Emission rights: From costless activity to market operations

This paper examines the issues surrounding the aborted attempt by the International Accounting Standards Board in early 2005 to regulate the accounting for the European Union’s new Emissions Trading Scheme under the Kyoto Protocol. The paper argues that the features that made the trading scheme attractive to governments were precisely the ones that created difficulties for accountants to capture under existing standards. After showing why the challenge has to be faced, the paper suggests a possible way forward that the IASB might consider when it revisits the subject, as it is expected to do in the near future.