Stochastic Income Statement Planning and Emissions Trading
22 Pages Posted: 22 Aug 2010
Date Written: February 18, 2010
Since the introduction of the European CO2 emissions trading system (EU ETS), the development of CO2 allowance prices is a new risk factor for enterprises taking part in this system. In this paper, we analyze how risk emerging from emissions trading can be considered in the stochastic proﬁt and loss planning of corporations. Therefore we explore which planned ﬁgures are affected by emissions trading. Moreover, we show a way to model these positions in a planned proﬁt and loss account accounting for uncertainties and dependencies. Consequently, this model provides a basis for risk assessment and investment decisions in the uncertain environment of CO2 emissions trading.
Keywords: CO2, emissions trading, EU ETS, risk, stochastic business planning
JEL Classification: D81, G32, L59, Q54, Q56, Q58
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