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The EU Emission Trading Scheme

Aspects of Statehood, Regulation and Accounting


Stefan Veith

The emission trading scheme is the most recent instrument of the EU environmental policy. Its underlying mechanisms and economic consequences are yet less straightforward than policymakers initially had expected: As this study shows, the regulation probably yields unintended distributional effects and imposes additional risk on the regulated companies. Consequently, meaningful accounting for emission rights is not only a necessity for regulators and customers, who need transparency, but also for investors on capital markets, who bear the additional regulatory risk. This study empirically assesses the usefulness of various accounting alternatives and provides evidence that cost and fair value approaches dominate the widely used mixed models.


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List of Figures XI  List of Tables XIII  List of Abbreviations and Symbols XV  1  Introduction 1  1.1  Motivation for the Research 1  1.2  Structure of the Analysis 4  2  Transformation of Environmental and Energy Policies in the European Union 7  2.1  Towards a Governance Framework for Policy Analysis 7  2.2  Environmental Regulation 13  2.2.1  Economic Theory of Pollution Control 13  General Setting 13  Traditional Frameworks of State Intervention 14  Negotiations as the Communitarian Approach 17  Shift to Markets for Emissions 18  2.2.2  Design of the EU Emission Trading Scheme 21  European Legal Framework 21  National Allocation Plans: The German Case 28  Supply of and Demand for Emission Rights 30  Outlook on the Future Design of the EU ETS 36  2.2.3  New Governance Modes for Pollution Control: An Explanation 39  2.2.4  Concluding Remarks 43  2.3  Energy Market Regulation 45  2.3.1  Economic and Legal Background of European Energy Markets 45  VIII Contents 2.3.2  Reasons for Transformations in Energy Market Governance 50  2.4  Are the New Environmental and Energy Policies Cases of Regulatory Capture? 55  2.5  Some Resulting Questions for Empirical Research 59  3  Mapping Emission Rights to Accounting 61  3.1  Framework for Accounting Analysis 61  3.2  Consequences for Performance Reporting 62  3.2.1  Functions of Management Accounting 62  3.2.2  Emission Rights as Accrual Costs 66  Cost Incurrence 66  Accrual Costs in Stewardship and Decision Making Settings 68  3.2.3  Emission Rights as Imputed Costs 71  Determination of Quantities 71  Measurement 76...

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