Total energies favour a segregation of the sp2 sites in amorphous carbon (a-C) and hydrogenated amorphous carbon (a-C : H) into sp2-bonded clusters embedded in a sp3-bonded matrix. The size of the clusters determines the local bandgap. The presence of clusters forces the mobility edges further into the bands. Clustering also introduces strong symmetrical fluctuations of the band edges. This causes intracluster transitions between localized and localized states to become allowed. The effect of such clustering on the luminescence properties, the resonant Raman spectra, the Urbach tail and the subgap defect optical absorption of a-C: H is discussed. The sp2 sites form mainly sixfold rings within the clusters. The presence of a small fraction of adjacent fivefold and sevenfold rings washes out the thirdneighbour peak at 2%4A in the radial distribution function of sputtered a-C.Amorphous carbon (a-C) and hydrogenated amorphous carbon (a-C : H) contain both sp3 and sp2 carbon sites, with 1-5% sp3 sites in evaporated a-C (Green, McKenzie and Lukins 1990) and sputtered a-C (Cho et al. , Pan et al. 1991, and 40-70 sp3 sites in plasma-deposited a-C : H (Koidl et al. 1990, Tamor, Vassell andCarduner 1991). The sp3 sites and sp2 sites are connected together by (T bonds which form the skeleton of the random network. The sp2 sites also possess x states which form x bonds with neighbouring sp2 sites. The x states of n bonds lie closer to the Fermi level E , than do the c states; so the n: states form both the valence-and the conduction-band-edge states in a-C and a-C : H and consequently they control the electronic properties of both materials (Robertson 1986, Robertson and OReilly 1987). Analysis of the energetics of x bonding suggests that the sp2 sites will segregate into graphitic clusters embedded in a sp3-bonded matrix. The difference between the bandgaps of the sp2-and sp3-bonded regions produces very large fluctuations in the local bandgap (Robertson 1988). This paper describes the consequences of such fluctuations and clustering and discusses the evidence that the clustering occurs.The clustering of sp2 sites arises from the non-local energetics of their x bonding.The energetics of c and n bonds are separable, to first order. The stronger (T bonds form the skeleton of the network. The two-centre quality of the c bonds allows their total energy to be written as the sum of the energies of the individual bonds; that is it is a local function. The x bonds are more complex. They can form two-centre bonds such as the C=C bond in ethylene. They can also form multicentre or resonant bonds as in polyacetylene, benzene or graphite. This resonant character prevents the total x bond energy being expressed as a sum of two-centre terms as it adds non-local (off-site or longer-range) terms. The energetics of x bonding favours sp2 sites forming sixfold ring aromatic species such as benzene, rather than chain (olefinic) species such as ethylene or polyacetylene. Their energetics also favours the fusing of sixfold rings into polyaromati...