The Value Relevance of Greenhouse Gas Emissions Allowances: An Exploratory Study in the Related United States SO2 Market

Derek Johnston, Stephan Sefcik and Naomi Soderstrom

European Accounting Review, 2008, vol. 17, issue 4, pages 747-764

Abstract: This paper examines the valuation implications of greenhouse gas (GHG) emissions allowances. We posit that the value of a firm's bank of emission allowances has two components that are likely to be positively valued by the capital market: (1) an asset value component; and (2) a real option value component. Since the necessary data to examine this research hypothesis in the setting of GHG emission allowances is not yet available, we test our conjecture by examining the value relevance of sulfur dioxide (SO2) emission allowances held by US electric utilities. Empirical results reveal that the capital market assigns a positive price to a firm's bank of SO2 emission allowances, consistent with the argument that emission allowances have, at least, an asset value component that is assigned a positive price by the market. We also find weak evidence consistent with the market assigning a real option value to the allowance banks.

Date: 2008

Downloads: (external link)
http://www.informaworld.com/openurl?genre=article& ... 40C6AD35DC6213A474B5 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:taf:euract:v:17:y:2008:i:4:p:747-764

Ordering information: This journal article can be ordered from
http://www.tandf.co.uk/journals/subscription.html

Access Statistics for this article

European Accounting Review is edited by Salvador Carmona

More articles in European Accounting Review from Taylor and Francis Journals
Series data maintained by Christopher F. Baum ().