Stochastic income statement planning as a basis for risk assessment in the context of emissions trading

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Abstract:

The introduction of the European Emissions Trading System means that those enterprises taking part have a new planning risk factor to consider – emissions allowance prices. In this article, we analyse how risk emerging from emissions trading can be considered in the stochastic income statement planning of corporations. Therefore, we explore which planned figures are affected by emissions trading. Moreover, we show an approach that models these positions in a planned profit and loss account, taking into account uncertainties and dependencies. Consequently, this model provides a basis for risk assessment and investment decisions in the uncertain environment of emissions trading.

Keywords: CO2; EU ETS; carbon; emissions trading; risk; stochastic business planning

Document Type: Research Article

DOI: http://dx.doi.org/10.3763/ghgmm.2010.0006

Publication date: February 1, 2011

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