neoliberalism does not regard the economic rationality as a natural phenomenon in society. Neoliberalism takes it as one of its main tasks to develop, disseminate and institutionalise the market rationale in all domains of society (Brown, 2003; 4).

The second characteristic of neoliberalism builds upon the insight of a market rationale that has been promulgated through discourse and policy action in all spheres of society. Neoliberalism does not even consider economic behaviour or the market itself as natural phenomenon. Instead, these two factors are by themselves constructed by law and political institutions. Even markets need political intervention and arrangements. To establish a successful economy, on the one hand, it needs to be directed and protected by law and policy action. On the other hand, it needs to be strengthened and protected by the diffusion of social norms that are designed to facilitate free trade, competition

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and rational economic behaviour of every individual and institution of the society (Brown, 2003; 5). In the end, this means that in neoliberalism the market is not controlled by the state, but that the market is regulative and organising principle of the state (Brown, 2003; 5). Brown emphasises that in this light the state’s central objective is not defined in terms of an historical mission, but legitimates all its policies in terms of economic growth. Cost and benefit calculations become the legitimised, most logical and seemingly natural instrument of all state practices (Brown, 2003; 5). In fact, in this sense the state itself also acts as a market actor.

The extension of economic rationality to domains that were usually non-economic and even individual domains, relates to the third characteristic of neoliberalism, according to Brown. She argues that the individual has become an entrepreneurial actor in every element of life due to normative construction of neoliberalism. The individual has become a rational and calculating actor who is supposed to be accountable for its own needs and ambitions (Brown, 2003; 6). By creating an individual that is fully responsible for itself, neoliberalism has increasingly diminished the difference between moral and economic behaviour. Since moral behaviour is measured completely in economic terms, like rational considerations on costs and benefits, moral responsibility and rational action are both envisaged in economic terms (Brown, 2003; 6). In fact, neoliberalism creates a society that is no longer a collective body anymore, but exists purely of individual entrepreneurs.

Since there is ‘no meaning outside the market’, as Brown puts it, neoliberalism undermines the autonomy of institutions. Since the moral responsibility and rational action are rooted in neoliberal economic thinking there does not exist any tension between the capitalist economy and liberal democratic political system. Because there is no meaning outside the market, the amount of opposition to certain neoliberal measures increasingly decreased. There is no possibility anymore to have political or moral objections outside capitalist rationality. The former gap between liberal democracy and a capitalist economy has been closed by neoliberal political rationality. Previously, liberal democracies provided an ethical gap between economy and polity. There existed a distinction between, on the one hand, moral and political principles and on the other hand the economic order (Brown, 2003; 10). According to Brown, this gap always protected the complete subjugation of life to the market. However, the neoliberal political rationality has closed this gap and thereby diminished the political accountability of governmental policies, programmes, strategies and approaches to a wide range of issues throughout all spheres of society.

1.4 Neoliberal policy fixes

During the development of the EU ETS, the problems, such as the huge oversupply of allowances and the extremely low market price during its first trading phase, within the policy were solved by market-based policy fixes. Within these policy fixes, ideas, institutions, interests and accountability aspects had become increasingly framed within a neoliberal discursive framework. Furthermore, the nature of

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ideas, the functioning of institutions, the importance of certain interests and the accountability of policy-making processes became increasingly framed by the market rationale. To show how Brown’s observation ‘there is no meaning outside the market’ manifested within the four determinants, this section outlines the seemingly natural omnipotence of market thinking and market behaviour within the neoliberal policy fix.

1.4.1 Ideational fix

During policy-making processes, ideas play a pivotal role. They are the cornerstone of policies. In case of the EU ETS, the idea of tradable environmental goods creating an incentive for Member States and its industries to combat climate change laid the foundations of the EU’s environmental policy to tackle global warming. Within this thesis, this leading role of certain ideas to approach policy issues is regarded as the ideational fix. In conjunction with the institutional, interest and accountability fix, the ideational fix has played its part in anchoring the neoliberal environmental policy within the EU. To sustain this claim, this section aims to outline the diffusion of the market rationale within the ideational fix.

Until the 1970s the imposition of taxes was the regular approach to deal with the harmful effects of industries’ emissions for the environment. According to Arthur Pigou, the solution to such so-called negative externalities of industrial production was a tax level that would internalise the externality (MacKenzie, 2009; 139-140). This tax should be at a level corresponding to the wider social costs of production. As a result, market participants were forced to take the wider social costs of their activities into account (MacKenzie, 2009; 140). In line with Pigou’s argument, governments often imposed a so-called ‘Pigouvian tax’. In other instances, governments opted for direct control measures. Such measures obliged enterprises to meet particular technological standards.

Economists’ vision on government’s direct market interference varied. In general, economists were more in favour of tax measures than direct control measures. They argued that manipulating the price system by taxes could better achieve environmental benefits than particular technological standards. In addition to these approaches, economist Ronald Coase offered another solution to the problem of negative externalities (MacKenzie, 2009; 140). Coase regarded taxes as unnecessary and according to him bargaining between market participants could realise the desired outcome (MacKenzie, 2009; 140). It is at this point that the market rationale and the ideational fix found common ground. This is in fact where the neoliberal ideational fix was born since Coase framed the policy issue of global warming within the market rationale.

Building on earlier ideas of Coase, economic historian J.H. Dales succeeded to translate these ideas in several governmental policies. What Dales proposed was in fact a cap-and-trade scheme. To establish such a scheme, first pollution had to be standardised. There needed to be established an equivalence between different waste products (MacKenzie, 2009; 140). With such an equivalence ‘quantities of different products could be translated into standardised equivalent tons’ (MacKenzie,

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2009; 140). With the establishment of the equivalence the first steps towards the commodification of nature were taken. Furthermore, Dales argued that the introduction of a cap on the total amount equivalent tons of negative externality that would be allowed to produce annually was needed. This cap should meet the condition that it represented an annual reduction in the equivalent tons of pollution.

The ideational fix was further designed by Dales’ proposal to set up a market in pollution rights. Until this point, Dales’ approach could still have been regulated through central planning. However, such a governmental institution should decide on the level of fee that would result in pollution reduction. New-coming factories should also be implemented in such a ‘trial and error’ approach (MacKenzie, 2009; 141-142). According to Dales, it would be easier to implicitly answer these two questions by setting up a market (MacKenzie, 2009; 142). With a cap-and-trade scheme a central authority should decide on the cap, provide the amount of allowances for pollution available that could be sold at the market. The central authority should also decide whether to allocate the allowances for free or on auction to the participating installations. Furthermore, Dales regarded the implementation of a secondary market as necessary to sell or buy allowances between companies at any time.

The backbone of the ideational fix, and thereby the legitimisation to introduce carbon markets within the environmental policy fields, relates to the main economic rationale behind this market approach. According to Dales, when ‘costly pollution’ would create an incentive for the participating installations to reduce the negative externalities of their pollution. Since the negative externality became part of the cost-benefit analysis of firms, and thereby their potential profit, entrepreneurs were automatically willing to reduce their pollution. When installations needed less allowances than the cap, because their pollution rates remained low, they could sell their permits to other firms who needed to buy extra allowances since these companies exceeded their cap. The demand for and supply of allowances would directly determine the price at the carbon market. This idea should foster the innovation of sustainable production techniques, because firms could earn money by keeping their amounts of equivalent tons of pollution low. In the end, this argument has been the main argument during policy-making processes of environmental policies, because the environment should benefit the most from a market-based approach.

1.4.2 Institutional fix

As with many ideas, they need to be implemented by institutions that will further emulate them so they will be put into practice once. Institutions play a crucial role in the development and spread of the neoliberal environmental rationale. However, before it is able to analyse what the role of the institutional fix is within the EU’s environmental governance, it is rather good to outline how institutions are conceived within this thesis. Building upon Foucault’s broad and more historical understanding of the government, prisons, schools, the military, clinics and the family are, next to

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organisations, think thanks, multilateral working groups, political parties and others, regarded as forms of institutions (Rutherford, 1999; 38, 40). Based on this broader conception of institutions, it is assumed that the institutional fix is defined by the influence of institutions within the society and thereby the policy-making process. The term influence in this sense relates to the ability of institutions to affect the individual body by ‘a form of power concerned with ‘administrating life’ (Foucault, 1976; 139) (Rutherford, 1999; 38). This means the power of institutions to constitute or discipline the individual body in such a manner to enhance ‘its utility and manageability through its integration into systems of effective and economic control’ (Rutherford, 1999; 39). What Foucault means is the ability of institutions to conduct a self-entrepreneurial body by a discursive framework of interventions and regulations, instead of the use of disciplinary techniques of dominance and subjection (Rutherford, 1999; 38-39).

With regard to neoliberal environmental governance, this insight entails that not only individuals and the society as a whole are envisioned within economic terms, but that even the environment is perceived within terms of profit. According to Rutherford, this brought along a situation in which the environment became increasingly framed as the sum of natural (exploitable) resources (Rutherford, 1999; 39). Linking these observations to the EU ETS, one could argue that institutions can play a determining role in constructing knowledge and certain truths on combating climate change. Furthermore, their potential to circulate this constructed knowledge by ‘normalising and disciplining techniques, methods, discourses and practices’ to other state apparatuses and throughout the whole social body has been extremely important (Rutherford, 2007; 293). In terms of Foucault, the spread of the neoliberal environmental rationale rearticulated the idea of a cap-and-trade approach in terms of sustainability, wealth, health and efficiency (Rutherford, 2007; 293). The institutions stimulated and eventually ensured the discursive articulation of the market-based approach as the only legitimate approach to tackle climate change.

In case of Coase’s and Dales’ approach to environmental problems, the interplay between the ideational and institutional fix eventually led to the introduction of the sulphur dioxide market in the United States (US) (MacKenzie, 2009; 143). Where Dales and his associates already recognised the importance of institutions to finally see their ideas put into practice (MacKenzie, 2009; 143-144), several academics have analysed the importance of the institutional fix in emulating neoliberal policy proposals (Zuidhof, 2014; Peck and Tickell, 2002; Finger, 2008). These analyses show how institutions became the main promoters of neoliberal reform programmes in a broad range of policy areas throughout the globe. According to Zuidhof, think thanks main responsibility has not been the spread of the neoliberal thought. On the contrary, by further designing and implementing new market constructions their role resonates much more with the meaning of the institutional fix. (Zuidhof, 2014; 210).

Jamie Peck and Adam Tickell (2002) analysed the history of neoliberalism with particular attention for the role of institutions, but without precisely labelling it the institutional fix. The authors

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link the influence of institutions to the omnipresence of neoliberalism on the globe (Peck and Tickell, 2002; 392). Neoliberalism seems to be everywhere; from the local to the national, international and global scale. In this analysis Peck and Tickell regard neoliberalism as a process and, therefore, call the spread of neoliberalism ‘neoliberalisation’ (Peck and Tickell, 2002; 383). Neoliberalism is not an end-state, because there are ongoing processes of neoliberalisation in several situations. Therefore, Peck and Tickell argue that there should not be expected that ‘the process of neoliberalisation […] is neither monolithic in form nor universal in effect’.

The institutional fix has played an important role in the process of neoliberalisation. During the roll-back phase, institutions promulgated neoliberal policy reforms that were particularly aimed at deregulation and dismantlement. Since the 1980s, when the economic crisis hit a large group of countries, the focus of neoliberal polices shifted to active-state building and regulatory reforms (Peck and Tickell, 2002; 384). Peck and Tickell regard this shift in the agenda of neoliberalism as a change from an active destruction and discreditation of Keynesian-welfare and social collectivist institutions to an agenda focusing on a purposeful construction and consolidation of neoliberalised state forms, modes of governance and regulatory relations (Peck and Tickell, 2002; 384). Peck and Tickell conclude that these two forms of neoliberalism eventually enabled the neoliberalisation of international entities, national policies and local forms of government. In the end, it resulted in an omnipresent neoliberalism.

To analyse the increasing dominance of the neoliberal institutional fix, Peck and Tickell first refer back to the 1970s. During this decade the intellectual phase of neoliberalism transferred to its state-project phase (Peck and Tickell, 2002; 388). The abstract intellectualism of neoliberal economic thinking was transformed to the restructuring projects authorised by the state. Due to the macroeconomic crisis of the 1970s the theoretical projects formed the foundations of the economic neoliberal policies of the 1980s. Politicians could more easily embrace the neoliberal way of thinking as an alternative to Keynesian welfare politics, since exactly that approach had caused the macroeconomic crisis.

Secondly, the early 1990s are an essential period for the spread of neoliberalism. Peck and Tickell regard this period as the second transformation of neoliberalism. The neoliberal roll-back economic policies eventually led to economic crises in several countries during the first years of the 1990s. Remarkably, these crises did not mean the end of neoliberalism since the neoliberal project was able to reconstitute itself (Peck and Tickell, 2002; 388). This meant the roll-out form of neoliberalism where it metamorphosed into a more socially interventionist and beneficial form. The same actors who propagated free-market reforms now introduced reregulation, discipline and containment as solutions to the emerged economic problems (Peck and Tickell, 2002; 389). The most remarkable aspect of this roll-out neoliberalism was the increasing governmental intervention in social policies.

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The reason why neoliberal market-logics could be introduced to a wide range of new policy fields, such as the environment, can be related to the institutional fix. According to Peck and Tickell, the settlement of neoliberalism had to be engineered through ‘explicit forms of political management and intervention and new modes of institution-building designed to extend the neoliberal project, to manage its contradictions, and to secure its ongoing legitimacy’ (Peck and Tickell, 2002; 396). 1.4.3 Interest fix

The change in the way the environment is governed cannot only be boiled down to the interplay between ideas and institutions in the policy-making process. In addition, neoliberal policy fixes are not about real relationships between cause and effect between first the ideational and then the institutional fix. Within neoliberal policy fixes it is about the increasing omnipresence of the market rationale in the design, thinking, acting and being of the fix’ four determinants. Furthermore, the neoliberal policy fix is about the four determinants’ constituting and fixing role the market rationale within the other determinants. This interconnectedness is clearly visible within the interest fix. Where the interest fix is defined as the result of different actors’ interests within the policy-making process of EU environmental governance, the nature of these interests emanate from the omnipresence of the market rationale within the ideational fix and the institutions ability to discursively impose these market ideas upon the collective and individual body. Regarding the policy-making process of the EU ETS, the involved parties can be regarded as examples of the different ‘bodies’ united in groups. As an effect of the neoliberal governmentality, the interest that are brought to the fore by these groups in the end all fit within the discursive framework of the market rationale.

According to several analyses (Liverman, 2004; Delmas and Young, 2009 and Khagram and Ali, 2008) neoliberal environmental governance is characterised by hybrid forms of policy-making processes with the involvement of both state and non-state actors (Liverman, 2004; 734). In the context of the policy-making process of the EU ETS, Diana Liverman has pointed out that ‘environmental management [is the] commodification of nature and the reworking of environmental governance to include consumers, corporations, environmental groups and transnational institutions’ (Liverman, 2004; 734). Liverman regards the change in the way nature is governed as one of the responses how the global environmental changes can be approached in a globalised world. Thereby, she adds that among a large amount of nations and institutions, the pricing of nature’s services, the introduction of property rights and trading these services in a market, have become part of the general policy-making consensus (Liverman, 2004; 734).

Within the interest fix, new actors became progressively involved in the policy-making processes of environmental issues. Consumers, corporations and non-governmental organisations (NGOs) emerged as new important agents in environmental policy. The rise of non-state actors seemed natural since global institutions could not produce successful local, national and international environmental programmes without the specific knowledge of these actors. To develop

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well-structured strategies to combat climate change in a highly globalised world, and to take regional differences into account, they needed the support of specialised environmental groups (Liverman, 2004; 737). Nonetheless, Liverman concludes that the major actors in environmental governance remain governments and intergovernmental organisations (Liverman, 2004; 736).

Liverman’s observation is shared by Magali Delmas and Oran Young (2009). Delmas and Young have pointed out the same pattern as described in Liverman’s analyses. However, they provide a different explanation why this development started and how such hybrid forms of environmental governance could emerge. First, they take into account the globalisation and the growing awareness of global climate change. Then, they conclude that these two factors together have led to a remarkable paradox (Delmas and Young, 2009; 3). The globalisation and the increasing demand for a proper approach to climate change resulted in the demand for a global policy strategy for sustainable development. This demand could not be supplied by national governments, because public confidence in these actors had decreased (Delmas and Young, 2009; 4-5). Furthermore, individual states together could not provide a global approach since they were territorially defined. Thereby, national political leaders focused more on their chances to become re-elected and did not have enough affinity with larger concerns, such as long-term climate change problems (Delmas and Young, 2009; 5).

In fact, Liverman and Delmas and Young refer to the existence of ‘global governance networks’. They argue that contemporary forms of supra-state and trans-territorial organisations together form global governance networks. These networks are not the same as intergovernmental organisations or multinational corporations, but are new arrangements among different organisations, communities and institutions across sectors and levels of governance (Khagram and Ali, 2008; 132). The global governance networks model is a type of governance that involves the participation of various state and non-state actors. As with Liverman’s analysis, Delmas and Young explain to a great deal what changed within the field of participants in environmental governance. However, these analysis only describe the change, but do not explain that despite the increasing variety of involved actors, the outcome of the policy-making process become totally predictable due to the neoliberal interest fix. Due to the fact that these different parties in fact commonly pursued the same interests, the result of such a conflict of interests would always fall within the discourse of the market rationale. Even in the sincere formulation of certain interest, which also include forms of opposition, there did not exist any meaning outside the market anymore.

1.4.4 Accountability fix

The interplay between the ideational, institutional and interest fix demonstrates how they commonly consolidate the hegemony of the neoliberal political rationality in global policy-making. Further to this, the consolidation of the neoliberal rationality also reflects on the political legitimacy of neoliberal environmental governance. Both the institutional and interest fix touch upon this point already. Within this thesis, the accountability fix is not only regarded as the democratic accountability

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or political legitimacy of policy-making processes. It also includes the tying role of the accountability fix of the neoliberal solution within EU environmental governance. The accountability fix explains why forms of neoliberal governance are not countered by alternative forms of policies and is able to influence the policy-making processes in more environmental fields.

Angela Oels (2005) provided a theoretical framework to analyse the politics of climate change on the basis of Foucault’s concept of governmentality. According to Oels, the different attitude of governmental bodies and the public to the climate change issue during the last decades are related to changing modes of governmentality. Oels distinguishes a former dominant biopower approach towards climate change and the present-day neoliberal approach to environmental issues. Oels argues that climate change was first rendered a governable entity by biopower governmentality. During this period the previously dominant technological and scientific approaches to environmental problems were increasingly left behind. The environment became a major issue in political strategies, economic programmes and ideological movements on a global scale. The environmental problems were defined as transnational security threats that required global political, economic and military approaches. Furthermore, environmental problems and solutions were articulated in a discourse of sustainable development. This discourse focused primarily on raising global awareness for climate change in the ‘machinery of global production’ (Oels, 2005; 195).

Oels concludes that during the 1970s, global awareness for climate change was articulated in a discourse that propagated an economic approach to tackle environmental problems. During this decade ‘the conduct of conduct’ of the biopower governmentality implied that behaviour of the governed was normalised through environmentally friendly codes of conduct that were promulgated on the individual (Oels, 2005; 195). The public awareness for a safe and secure planet raised and increased both the collective standard and alertness and the individual responsibility for global climate change (Oels, 2005; 194). Since global awareness for environmental matters rose, considerable governmental interventions in this field could be legitimised. This development increased the independence of the state to implement (market) measures without any significant opposition.

After the 1970s, the neoliberal governmentality further decreased the accountability of environmental policies (Oels, 2005; 195). Due to the dominant neoliberal governmentality the already existing approaches to climate issues were even further recoded in economic terms (Oels, 2005; 195). In other words, after the 1970s the neoliberal governmentality brought along a discourse that emulated the free market principle even more. The discourse stated that a market approach would increase the incentives for companies to foster technological innovation. In the end, these innovations would solve climate problems in a cost-effective way (Oels, 2005; 196). This opportunity for innovation also created new possibilities for capital accumulation. Due to the discursive articulation of this rationale, the creation of markets increasingly became the legitimised and welcomed answer to environmental problems.

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In brief, Oels argues first that climate change was framed in moral terms during the biopower period. In a regime of biopower, climate change is articulated by experts as a problem that requires global intervention, thereby making governmental interventions look inevitable (Oels, 2005; 201). This justified substantial policy interventions and even the reinforcement of state power to secure the survival of the planet (Oels, 2005; 201). The subsequent neoliberal regime further diminished available policy options or alternatives to approach environmental changes. The proposed solutions were market-based and both created responsible, calculating states and individuals (Oels, 2005; 199). Due to this development, the inclusion of non-state actors in global approaches to environmental problems could not really affects the policy-making outcome. Since the moral principles regarding environmental issues were superseded and replaced by market-based values, all participants in environmental governance making would opt for a market-based approach. In other words, the governmentality of neoliberalism brought along that the involved actors only could approach such a problem from a market rationale.

As Oels analyses implicitly shows, the accountability fix of neoliberalism is highly important in understanding policy-making processes, because it sheds an interesting light on the room for manoeuvre for policy-makers. It would be an interesting case to analyse whether or not the accountability fix has also further enacted a pattern of the market-based solutions within the EU ETS.

1.5 Conclusion

The increased use of markets as a policy option has raised the question why policy makers embraced this type of policy-making. Due to the remarkable reuse of market measures as the policy solution for any given policy failure, regardless of the nature of the arisen policy problem, the role of the market within various policy issues drew even more attention. The pattern of repeatedly implemented policy fixes, based on market solutions, has also left its traces in the EU ETS. The subjugation to the market rationale within the EU ETS seemed to have created an EU ETS in which an continuous use of the neoliberal policy fix on the medium- and long term is needed to safeguard the short-term existence of the carbon market. This chapter has therefore sought to provide an explanation for the anchoring and embeddedness of the neoliberal environmental governance. It has done so by the insight that the neoliberal governmentality has brought along a discursive framework in which market thinking and acting have become the common sense of the contemporary social body, and thereby the policy-making actors.

The subjugation to the market has therefore taken place within the ideational, institutional, interest- and accountability related determinants of the neoliberal policy fix. What in fact happened has been the gradual neoliberal design of ideas, institutions, interests and thereby also the accountability aspect of policies. Due to this neoliberal design, the neoliberal policy fix’ four determinants have commonly further enacted and embedded the neoliberal solution within the EU’s environmental governance. It is however important to keep in mind that this effect has not been

An Inconvenient Truth:The Policy-Making Process of the European Union Emissions Trading System