Abstract

http://ssrn.com/abstract=1601122
 
 

References (27)



 


 



How Will the Billions of 'Free' Climate Change Allowances Under Cap-and-Trade Affect U.S. Companies’ Balance Sheets?


Paul A. Griffin


University of California, Davis - Graduate School of Management


UC Davis Graduate School of Management Research Paper No. 06-10

Abstract:     
This study examines the impact of the “free” climate change allowances under the proposed American Clean Energy and Security Act of 2009 on the balance sheets and income statements of companies in the S&P 500, estimated by the Congressional Budget Office to be as high as $700 billion over 2010-2019. Some observers contend that these allowances will generate “large windfall profits to various politically favored industries at the expense of U.S. consumers.” (Chamberlain 2009). This study states and tests an economic model that accounts for the relation between greenhouse gas emissions and financial statement variables at the individual company level to assess this contention. My analysis suggests that under the likely accounting treatments for emission allowances, U.S. companies’ balance sheet and profit ratios will show a modest but variable impact, depending on the accounting choice and industry. Some treatments, however, will allow companies to move these allowances and much of the liability “off balance sheet,” so that in these cases the financial impact of emission allowances could be unclear to many investors. When companies use diverse or unclear accounting treatments for similar economic benefits, this can raise the cost of capital and hurt share prices.

Number of Pages in PDF File: 30

Keywords: Cap-and-trade, emission accounting, free climate change allowances, greenhouse gas emissions, emission allowances and S&P 500 companies, American Clean Energy and Security Act of 2009

JEL Classification: G38, M41, M48, K22, Q54

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Date posted: May 8, 2010 ; Last revised: July 28, 2010

Suggested Citation

Griffin, Paul A., How Will the Billions of 'Free' Climate Change Allowances Under Cap-and-Trade Affect U.S. Companies’ Balance Sheets?. UC Davis Graduate School of Management Research Paper No. 06-10. Available at SSRN: http://ssrn.com/abstract=1601122

Contact Information

Paul A. Griffin (Contact Author)
University of California, Davis - Graduate School of Management ( email )
3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)
HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

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