Accounting for Emission Allowances: An Issue in Need of Standards

John Elfrink, PhD, CPA, and Mitch Ellison, PhD, CPA, CMA, CFA, CFM

On June 6, 2008, the U.S. Senate failed to support a motion to end the debate on the Lieberman-Warner Climate Security Act of 2008, effectively killing the bill. The legislation would have directed the Environmental Protection Agency (EPA) to establish a program to reduce greenhouse gas (GHG) emissions. A critical component of the bill was a provision to set up a cap-and-trade system that would rely upon the market to facilitate the reduction of GHG emissions by U.S. industries. Despite the bill's defeat, many Washington insiders believe that such a system to control GHG—and carbon dioxide emissions, in particular—is inevitable in the near future. Both John McCain and Barack Obama expressed support for such a system during their presidential campaigns, and it is likely the new Congress will favor it.