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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 Tables XIII


List of Tables Table 1: Taxonomy of Environmental Policy Regimes 10  Table 2: Taxonomy of Energy Market Regimes 11  Table 3: Scope of the EU ETS 25  Table 4: Allocation of Emission Rights: Country Perspectives 31  Table 5: Allocation of Emission Rights: Industry Implications 34  Table 6: Future Allowed Emission Volumes 38  Table 7: Major Mergers and Acquisitions in the European Electricity Industry since 1996 48  Table 8: Steps in Energy Market Transformation 53  Table 9: Assessment of Management Accounting Approaches for Emission Rights 85  Table 10: Sample Accounts Conforming to IFRIC 3 Cost Method 94  Table 11: Sample Accounts Conforming to IFRIC 3 Revaluation Method 95  Table 12: Sample Accounts Conforming the Proposed Full Fair Value Method 97  Table 13: Sample Accounts Conforming to USofA 101 98  Table 14: Comparison of Alternative Accounting Treatments 100  Table 15: Sample Selection 124  Table 16: Country of Incorporation and Industry Affiliation of Sample Firms 126  Table 17: Accounting Rules Applied for Emission Rights (Sample S2) 126  Table 18: Pricing Effects in Interim and Total Estimation Periods 129  Table 19: Pricing Effects for Control Group 132  Table 20: Pricing Effects of Commodities 134  Table 21: Pricing Effects of Energy Generation Implications 136  Table 22: Pricing Effects of Market and Regulatory Conditions 139  Table 23: Energy Market Regimes of Sample Firms 142  Table 24: Pricing Effects of Emission Allowances in Different Energy Market Regimes 142  Table 25: Pricing Effects of Market Regimes 145  Table 26: Pricing Effects of Differential Market Regime Transformation 147  Table...

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