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.
