The Developing Carbon Financial Service Industry: Expertise, Adaptation and Complementarity in London and New York

34 Pages Posted: 23 Apr 2008 Last revised: 29 Jul 2014

See all articles by Janelle Knox-Hayes

Janelle Knox-Hayes

University of Oxford; Georgia Institute of Technology, School of Public Policy

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Abstract

London and New York are the world's pre-eminent financial centers. They are essential in processing the financial transactions of the global economy. The circumstances that have given rise to and maintained the preeminence of these centers are well explored in the literature. Less attention has been paid to the importance of these financial centers in organizing the complementary institutions, services, and products of functional and developing markets. This article looks at the role of London and New York, particularly the complementarity of exiting financial infrastructure, in developing a new carbon market. I argue that developing a market from existing financial infrastructure through complementarities is more efficient because it economizes on sunk costs, relies on the marginal pricing of new initiatives, and generally reduces the costs of infrastructure development. Therefore, new markets are best constructed using existing market infrastructure or by developing complementary processes within existent market systems. I investigate three levels of complementarity between (existent and new) markets and within the new carbon market: the complementarity of expertise and information, the complementarity of institutions and services, and the complementarity of market systems. Case studies constructed from expert interviews conducted with banks, brokerages, intermediaries, legal firms, consultancies, and wire services in London and New York are used to support the argument. This paper concludes by commenting on the significance of the financial service centers (geography) where the market is developed.

Keywords: Carbon Markets, Complementarities, Market Development, Financial Centers

JEL Classification: G15, P50, R32, L14

Suggested Citation

Knox-Hayes, Janelle and Knox-Hayes, Janelle, The Developing Carbon Financial Service Industry: Expertise, Adaptation and Complementarity in London and New York. Available at SSRN: https://ssrn.com/abstract=1124125 or http://dx.doi.org/10.2139/ssrn.1124125

Janelle Knox-Hayes (Contact Author)

Georgia Institute of Technology, School of Public Policy ( email )

685 Cherry St.
Atlanta, GA 30332-0345
United States

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

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