Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, Ana Yábar Sterling, Pedro Herrera, Janet E. Milne and Hope Ashiabor
Chapter 8: Related party transactions and emissions rights: accounting and direct international taxation
The European Union Emission Trading Scheme (EU- ETS) is distinguished among all the flexible economic instruments developed in the Kyoto Protocol as being the key to fulfilling the objective of reducing greenhouse gas emissions. In contrast, the other two flexible instruments, the Clean Development Mechanism (CDM) and the Joint Implementation (JI), are mechanisms based on projects that involve investing in developing countries and in economies in transition. The rights that are traded in the Scheme are known as EUAs (European Unit Allowances). Credits from the CDM – CERs (Certified Emission Reduction) – and the JI – ERUs (Emission Reduction Unit) – can be transformed into tradable rights in the EU- ETS; although there are certain limitations in terms of the volume of converted credit and the types of company. This Trading Scheme involves creating a supranational market of emission rights so as to administer the sale and purchase of emission rights, quickly, safely and with economic and legal guarantees. That is why different trading platforms that operate on an international level have been set up. However, the diversity of prices and products that are traded for the companies which are subject to the EU- ETS is exacerbated by the characteristic complexity of an emerging market, and it has, on a few occasions, given rise to subsidiaries being set up within the corporate groups that specialise in trading on the Carbon Market to secure the best positioning possible.
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