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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 Abbreviations and Symbols XV


II ning, of firm i in quarter t (i. e. EARNit - ETS_EARNit) EARNCHit change in earnings with respect to the same period of a year earlier of firm i in period t EARNCHit q change in quarterly earnings before extraordinary items with respect to the same quarter of a year ear- lier, scaled by the market value at fiscal quarter be- ginning, of firm i in period t ECX European Climate Exchange (UK) ÉDF Électricité de France (France) EEX European Energy Exchange (Germany) EFRAG European Financial Reporting Advisory Group (EU) EFTA European Free Trade Association EHVV Emissionshandels-Versteigerungsverordnung – Emission Trade Auction Regulation (Germany) EnBW Energie Baden-Württemberg (Germany) ENEL Ente Nazionale per l’Energia Elettrica (Italy) EnWiG Gesetz zur Förderung der Energiewirtschaft – Energy Economics Act (Germany) ERC Emission Reduction Credit (Kyoto) ERGEG European Regulators’ Group for Electricity and Gas (EU) ERU Emission Reduction Unit (Kyoto) ETS Emission trading scheme ETS_BSIit q ETS-specific balance sheet item (either allowances asset or emission liability) according to one of the four alternative treatments of firm i in period t, scaled by the market value at fiscal quarter begin- ning ETS_EARNit q quarterly net ETS earnings impact according to one of the four alternative treatments, scaled by the mar- ket value at fiscal quarter beginning, of firm i in pe- riod t EUA European Union Allowance EXAA Energy Exchange Austria (Austria) XVIII List of Abbreviations and Symbols FASB Financial Accounting Standards Board (US) FFV proposed full fair value accounting treatment for emission...

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