Transparency of Financial Reporting on Greenhouse Gas Emission Allowances: The Influence of Regulation.

Patricia Milanés Montero,Esteban Pérez Calderón,Ana Isabel Lourenço Dias

doi:10.3390/ijerph17030893

Patricia Milanés Montero, Esteban Pérez Calderón + Show 1 more

Open Access

https://doi.org/10.3390/ijerph17030893

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Abstract

This study focuses on the transparency of financial reporting on emission allowances (EA) and greenhouse gas (GHG) emissions within the European Union Emissions Trading Scheme (EU ETS). In particular, the different accounting treatments adopted by standard setters and professionals were analyzed to evaluate the influence of regulation in the transparency of financial reporting on EA and GHG emissions. Based on a sample of 85 companies registered with the Portuguese, Spanish, and French National Plans of Allocation (NPAs), data collected from the annual reports were analyzed for the 2008–2014 period. The results were obtained based on descriptive, logistic regressions and panel data statistical techniques, and they show that better levels of transparency of financial reporting on EA and GHG emissions are conditioned by a variety of accounting policies, which compromises the comparability of the financial information. The adoption of the International Accounting Standards Board (IASB) standards set lead to a greater dispersion in the choice of the accounting approach and a higher probability of not disclosing any information, as well as adopting off-balance sheet policies. Therefore, the regulatory factor is a determinant of the level of transparency of financial reporting on EA and GHG emissions, contributing to reduce strategies of omission.

Highlights

In the context of the European Union Emissions Trading Scheme (EU ETS), a cap-and-trade scheme, the debate in the literature began on whether the company’s exposure generated an accounting treatment for emission allowances (EA) and greenhouse gas (GHG) emissions [1,2].The basis for the functioning of the EU ETS, until the end of the year 2012 and with some application in phase III, was the grandfathering system
The results were obtained based on descriptive, logistic regressions and panel data statistical techniques, and they show that better levels of transparency of financial reporting on EA and GHG emissions are conditioned by a variety of accounting policies, which compromises the comparability of the financial information
The majority of Spanish companies disclose the recognition of the EA, while French companies are those that present a large frequency of lack of disclosures of such information

Summary

Introduction

The basis for the functioning of the EU ETS, until the end of the year 2012 and with some application in phase III, was the grandfathering system. This system incorporates the prediction of the tons of GHG emissions necessary to an entity, so that it may continue with its operational activities and, at the same time, comply with the commitment of reduction of GHG emissions. This would result in the free allocation of that number of EA, decided by national governments on a National Plan of Allocation (NPA).

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