CORPORATE FINANCE

Corporate Finance: Corporations, Carbon Tax &Emission Trade Schemes



Corporate Finance: Corporations, Carbon Tax &Emission Trade Schemes

Introduction

Carbon tax and emission trading schemes are new notions to combat the issue of global warming. Since its advent, the focus has always been towards better sustainable corporate practices in doing business. However, there has development a gap when it comes to its treatment in financial statements and long term valuation because not much has been done to deal with this dimension. Thus, there is a need for research in this field so that these novel notions should also be incorporated and appropriated reported as well as treated in the transactions of the corporations. In the context of Australia, it exemplifies how the rich and powerful polluters have been able to take control of the debate on human induced climate change, manipulating it to their considerable financial advantage, while pretending to be the victims of an environmental hoax. In proposing a temporary CO2-equivalent tax, Australia is developing its own model, departing from some of the defining principles of a pollution tax. Correctly designed, a GHG emission tax could provide more pollution-control-cost certainty than an ETS and have greater capacity for revenue recycling. As the proposed GHG tax is a short prelude to an ETS, any such certainty will be absent after three years. The scale of concessions to industry is such that the basic logic of the Pigovian tax appears reversed. Big polluters are rewarded and subsidized, with rewards directly proportional to the scale of pollution. Less energy-intensive industries will be penalized by having to purchase non-tradable permits at a fixed value, whereas the more energy-intensive industries are bestowed tradable permits for free and allowed to sell them.

Discussion

For the last decade, environmental issues, especially that concerning the risk of global warming, gradually began to be taken into account by the international governing bodies. The Earth Summit in Rio in 1992 marked the awareness of the risks of climate change. The richest states, who were responsible for the largest emissions, have pledged to stabilize emissions in 2000 to 1990. But it was not until 1997 with the Kyoto Protocol that will be translated into quantitative commitments and legally binding. Developed countries in transition towards a market economy that joined this Protocol have pledged to reduce overall emissions by 5.5% of greenhouse gas (GHG now) over the 2008-2012 periods from levels of 1990. These states include the European Union has accepted an 8% reduction of GHG emissions.

According to the Kyoto Protocol and under Directive 2003/87/EC adopted on 13 October 2003, has been established since 1 January 2005 a European system for trading GHG emissions. According to the Directive, the quota is a unit of account representing the emission of one ton of carbon dioxide being a security issued by the state, valid for a specific period. It fulfills a function of trading because it has a market value and is transferable by sale. 

Companies that do not use all of their pollution permits are able to sell surplus allowances. The exchange mechanism of quotas therefore aims to encourage companies to prefer ...