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Accounting for carbon in the EU-ETS: hot air or real value?

Date

14 Feb 2011

Sections

Energy

A multi stakeholder roundtable held recently in the European Parliament concluded that the success of the EU-Emissions Trading Scheme (ETS) depends on accountants, large emitters and standard setters all working together towards harmonising carbon accounting practices.

The discussion also revealed that a long term framework is needed urgently to deal with disparities between how emissions allowances are treated.

Europe is the largest carbon market in the world - and a world leader when it comes to developing a carbon emissions trading scheme-  but a study commissioned by the ACCA (the Association of Chartered Certified Accountants) and IETA (International Trading Scheme Association) has highlighted that no-one is entirely sure how to account for carbon.

This study served as a basis for the roundtable discussion, which was called ‘Hot air or real value: accounting for carbon in the EU ETS’ . It was hosted by Philippe Lamberts, MEP,  and organised by ACCA, IETA and Hanover Communications.

Henning Drager,from ACCA moderated the debate which was attended by:
-Mr Peter Olajos, speaking on behalf of the Hungarian Presidency,
-Pr Carlos Larrinaga from the University of Burgos,
-Yvon Slingenberg, head of the Unit in charge of the implementation of the EU-ETS at the European Commission,
-Alan McGill, Partner in PwC’s Sustainability and Climate Change practice,
-Chris Lenon, Group Strategic Advisor, Tax Policy at Rio Tinto,
-Louis Redshaw , Head of Environmental Markets, Barclays Capital, and
-Henry Derwent, President and CEO of IETA.
Major companies have been granted emission allowances since the EU ETS was launched in 2005, but there is no uniformity in how they should be treated in the accounts.

Some speakers were puzzled by how some companies account for carbon at present, stressing that even allowances received for free have a value, and should not be accounted for as nil. It was argued that complexities around whether allowances should be marked to market or valued at their purchase price are leading some firms to shy away from opportunities in emissions trading.

According to Henry Derwent, President and CEO of IETA: “The system does not work if analysts and shareholders looking into ETS companies cannot see their exposure.”

All participants called on accounting standards setters to issue clear guidance on how to handle carbon emission allowances before the beginning of the next phase of the EU-ETS in 2013, after which companies will be able to auction carbon credits - and to design a model which incentivises long-term thinking.

Belgian Green MEP Philippe Lamberts, who hosted the event, said: “A more transparent treatment of emission allowances would guide investors’ decisions and would be a step towards sustainability accounting”.

For the accounting profession, there is a need to see a new form of reporting evolving as part of the holistic performance of an organisation in terms of sustainability. This should allow comparability to benchmark companies against one another.

Clarity is also needed on how to handle cross-border trading, especially for technical issues such as taxation and avoiding tax arbitrage, and VAT, which must be worked through in a uniform way.

The European Commission’s focus is currently on establishing a system for auctioning allowances, but a clear long-term framework is needed. “We have a real bottleneck. The climate crisis has been crowded out by the financial crisis, adding to the workload of European Commission officials in charge of taxation, financial regulation and the internal market. So, we are relying on accounting and auditing bodies to make proposals. They are the ones measuring things in a credible way and have the expertise to put forward solutions which we can work with,” MEP Lamberts concluded.

- ends -

For further information, please contact:
Cecile Bonino
+32(0) 2 286 11 37
Cecile.bonino@accaglobal.com

Notes to Editors

         1. the ACCA-IETA study is available here: http://www.accaglobal.com/pubs/general/activities/research/research_archiv...
         2. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.
         3. We support our 140,000 members and 404,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,000 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.
         4. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.
 

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