Journal article
The Valuation Relevance of Greenhouse Gas Emissions under the European Union Carbon Emissions Trading Scheme
PM Clarkson, Y Li, M Pinnuck, GD Richardson
European Accounting Review | Published : 2015
Abstract
Abstract: This study examines the valuation relevance of greenhouse gas emissions under the European Union Carbon Emissions Trading Scheme. We posit that carbon emissions affect firm valuation only to the extent that a firm's emissions exceed its carbon allowances under a cap-and-trade system and the extent of its inability to pass on carbon-related compliance costs to consumers and end-users. We measure a firm's ability to pass on the future costs by its market power and its carbon performance relative to its industry peers. The results show that firms' carbon allowances are not associated with firm valuation but the allocation shortfalls are negatively associated. We also find that the neg..
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Funding Acknowledgements
We thank participants of research workshops at the City University of Hong Kong, Monash University, the University of Otago, and Victoria University of Wellington, as well as participants at the 2012 European Accounting Association Annual meeting and the 2014 JCAE Symposium for their comments. We also thank Julie Desjardins and Alan Willis for their support and input into this project. Special thanks goes to Kevin Ranney, Director, Advisory Services, of Sustainalytics for his generous assistance in providing us with Sustainalytics' data regarding general environmental performance for our sample firms. We are grateful to Hila Fogel Yaari and Na Li for their excellent research assistance. We are grateful for the financial support from an Australian Research Council linkage grant with CPA Australia. Gordon Richardson thanks KPMG for their generous support. Yue Li thanks Michael Lee-Chin Family Institute for Corporate Citizenship at Rotman School of Management. Finally, we are especially appreciative of the efforts of the Associate Editor, Florin Vasvari, and two anonymous reviewers whose input has greatly enhanced the study.