Carbon Trading Reporting: The Case of Spanish Companies

By Stagliano, A. J. | International Advances in Economic Research, May 2017 | Go to article overview

Carbon Trading Reporting: The Case of Spanish Companies


Stagliano, A. J., International Advances in Economic Research


Abstract Policy makers, scientists, industry leaders, and academicians all have debated how to restrain global warming and reduce greenhouse gas (GHG) emissions. Three main methods are used: command and control laws and regulations, carbon taxes, and cap and trade schemes. Recognizing the consequences of global warming, all Scandinavian countries introduced a carbon emissions tax in the 1990s. They also ratified the Kyoto Protocol that ran from 2005 through 2012. The European Union (EU) instituted a carbon trading scheme (Emissions Trading System (ETS)) in February 2005 when Kyoto became operative. The three Scandinavian EU members had two methods in place during the 2005-08 period to encourage GHG reduction: taxing and trading. Norway, not in the EU, used just taxes. The other EU members, including Spain, applied just the carbon trading ETS scheme to encourage compliance with the Kyoto Protocol. The fundamental issue addressed is this one: Did publicly held firms headquartered in Spain adequately report participation in the EU carbon emissions trading mechanism? Data to answer this question were obtained from the 2011 and 2012 annual reports for domestic Spanish public companies that received tradable emissions permits. In addition to assessing investor-owned firms' disclosure posture, the specific method of reporting about carbon emissions permits, whether companies used, banked, or sold the permits granted by the government, also is reviewed. This empirical research effort reports on a complete survey of all available data for the two financial reporting periods that concluded the second phase of the Kyoto Protocol.

Keywords Climate change * EU emissions trading system * Financial reporting * Kyoto protocol

JEL Classification M48 * Q52 * Q56

Introduction

In the United Nations 2010 meeting convened to address climate change, participants from most of the world's nations made modest gains for curbing greenhouse gas emissions (Broder and Rudolf 2010). Although no specific caps were placed on emissions levels, this had been a hoped-for outcome, agreements were reached to provide aid to developing nations as they deal with the effects of climate change. Fundamental settlement also was concluded on a mechanism that might create greater transparency in country-by-country greenhouse gas (GHG) reporting. Given the earlier failure of the Copenhagen meeting of December 2009 to reach any accord (Revkin and Broder 2009), these modest outcomes from Cancun can be considered helpful in dealing with climate change (Broder and Rudolf 2010). However, such moderate progress was significantly different from the specific GHG emissions limits that most of the world, including all of the industrial nations except the United States, had implemented in 2008 based on the 2005 Kyoto Protocol.

Prior to the Kyoto Protocol implementation, the European Union (EU) had developed some steps to counter climate change and reduce harmful GHG emissions. In the early 1990s, Scandinavian countries (including the non-EU state of Norway) implemented a scheme to tax carbon. When Kyoto went into effect in 2005, the EU-15, the 15 nations that were members of the EU in 2004, designed a system of tradable carbon allowances, as a preliminary attempt to implement Kyoto, with a trial period lasting until 2007 (First Environment 2007). Kyoto officially began for the ratifying nations in 2008 and continued until the end of 2012.

This study is an examination of how selected Kyoto-impacted firms disclosed their involvement in the first real attempt to create a system for reduction of carbon emissions in Europe. (1) The EU and Norway employed taxes or carbon allocations to induce an emissions reduction. A carbon tax was implemented in the 1990s and a cap and trade mechanism started in 2005. Firms owning facilities given carbon allocations or having a carbon tax imposed on them are impacted by these schemes. Therefore, disclosure of the financial effects of the regulations will be of interest to stakeholders. …

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