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

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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.

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