Carbon Accounting in Greek Companies Participating in the European Union’s Emissions Trading Scheme: Current Practice and Projected Financial Implications

Abstract

Lack of a solid, uniform, efficient, and objective accounting background to record the economic impact of the tradable permits "grandfathered" to polluting companies misleads the users of corporate financial statements and hinders comparisons of performance. Further, it conceals the financial threat that an imminent need to purchase permits imposes on the profitability and competitiveness of companies participating in emissions trading schemes. The objectives were to investigate the way in which Greek companies record and treat transactions relating to carbon emissions allowances from an accounting perspective; and to predict the impact on corporate financial performance and economic prospects of future purchases of allowances. Data were collected by means of both primary research via questionnaires and telephone contacts and secondary research through the audited financial statements published by the sample corporations. Findings from research conducted in Greece in 2008 are presented and discussed. The working hypothesis was that in the following year, 2009, emissions trading scheme participants would have to purchase the currently free permits at the average stock exchange price established by market mechanisms. The role of variables, such as corporate size, sales, profitability, headcount, and asset base, was investigated to explain the choices and measure the significance of the impact. The results provide an insight to the perceptions of the companies, criteria of choice and economic prospects.