Description
European companies were confronted with new organisational challenges when the European Emissions Trading
Scheme (EU ETS) was introduced in 2005. What were their cognitive sources for developing an orientation in this scheme?
This paper presents original data from a survey of the University of Hamburg, dealing with companies’ responses to the
EU ETS in 2005–2007. The survey was conducted three times and addressed all companies covered by the trading scheme
in Germany, the United Kingdom, Denmark and the Netherlands (response rate of 19%–23% over three years). Results are
provided on the share of companies that traded emission allowances, on the knowledge of their own CO2 abatement costs,
on the organisational unit that was responsible for decisions on emissions trading, and on the use of internal and external
sources of advice.
The European Emissions Trading Scheme: An exploratory
study of how companies learn to account for carbon
q
Anita Engels
*
Centre for Globalisation and Governance, Faculty of Economics and Social Sciences, University of Hamburg, Hamburg, Germany
Abstract
European companies were confronted with new organisational challenges when the European Emissions Trading
Scheme (EU ETS) was introduced in 2005. What were their cognitive sources for developing an orientation in this scheme?
This paper presents original data from a survey of the University of Hamburg, dealing with companies’ responses to the
EU ETS in 2005–2007. The survey was conducted three times and addressed all companies covered by the trading scheme
in Germany, the United Kingdom, Denmark and the Netherlands (response rate of 19%–23% over three years). Results are
provided on the share of companies that traded emission allowances, on the knowledge of their own CO
2
abatement costs,
on the organisational unit that was responsible for decisions on emissions trading, and on the use of internal and external
sources of advice. The data thus provides an insight into the cognitive resources that companies brought to bear when
looking for an orientation in the new trading scheme. The sources of advice and the internal assignment of responsibility
build the framework of competencies in which companies learn to account for carbon.
Ó 2008 Elsevier Ltd. All rights reserved.
Introduction
The European Emissions Trading Scheme can be
regarded as a major policy innovation (Voß, 2007a)
that di?used from the United States to various
European states and ?nally to the European Union
at a surprising speed (Braun, 2009; Christiansen &
Wettestad, 2003; Wettestad, 2005). Since January
2005, the scheme has become mandatory for all
member countries of the European Union, including
the accession countries from the moment in which
they acquire membership status. More than 10,000
plants and installations are covered by the scheme.
It is the largest mandatory scheme in the world,
and is seen by many as the prototype of a future glo-
bal carbon trading scheme. Emissions trading
requires companies operating under the new scheme
to develop new knowledge and competencies within
the organisation. Companies need to develop organ-
isational routines to deal with emission allowances
and represent this new ‘‘object’’ in the company’s
accounting system (MacKenzie, 2007). From a
social sciences point of view, the EU ETS is a fasci-
nating subject area worth studying in some depth, as
0361-3682/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2008.08.005
q
The study is funded by the German Research Council (DFG
488/2-1; August 2006–August 2009). A ?rst version of the paper
was presented to the workshop ‘Carbon Markets in Social
Science Perspective’ at the Institute of Advanced Study, Durham
University, on 7 November 2007. I thank Martin Huth, Lisa
Knoll and two anonymous reviewers for helpful comments.
*
Tel.: +49 40 42838 3832; fax: +49 40 42838 5255.
E-mail address: [email protected]
Available online at www.sciencedirect.com
Accounting, Organizations and Society 34 (2009) 488–498
www.elsevier.com/locate/aos
it introduces a new uniform regulation into national
contexts that vary substantially with regard to their
regulatory traditions and their national political
economies. As many studies have demonstrated,
these contexts serve as an important institutional
environment to companies and their decision-mak-
ing processes (e.g., Hall & Soskice, 2001; Lane &
Bachmann, 1996; Heritier, Knill, & Mingers,
1996). It can therefore be expected – and has already
been shown (Bailey, 2007; Engels, Huth, & Knoll,
2008) – that companies in various European mem-
ber states ?nd di?erent typical solutions to the prob-
lem of accounting for their carbon emissions and
?nding an orientation in the new trading scheme.
The question of which sources of knowledge and
expertise companies choose to take into consider-
ation is crucial to this process, as the new tool of
emissions trading is open to a whole range of di?er-
ent interpretations, depending on the emphasis of
the respective problem framework (e.g., legal, ?nan-
cial, technological emphasis).
This article presents selected ?ndings of a quanti-
tative survey of all companies covered by the
scheme in Germany, the UK, the Netherlands and
Denmark. Data are given on the sources of advice
companies used during the ?rst three years of the
EU ETS, and on the organisational unit within
the company that was assigned responsibility for
emissions trading. The results clearly indicate
important variations across countries. The article
is organised in four sections: ?rst, a brief introduc-
tion of the EU ETS will be given, followed by an
account of the methodology applied in the question-
naire and the type of data presented in this article.
Third, the results are given in a cross-country com-
parison that also looks at varying emphases over
time. Fourth, the implications of these results are
discussed with regard to the question of how com-
panies in the EU ETS learn to account for carbon.
The European Emissions Trading Scheme and the
need for companies to develop a new mindset
The EU ETS is organised in two di?erent phases.
Phase 1, from 2005 to 2007, served many companies
and national administrations as a period of learning
about the options and problems of this new policy
tool (Convery, Ellerman, & de Perthuis, 2008).
The second phase, from 2008 to 2012, is congruent
with the compliance period of the Kyoto Protocol,
in which the EU agreed to reduce its emission levels
by 8%, compared to the baseline year of 1990 (Deci-
sion 2002/358/EG). In Phase 1, allowances for emit-
ting 2.1 billion tons of CO
2
per year were issued to
the companies under the scheme (Convery et al.,
2008, p.13). As the allocation process was organised
in a decentralised way by the individual member
states, the volume of allocated allowances in each
national constituency was subject to heavy negotia-
tions and industrial lobbying (Kruger & Wallace E.
Pizer, 2007). The result in many member states was
generous allocation of allowances so that, across the
scheme, the number of allowances allocated sur-
passed the number of allowances actually needed
in this phase by 4% (Ellerman & Buchner, 2007, p.
78; Kettner, Ko¨ ppl, Stefan, Schleicher, & Thenius,
2007). This over-allocation became obvious after
the ?rst half of Phase 1, and was followed by a steep
decline in the price of CO
2
allowances in the scheme.
As the allowances were not transferable to Phase 2,
the price for an allowance to emit one ton of CO
2
closed at 0.02 € at the end of Phase 1, after reaching
a peak of 30.50 € in the spot market on 18 April
2006 (see www.nordpool.com). Despite the discon-
nection between Phase 1 and Phase 2, companies
had the option to trade future allowances through-
out Phase 1. This means a contracted promise to sell
or buy allowances in a ?xed year in Phase 2 for a
?xed price. These prices are much less volatile and
have been well above the 20 €-level since September
2007 (www.nordpool.com).
What were companies required to do in Phase 1
of the EU ETS, and what were the obligations but
also the new options that were created by their par-
ticipation in the scheme? First and foremost, the EU
ETS means that companies operating installations
under the scheme need allowances for their CO
2
emissions in order to receive or renew an operating
licence. National authorities were created that
organised the initial allocation process: each com-
pany received a certain amount of emission allow-
ances on a personal allowance account. At the end
of each trading year (March), the company is
obliged to transfer back to the national authority
the amount of allowances equivalent to their veri-
?ed emissions of the past year. Throughout the year,
companies can transfer their allowances to other
accounts across the EU, i.e., they can sell their
own allowances or buy allowances from others.
They may utilize several possible channels for trad-
ing: they can agree on a direct exchange with other
emitters, or they can commission a broker with this
task. They can also sell to a trader or sell and buy
allowances at exchanges or trading platforms. The
A. Engels / Accounting, Organizations and Society 34 (2009) 488–498 489
companies are free to choose which person (in
which unit within the company) is the account
holder and therefore entitled to order transfers from
one account to another. Before the scheme began,
the company therefore had to decide at what level
within the organisational hierarchy emissions trad-
ing would be located, whether it was seen as an
object of strategic development or more of an oper-
ational task, and which was the most important
organisational unit for understanding emissions
trading and its speci?c implications for the respec-
tive company (e.g., environmental management,
controlling, risk management). Companies have
several sources of advice and expertise available
when meeting such new tasks. They can use internal
sources such as individual experts or specialised
company units, but many companies make use of
additional external advice. There are a number of
questions that help companies to develop a strategic
orientation in the new trading scheme. Crucial ques-
tions are, e.g., what determines the company’s own
demand for allowances? How will the CO
2
emis-
sions develop over the year? How sensitive is this
development to several factors such as weather, eco-
nomic growth, competitors, changes in production,
and the behaviour of suppliers or costumers? What
are the technological options available to a com-
pany that must reduce its own CO
2
emissions, and
at what costs? What determines the costs of a bal-
anced allowances account at the end of each year?
Does an allowance represent a cost or an asset?
The company has to make sense of this new policy
tool in a very fundamental way. One could say
that the company needs to develop a mindset to
understand what exactly an emission allowance is
and what the company should do with it (Mac-
Kenzie, 2009). Is it simply a regulatory necessity?
A means of control? A means of ?exibility? An
object for arbitrage? How these questions are
answered by the greater number of companies
involved in the scheme will drastically in?uence
the e?ectiveness of the market in terms of its
liquidity, the price development and its environ-
mental e?ectiveness.
Qualitative research is needed to understand the
way in which companies learn to account for car-
bon. However, in a ?rst step it is interesting to see
which sources of advice most companies used to
?nd their way through Phase 1 of the EU ETS.
Therefore, this article focuses on quantitative ?nd-
ings from a company survey which is introduced
in the next chapter.
How companies learn about carbon markets:
Methodology and data
The results presented in this article are from an
own survey of all companies that ran installations
under the EU ETS in Germany, the United King-
dom, Denmark and the Netherlands. Companies
were contacted three times (summer 2006, spring
2007, spring 2008). The survey thus represents a
three-fold cross-section data-base. Companies were
asked if and how they had traded emission allow-
ances during the respective year, what their motiva-
tion had been (not) to trade, what kind of barriers
they had encountered, what sources of uncertainty
they found most pertinent, and from where and
how they received information and expertise on
emissions trading. The survey was translated into
the four national languages, and companies had
the choice between using an online tool and return-
ing the questionnaire by fax or normal mail. The
survey achieved response rates of between 19%
and 23% (see Table 1). Over 100 companies
answered the questionnaire in all three consecutive
years. The majority of companies belong to the
energy sector, but other sectors such as the chemical
industry and the mineral sector are also included.
1
Most sectors are represented in all four countries;
the pulp and paper industry is not represented in
the UK sample and only marginally in the Danish
sample. There is, however, no indication of a sys-
tematic bias in responses to the questionnaire.
The data below are a selection of the survey ques-
tions, as this article focuses on the cognitive sources
companies made use of to develop a strategic
response to the EU ETS. The question of which
company unit was responsible for emissions trading
was put as follows: ‘‘In 2005 [2006, 2007], which
unit in your company was responsible for the deci-
sion-making on emissions trading?’’ The exact
wording of the questions on the use of advice was:
‘‘In preparing the ?rst trading year, which units
within your company and which external organisa-
tions have provided advice and/or support?’’ and
in the second and third questionnaire: ‘‘In the trad-
ing year 2006 [2007], which units within your com-
pany and which external organisations have
provided advice and/or support?’’. The data on
the trading rates is provided in Table 2 as back-
1
These industries are only indirectly covered by the EU ETS,
e.g., through combustion.
490 A. Engels / Accounting, Organizations and Society 34 (2009) 488–498
ground information (‘‘Has your company traded
emission allowances in the year 2005?’’). The project
ultimately aims at a multivariate analysis of com-
pany behaviour in the EU ETS.
2
As this article’s
purpose is a more descriptive overview of the use
of expertise, the results are given as a straightfor-
ward frequency distribution.
Basic ?ndings: Country di?erences and varying
emphases over time
Even though the EU ETS is a common environ-
mental policy tool for all member states, it has been
introduced and implemented into the various
national contexts in very di?erent ways. The di?er-
ences relate to the amount of allocated allowances
(or, in other words, to the degree of scarcity that
was introduced by national authorities), to the
way in which the allocation was organised (whether
or not auctions were used)
3
, to the di?erential treat-
ment of industry sectors, to the introduction of rules
of exception, and to some other options (Convery
et al., 2008). It is therefore not surprising to see that
country di?erences occur with regard to the number
of companies that made use of the trading tool. The
survey reveals that the rate of companies that traded
in each of these years not only varies across the four
countries but also over time (Table 2). While Ger-
man companies seemed to be very hesitant in the
?rst trading year, the share of companies that
traded in 2006 and 2007 rose from less than one-
third to almost half of all companies that answered
the questionnaire. A similar development can be
seen in the Dutch samples, where less than 40% of
the companies traded in the ?rst year of the scheme,
but almost 80% in both 2006 and 2007. In Den-
mark, however, the trend seems to point in the other
direction. While half of the companies traded in
2005, and slightly over half in 2006, this share of
companies fell below 40% in the last year of Phase
Table 1
Response rate of companies covered by the EU ETS in Germany, the UK, Denmark, and the Netherlands
# of companies covered
by the EU ETS
% of companies
in EU4
# of returned
questionnaires
Response rate
in %
2005 Germany 953 55.9 249 26.1
United Kingdom 408 23.9 69 16.9
Denmark 216 12.7 40 18.5
Netherlands 127 7.5 29 22.8
EU4 1704 100.0 387 22.7
2006 Germany 933 55.5 243 25.1
United Kingdom 407 24.2 65 16.0
Denmark 216 12.9 42 19.4
Netherlands 124 7.4 26 21.0
EU4 1680 100.0 367 21.9
2007
*
Germany 904 55.3 215 23.8
United Kingdom 397 24.3 46 11.6
Denmark 213 13.0 36 16.9
Netherlands 120 7.3 18 15.0
EU4 1634 100.0 315 19.3
*
As of 12th June 2008.
Table 2
Rate of trading
2005 2006 2007
Germany 27.3 47.0 48.8
UK 47.8 46.2 52.2
DK 50.0 52.4 38.9
NL 37.9 76.9 77.8
EU4 34.1 49.6 49.8
% of companies with trading activities N: 2005 = 387,
2006 = 367, 2007 = 315.
2
Martin Huth’s dissertation project builds on a multivariate
analysis of institutional factors in?uencing company behavior.
3
The European Emissions Trading Directive allowed member
states to allocate up to 5% via auctions in Phase 1 (Directive
2003/87/EG).
A. Engels / Accounting, Organizations and Society 34 (2009) 488–498 491
1. The least changes are found in the UK samples.
Their share of companies that traded allowances
has been almost 50% for all three consecutive years.
We have commented elsewhere on how these coun-
try di?erences may relate to the national institu-
tional contexts in which companies operate
(Engels et al., 2008).
In this article, however, the main question is how
companies try to make sense of emissions trading,
how they learn to account for carbon, and which
sources of knowledge and expertise they use in this
process. In a ?rst step, it is interesting to discover
the level of knowledge companies have acquired
over time. In the survey this was operationalized
by a question on knowledge of the company’s
abatement costs: ‘‘Are you familiar with your com-
pany’s costs of reducing CO
2
emissions?’’ This is a
simple but meaningful indicator, as companies need
this information to make sense of the price for
allowances that can be bought in the trading
scheme. If companies emit more CO
2
than their ini-
tial allocation allows, they must decide whether to
buy additional allowances in the market or to strive
for technological adjustments reducing the com-
pany’s emission levels. Obviously, what happened
in the real market in Phase 1 of the EU ETS was
a price decline so dramatic that companies did not
have to make this calculation. At least during the
second half of Phase 1, it was certainly cheaper to
buy than to invest in technological changes. None-
theless, it is surprising to see the low level of knowl-
edge in the companies that responded to the survey
(Table 3). Over the course of three years, the share
of companies that is not familiar with their own
abatement costs stays at slightly below one-third
(Table 3; last line EU4). Even more explicit is the
?nding that the share of companies responding to
this question with ‘‘yes’’ falls from 37% to 32%. This
trend is mostly due to the large German sample in
which only approximately one fourth of the compa-
nies claimed to know their abatement costs in spring
2008, when they answered the third questionnaire.
The Danish samples show a similar pattern over
time, albeit from a much higher level. Only the
Dutch samples show a rise in knowledge, as the
share of companies that know their abatement costs
rises from well below one-third in the ?rst two years
to 50% after the third trading year. Again, the Uni-
ted Kingdom is the country with the most stable
pattern over time. The relatively high rate of compa-
nies that traded in each of the three years (Table 2)
corresponds to the relatively high level of companies
that know their own abatement costs (Table 3),
which is more than 50% of the companies in each
year.
Which company unit was responsible for emis-
sions trading in the ?rst three years? Was decision
competency located at the highest level in the orga-
nizational hierarchy, or in a specialised department
at the operational level? This section deals with the
question of which company unit was assigned
responsibility for emissions trading in Phase 1.
The results are summarised in Table 4. In all four
countries, the largest group of companies located
the responsibility for emissions trading at the high-
est level of the organisational hierarchy in 2005: it
was seen as a task of the Executive Board/the Board
of Directors by more than 50% of the companies in
Germany and the Netherlands, by 40% of the
companies in the UK and by a stunning 73% of
the Danish companies. This rate is lower in all coun-
tries in the last year of Phase 1, with a di?erence of
12% in Germany, 28% in the UK, 33% in the Neth-
erlands, and 9% in Denmark. It seems that more
companies have developed a more speci?c under-
standing of emissions trading over the years, so that
the responsibility can be transferred to a specialised
company unit such as Controlling or the Environ-
Table 3
Knowledge of costs reducing CO
2
emissions within the own company
Summer 2006 Spring 2007 Spring 2008
No M/L Yes No M/L Yes No M/L Yes
Germany 38.4 30.8 30.8 40.2 35.4 24.4 37.4 37.0 25.6
UK 14.7 29.4 55.9 12.5 34.4 53.1 15.2 32.6 52.2
DK 10.0 42.5 47.5 19.0 31.0 50.0 30.6 36.1 33.3
NL 38.0 31.0 31.0 42.3 26.9 30.8 22.2 27.8 50.0
EU4 31.2 31.8 37.0 33.0 34.0 33.0 32.5 35.7 31.8
% of companies with degree of abatement cost knowledge per country and year, N: Summer 2006 = 384, Spring 2007 = 361, Spring
2008 = 315; M/L ‘‘More or less’’.
492 A. Engels / Accounting, Organizations and Society 34 (2009) 488–498
Table 4
Responsible unit within the company
Germany United Kingdom Denmark Netherlands
2005 2006 2007 2005 2006 2007 2005 2006 2007 2005 2006 2007
Executive board /
Board of directors
53.5 47.4 41.8 Executive board /
Board of directors
40.6 27.7 13.1 Executive board /
Board of directors
72.5 73.8 63.9 Executive board /
Board of directors
51.7 57.7 18.8
Manufacturing 11.3 8.1 15.2 Environmental
department
23.3 32.3 43.4 Manufacturing 20.0
*
13.9 Controlling 13.8
*
37.5
Environmental
department
9.2 12.0 12.3 Manufacturing 11.6
* *
Environmental
department
* * *
Environmental
department
10.4
*
0.0
Controlling 6.0 5.6 8.5 No explicit
responsibility
10.1
*
13.0 Controlling
* *
0.0 Portfolio
management
10.3
* *
Specialised trading
?oor
5.6 6.4 4.7 No statement
* * *
Specialised trading
?oor
* * *
Risk management 7.0
* *
Portfolio
management
4.8 7.3 6.6 Risk management
* * *
Legal department 0.0 0.0 0.0 Manufacturing
* * *
No statement 4.0 4.7 6.2 Portfolio
management
* * *
Risk management 0.0 0.0 0.0 Trading outsourced
to third parties
*
0.0 0.0
No explicit
responsibility
2.0 5.5 2.8 Specialised trading
?oor
*
7.7
*
Portfolio
Management
0.0 0.0 0.0 Legal department 0.0 0.0 0.0
Trading outsourced
to third parties
2.0 2.6
*
Controlling
*
7.7
*
No explicit
Responsibility
0.0
*
0.0 Specialised trading
?oor
0.0
*
0.0
Risk management
* * *
Legal department 0.0 0.0 0.0 Trading outsourced
to third parties
0.0 0.0
*
No explicit
Responsibility
0.0 0.0 0.0
Legal department 0.0 0.0
*
Trading outsourced
to third parties
0.0 0.0
*
No statement 0.0 0.0 0.0 No statement 0.0 0.0
*
% of companies with responsible unit per country and year, N: 2005 = 387, 2006 = 367, 2007 = 315;
*
>5 cases; results are given in a frequency ranking per country in 2005. Each
column sums up to 100% if all values are included.
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mental Department. It was only in the UK that a
discernible share of companies had not developed
explicit responsibility by 2007 (13%).
How did the responsible organizational unit form
its information base of rules and criteria for deci-
sion-making? The ?rst option is to ask other units
within the same company for advice and support.
Where does the company locate its own expertise,
where does it look for information and advice
(Table 5)? The answers are given by country and
by year; the sources of advice are ranked per coun-
try according to their importance in the ?rst trading
year.
A look at the country rankings shows that the
Environmental Department is the most important
location in all countries except for Denmark, where
only less than one ?fth of the companies used the
expertise of this company unit. An unspeci?ed
‘‘other’’ source is mentioned quite frequently in all
countries; the survey unfortunately does not provide
information on what this source might be, or if it is
a mixture of several sources. The Environmental
Department stays the single most important source
of advice in Germany all through Phase 1, although
in 2007, 3% fewer companies answered that they
had used this source of advice. However, the role
of manufacturing decreases signi?cantly: in 2007
merely one fourth of the companies sought advice
from their manufacturing units as compared to
almost 40% in 2005. This might correspond with
the initial complexity of technical questions in mon-
itoring a company’s CO
2
emissions. On the other
hand, a growing number of companies seem to
regard Controlling as important.
In the United Kingdom, the Environmental
Department is considered an important source of
advice by even more companies than in the German
samples, followed by ‘‘other’’, and Risk Manage-
ment, Manufacturing and the Legal Department.
The latter was dropped by many UK companies
as a source of expertise in 2007. This might be a hint
that most companies had solved legal problems in
the third year of the trading scheme. Manufacturing
is the most important source of expertise in Den-
mark, and remains so throughout Phase 1. The sec-
ond most important source in 2005, Controlling,
was dropped by many companies in the following
two years. However, ‘‘other’’ and the Environmen-
tal Department have been used more often over
the years. In the Netherlands in 2005 and 2007,
the Environmental Department was seen by most
companies as a source of internal advice, with a T
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494 A. Engels / Accounting, Organizations and Society 34 (2009) 488–498
slump in 2006. Controlling lost its importance over
time and was used as often as Manufacturing at the
end of Phase 1. The Legal Department and Risk
Management were regarded by at least 20% of the
companies as a relevant source of advice in the ?rst
year, but less so in the third year.
Overall, these data reveal di?erent patterns as to
the type of emissions trading problems regarded as
most pertinent in a speci?c country. The changes
over time might indicate learning processes or sim-
ply a shift in the perception and interpretation of
the environmental policy tool. Without qualitative
data it is di?cult to achieve a deeper understanding
of the internal consulting process companies employ
to develop an orientation in the new trading scheme.
However, there are quite a few hypotheses that can
be generated from the data-base. The Environmen-
tal Department seems a natural candidate for inter-
nal consulting, since emissions trading was
introduced as a new environmental policy tool.
Against this background, it is surprising to see that
often less than 50% of the companies in a country
sample use this source of advice, with only one
fourth or less in the Danish sample.
We assume that the Environmental and the Legal
Department are the most important company units
to ensure that companies operate within legal limits.
The compliance aspect of trading is very important
in these departments. The Manufacturing units, on
the other hand, can be expected to have more tech-
nical expertise on actual emission levels and on the
company speci?c technological options to reduce
or avoid emissions. It is important to note that
those company units that come closest to a trading
or arbitrage perspective (Risk Management, Portfo-
lio Management and Specialised Trading Floor)
were only rarely used as a source of advice in the
?rst three trading years. Another interesting result
is the minor importance of the Communications
Department, apart from 17% to 14% in the German
samples. Obviously, emissions trading is not
regarded so much in terms of an ‘‘image’’ problem
in the three other countries. In Germany, however,
emissions trading has always been criticised in the
mass media and by environmental NGOs as corpo-
rate green-washing, or has been compared to the
selling of indulgences. Companies in Germany
therefore also need to know how emissions trading
might a?ect their wider public image.
Many companies did not rely on internal sources
of advice alone. They were able to choose between
various types of expertise provided by, e.g., private
consulting ?rms, state agencies or industrial associ-
ations, but also between services o?ered by insur-
ance companies, banks, environmental NGOs or
research institutions. Other options were to learn
from one another or to participate in workshops
o?ered by a range of providers. Answers to the
related question are summarised in Table 6.
A comparison of the country rankings reveals
that companies in the four countries relied on the
di?erent sources of external advice to varying
degrees. In Germany, the UK and the Netherlands,
companies contracted specialised private consulting
?rms and attended workshops the most frequently,
with Dutch companies relying even more on work-
shops than on specialised consulting ?rms. How-
ever, in Denmark a relatively large number of
companies did not use any form of external advice
at all. Other country di?erences refer to the relative
importance of industrial associations on the one
hand, which were very important for German ?rms,
and banks on the other. Dutch companies relied
most strongly on the expertise of banks, while they
were not often consulted by companies in most
other countries. State services were – at least in
the initial phase – most important in the UK and
in the Netherlands but ranked lower in Germany
and, even more distinctly, in Denmark.
Changes of relative importance occurred over
time in all countries. While German companies used
specialised private consulting ?rms throughout
Phase 1, the number of companies that obtained
expert advice through workshops, industrial associ-
ations, other emitters and state services declined.
Banks increased in importance, which were, after
all, consulted by 14% of the companies in 2007.
Companies that did not use any external advice also
increased: their share almost doubled from 12% to
over 23%. Changes in the UK samples reveal a dif-
ferent pattern: the three most important sources of
advice in 2005 (specialised private consulting ?rms,
workshops and state services) noticeably lost their
importance over the years. Instead, advice by other
emitters and industrial associations was in greater
demand in 2006 and 2007. Similar to the German
samples, the share of companies without external
advice rose from 13% to almost 22%. In Denmark,
the high share of companies that used no external
advice fell continuously to only 28% in 2007. It
seems that companies have mostly turned to other
emitters in their search for expertise, as there has
been a sharp increase from 7% to more than 30%.
Other changes are di?cult to interpret as the num-
A. Engels / Accounting, Organizations and Society 34 (2009) 488–498 495
Table 6
Sources of external advice
Germany United Kingdom Denmark Netherlands
2005 2006 2007 2005 2006 2007 2005 2006 2007 2005 2006 2007
Specialised private
consulting ?rms
46.2 41.9 45.1 Specialised private
consulting ?rms
49.3 30.8 30.4 No external advise/
support
45.0 35.7 27.8 Workshops 34.5 38.5
*
Workshops 36.9 23.5 21.9 Workshops 30.4 26.2 15.2 Specialised private
consulting ?rms
22.5 19.0 19.4 Specialised private
consulting ?rms
27.6
* *
Industrial
associations
34.1 29.9 24.7 State services 21.7 10.8
*
No statement on
external advice
12.5 14.3
*
No external advise/
support
20.7
*
38.9
Other emitters 16.5 14.1 8.4 Other emitters 15.9 26.2 23.9 Industrial
associations
* * *
Banks 17.2
* *
No external advise/
support
12.0 17.1 23.3 Other 15.9 10.8 10.9 Other emitters
*
26.2 30.6 State services 17.2 26.9 0.0
State services 9.6 5.6 4.2 Industrial
associations
14.5 24.6 19.6 Workshops
* * *
Other
* * *
Other 9.2 8.1 7.4 No external advise/
support
13.0 15.4 21.7 General private
consulting ?rms
* * *
General private
consulting ?rms
* * *
Banks 7.6 13.2 14.0 Environmental
NGOs
8.7 12.3 10.9 Insurance companies
*
0.0 0.0 Industrial
associations
* *
0.0
Scientists, research
institutions
4.8
* *
General private
consulting ?rms
*
20.0 10.9 Banks
*
0.0
*
Other emitters
* * *
General private
consulting ?rms
3.6 8.5 7.0 Banks
* * *
State services
* *
0.0 No statement on
external advice
* * *
Insurance companies
* * *
Scientists, research
institutions
* * *
Other
* * *
Insurance companies 0.0 0.0
*
Not statement of
external advice
*
4.7 4.2 No statement on
external advice
*
0.0
*
Environmental
NGOs
0.0 0.0 0.0 Environmental
NGOs
0.0 0.0 0.0
Environmental
NGOs
* *
0.0 Insurance companies 0.0 0.0 0.0 Scientists, research
institutions
0.0 0.0 0.0 Scientists, research
institutions
0.0
*
0.0
% of companies mentioned external source of advice per country and year, multiple response set, N: 2005 = 387, 2006 = 367, 2007 = 315; > 5 cases; results are given in a frequency
ranking per country in 2005.
4
9
6
A
.
E
n
g
e
l
s
/
A
c
c
o
u
n
t
i
n
g
,
O
r
g
a
n
i
z
a
t
i
o
n
s
a
n
d
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o
c
i
e
t
y
3
4
(
2
0
0
9
)
4
8
8
–
4
9
8
ber of cases in most remaining cells is below ?ve. In
the Netherlands, most sources of advice important
in the ?rst year sharply declined in Phase 1 (work-
shops, specialised private consulting ?rms and state
services). Only banks remained relatively important,
while the share of companies that did not use exter-
nal sources of advice grew.
Discussion and conclusions
What are the implications of these rather descrip-
tive ?ndings for the question of how companies
learn to account for carbon? The results of the sur-
vey indicate that companies use various sources of
information and expertise to make sense of carbon
markets. The distribution patterns vary across
countries and over time. The sources of expertise
can form speci?c cognitive bases in which compa-
nies develop a new mindset to account for carbon.
This can be demonstrated by comparing banks with
industrial associations. The latter were particularly
important in Germany. However, German indus-
trial associations were very reluctant to accept the
new environmental policy tool and engaged in lob-
bying activities to prevent the EU ETS from becom-
ing mandatory for German companies. When this
failed, they focussed on supporting companies to ?le
claims against their individual noti?cation in the
National Allocation Plan (Seht and Ott, 2000;
Schafhausen, 2006). Their expertise would therefore
focus not on the trading aspects but rather on legal
complaints. It would be di?cult to derive an active
trading strategy from this type of expertise alone.
On the other hand, banks, and to some degree
insurance companies, would rather see emission
allowances in a ?nancial framework, in which
allowances could be used to hedge against ?nancial
risks or even to achieve additional gains through
arbitrage. It is also interesting to see that specialised
private consulting ?rms were the single most impor-
tant source of expertise, as they o?er exclusive
advice to the individual company. Obviously, emis-
sions trading was regarded by many companies as a
strategic problem that did not allow them to rely on
publicly available general information but rather
forced them to seek customised support. Through
participation in workshops, on the other hand, com-
panies had access to a shared pool of knowledge.
They could exchange information with other partic-
ipants and ?nd out how emissions trading was
regarded and interpreted by other companies.
Many companies use external sources of exper-
tise, combine this with the internal insights gener-
ated by specialised company units, and develop a
strategic response to the EU ETS that is imple-
mented by yet another company unit. In an ideal
typical perspective, one company might use a bank
as external source and Portfolio Management as an
internal source of advice before assigning the
responsibility for emissions trading to the com-
pany’s specialised trading ?oor. Another might
combine external support by an industrial associa-
tion (critical of the EU ETS) with internal advice
by the Communications Department, while the
responsible unit is the Manufacturing unit itself.
We would expect a strong trading or even arbitrage
perspective in the former case and a reluctant and
compliance-related orientation in the latter. Ongo-
ing research will provide a more complete picture
of how this process evolves within the organisation.
Therefore, this type of data is interesting at two
levels of analysis: ?rst, at the company level the indi-
vidual combination of di?erent sources of advice and
the change over time will probably lead to a speci?c
understanding of emissions trading and how to deal
with it. Based on the ?ndings of the quantitative sur-
vey, several qualitative company case studies were
conducted in 2008 to analyse this process in more
detail.
4
Second, the results indicate that companies
are confronted with di?erent national cultures of
expertise (Engels et al., 2008). This argument is clo-
sely related to other ?ndings discussed in the litera-
ture on emissions trading. One ?nding is that the
degree to which emissions trading can di?use to
new political constituencies depends on the existence
or emergence of a specialised service industry (Voß,
2007a, 2007b). It is plausible to assume that this
service industry is not uniformly distributed across
Europe, but that the type of specialisation (technical,
?nancial, law), the size of the service providers, and
the structure and density of the service industry var-
ies across countries (Engels et al., 2008). A further
important ?nding is that national regulatory tradi-
tions ease or hamper the companies’ ability to learn
to account for carbon in the framework of a trading
scheme. E.g., while the EU ETS presented new chal-
lenges for both German and UK companies, the lat-
ter were able to tie the new challenges to past
4
Lisa Knoll’s dissertation project at the University of Ham-
burg relates to these corporate case studies and analyses the social
formation of various CO
2
-trading strategies.
A. Engels / Accounting, Organizations and Society 34 (2009) 488–498 497
experiences with market based mechanisms. On the
other hand, for German companies the introduction
of emissions trading really meant a break in the path
which required fundamentally new ways of thinking
about industrial CO
2
emissions (Bailey, 2007).
However, apart from information on which per-
spectives are developed, the survey also reveals a
level of ignorance among some of the companies,
showing that they have not used Phase 1 to develop
such a perspective. One indicator for this is the large
share of companies that up to this date do not know
their own abatement costs. This remains a puzzle,
even with the explanation that an allowance price
of near zero does not incur costly search strategies
within the companies. It should have been obvious
that emitting carbon will be restricted and will most
probably continue to become more expensive in the
long run. Moreover, a number of companies did
not use external sources of advice, and at times no
internal sources of expertise were consulted. In some
cases, companies did not even assign an explicit
responsibility for emissions trading. In their preli-
minary assessment of lessons learned from the ?rst
trading period of the EU ETS, Convery et al. con-
clude that ‘‘[m]arket e?ciency depends on market
participants’ ability to access reliable information’’
(p. 15). After all, this not only applies to the infra-
structures and data banks provided by the European
Commission, but also to the companies’ willingness
to invest in knowing their own (carbon) market
fundamentals.
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doc_560036722.pdf
European companies were confronted with new organisational challenges when the European Emissions Trading
Scheme (EU ETS) was introduced in 2005. What were their cognitive sources for developing an orientation in this scheme?
This paper presents original data from a survey of the University of Hamburg, dealing with companies’ responses to the
EU ETS in 2005–2007. The survey was conducted three times and addressed all companies covered by the trading scheme
in Germany, the United Kingdom, Denmark and the Netherlands (response rate of 19%–23% over three years). Results are
provided on the share of companies that traded emission allowances, on the knowledge of their own CO2 abatement costs,
on the organisational unit that was responsible for decisions on emissions trading, and on the use of internal and external
sources of advice.
The European Emissions Trading Scheme: An exploratory
study of how companies learn to account for carbon
q
Anita Engels
*
Centre for Globalisation and Governance, Faculty of Economics and Social Sciences, University of Hamburg, Hamburg, Germany
Abstract
European companies were confronted with new organisational challenges when the European Emissions Trading
Scheme (EU ETS) was introduced in 2005. What were their cognitive sources for developing an orientation in this scheme?
This paper presents original data from a survey of the University of Hamburg, dealing with companies’ responses to the
EU ETS in 2005–2007. The survey was conducted three times and addressed all companies covered by the trading scheme
in Germany, the United Kingdom, Denmark and the Netherlands (response rate of 19%–23% over three years). Results are
provided on the share of companies that traded emission allowances, on the knowledge of their own CO
2
abatement costs,
on the organisational unit that was responsible for decisions on emissions trading, and on the use of internal and external
sources of advice. The data thus provides an insight into the cognitive resources that companies brought to bear when
looking for an orientation in the new trading scheme. The sources of advice and the internal assignment of responsibility
build the framework of competencies in which companies learn to account for carbon.
Ó 2008 Elsevier Ltd. All rights reserved.
Introduction
The European Emissions Trading Scheme can be
regarded as a major policy innovation (Voß, 2007a)
that di?used from the United States to various
European states and ?nally to the European Union
at a surprising speed (Braun, 2009; Christiansen &
Wettestad, 2003; Wettestad, 2005). Since January
2005, the scheme has become mandatory for all
member countries of the European Union, including
the accession countries from the moment in which
they acquire membership status. More than 10,000
plants and installations are covered by the scheme.
It is the largest mandatory scheme in the world,
and is seen by many as the prototype of a future glo-
bal carbon trading scheme. Emissions trading
requires companies operating under the new scheme
to develop new knowledge and competencies within
the organisation. Companies need to develop organ-
isational routines to deal with emission allowances
and represent this new ‘‘object’’ in the company’s
accounting system (MacKenzie, 2007). From a
social sciences point of view, the EU ETS is a fasci-
nating subject area worth studying in some depth, as
0361-3682/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2008.08.005
q
The study is funded by the German Research Council (DFG
488/2-1; August 2006–August 2009). A ?rst version of the paper
was presented to the workshop ‘Carbon Markets in Social
Science Perspective’ at the Institute of Advanced Study, Durham
University, on 7 November 2007. I thank Martin Huth, Lisa
Knoll and two anonymous reviewers for helpful comments.
*
Tel.: +49 40 42838 3832; fax: +49 40 42838 5255.
E-mail address: [email protected]
Available online at www.sciencedirect.com
Accounting, Organizations and Society 34 (2009) 488–498
www.elsevier.com/locate/aos
it introduces a new uniform regulation into national
contexts that vary substantially with regard to their
regulatory traditions and their national political
economies. As many studies have demonstrated,
these contexts serve as an important institutional
environment to companies and their decision-mak-
ing processes (e.g., Hall & Soskice, 2001; Lane &
Bachmann, 1996; Heritier, Knill, & Mingers,
1996). It can therefore be expected – and has already
been shown (Bailey, 2007; Engels, Huth, & Knoll,
2008) – that companies in various European mem-
ber states ?nd di?erent typical solutions to the prob-
lem of accounting for their carbon emissions and
?nding an orientation in the new trading scheme.
The question of which sources of knowledge and
expertise companies choose to take into consider-
ation is crucial to this process, as the new tool of
emissions trading is open to a whole range of di?er-
ent interpretations, depending on the emphasis of
the respective problem framework (e.g., legal, ?nan-
cial, technological emphasis).
This article presents selected ?ndings of a quanti-
tative survey of all companies covered by the
scheme in Germany, the UK, the Netherlands and
Denmark. Data are given on the sources of advice
companies used during the ?rst three years of the
EU ETS, and on the organisational unit within
the company that was assigned responsibility for
emissions trading. The results clearly indicate
important variations across countries. The article
is organised in four sections: ?rst, a brief introduc-
tion of the EU ETS will be given, followed by an
account of the methodology applied in the question-
naire and the type of data presented in this article.
Third, the results are given in a cross-country com-
parison that also looks at varying emphases over
time. Fourth, the implications of these results are
discussed with regard to the question of how com-
panies in the EU ETS learn to account for carbon.
The European Emissions Trading Scheme and the
need for companies to develop a new mindset
The EU ETS is organised in two di?erent phases.
Phase 1, from 2005 to 2007, served many companies
and national administrations as a period of learning
about the options and problems of this new policy
tool (Convery, Ellerman, & de Perthuis, 2008).
The second phase, from 2008 to 2012, is congruent
with the compliance period of the Kyoto Protocol,
in which the EU agreed to reduce its emission levels
by 8%, compared to the baseline year of 1990 (Deci-
sion 2002/358/EG). In Phase 1, allowances for emit-
ting 2.1 billion tons of CO
2
per year were issued to
the companies under the scheme (Convery et al.,
2008, p.13). As the allocation process was organised
in a decentralised way by the individual member
states, the volume of allocated allowances in each
national constituency was subject to heavy negotia-
tions and industrial lobbying (Kruger & Wallace E.
Pizer, 2007). The result in many member states was
generous allocation of allowances so that, across the
scheme, the number of allowances allocated sur-
passed the number of allowances actually needed
in this phase by 4% (Ellerman & Buchner, 2007, p.
78; Kettner, Ko¨ ppl, Stefan, Schleicher, & Thenius,
2007). This over-allocation became obvious after
the ?rst half of Phase 1, and was followed by a steep
decline in the price of CO
2
allowances in the scheme.
As the allowances were not transferable to Phase 2,
the price for an allowance to emit one ton of CO
2
closed at 0.02 € at the end of Phase 1, after reaching
a peak of 30.50 € in the spot market on 18 April
2006 (see www.nordpool.com). Despite the discon-
nection between Phase 1 and Phase 2, companies
had the option to trade future allowances through-
out Phase 1. This means a contracted promise to sell
or buy allowances in a ?xed year in Phase 2 for a
?xed price. These prices are much less volatile and
have been well above the 20 €-level since September
2007 (www.nordpool.com).
What were companies required to do in Phase 1
of the EU ETS, and what were the obligations but
also the new options that were created by their par-
ticipation in the scheme? First and foremost, the EU
ETS means that companies operating installations
under the scheme need allowances for their CO
2
emissions in order to receive or renew an operating
licence. National authorities were created that
organised the initial allocation process: each com-
pany received a certain amount of emission allow-
ances on a personal allowance account. At the end
of each trading year (March), the company is
obliged to transfer back to the national authority
the amount of allowances equivalent to their veri-
?ed emissions of the past year. Throughout the year,
companies can transfer their allowances to other
accounts across the EU, i.e., they can sell their
own allowances or buy allowances from others.
They may utilize several possible channels for trad-
ing: they can agree on a direct exchange with other
emitters, or they can commission a broker with this
task. They can also sell to a trader or sell and buy
allowances at exchanges or trading platforms. The
A. Engels / Accounting, Organizations and Society 34 (2009) 488–498 489
companies are free to choose which person (in
which unit within the company) is the account
holder and therefore entitled to order transfers from
one account to another. Before the scheme began,
the company therefore had to decide at what level
within the organisational hierarchy emissions trad-
ing would be located, whether it was seen as an
object of strategic development or more of an oper-
ational task, and which was the most important
organisational unit for understanding emissions
trading and its speci?c implications for the respec-
tive company (e.g., environmental management,
controlling, risk management). Companies have
several sources of advice and expertise available
when meeting such new tasks. They can use internal
sources such as individual experts or specialised
company units, but many companies make use of
additional external advice. There are a number of
questions that help companies to develop a strategic
orientation in the new trading scheme. Crucial ques-
tions are, e.g., what determines the company’s own
demand for allowances? How will the CO
2
emis-
sions develop over the year? How sensitive is this
development to several factors such as weather, eco-
nomic growth, competitors, changes in production,
and the behaviour of suppliers or costumers? What
are the technological options available to a com-
pany that must reduce its own CO
2
emissions, and
at what costs? What determines the costs of a bal-
anced allowances account at the end of each year?
Does an allowance represent a cost or an asset?
The company has to make sense of this new policy
tool in a very fundamental way. One could say
that the company needs to develop a mindset to
understand what exactly an emission allowance is
and what the company should do with it (Mac-
Kenzie, 2009). Is it simply a regulatory necessity?
A means of control? A means of ?exibility? An
object for arbitrage? How these questions are
answered by the greater number of companies
involved in the scheme will drastically in?uence
the e?ectiveness of the market in terms of its
liquidity, the price development and its environ-
mental e?ectiveness.
Qualitative research is needed to understand the
way in which companies learn to account for car-
bon. However, in a ?rst step it is interesting to see
which sources of advice most companies used to
?nd their way through Phase 1 of the EU ETS.
Therefore, this article focuses on quantitative ?nd-
ings from a company survey which is introduced
in the next chapter.
How companies learn about carbon markets:
Methodology and data
The results presented in this article are from an
own survey of all companies that ran installations
under the EU ETS in Germany, the United King-
dom, Denmark and the Netherlands. Companies
were contacted three times (summer 2006, spring
2007, spring 2008). The survey thus represents a
three-fold cross-section data-base. Companies were
asked if and how they had traded emission allow-
ances during the respective year, what their motiva-
tion had been (not) to trade, what kind of barriers
they had encountered, what sources of uncertainty
they found most pertinent, and from where and
how they received information and expertise on
emissions trading. The survey was translated into
the four national languages, and companies had
the choice between using an online tool and return-
ing the questionnaire by fax or normal mail. The
survey achieved response rates of between 19%
and 23% (see Table 1). Over 100 companies
answered the questionnaire in all three consecutive
years. The majority of companies belong to the
energy sector, but other sectors such as the chemical
industry and the mineral sector are also included.
1
Most sectors are represented in all four countries;
the pulp and paper industry is not represented in
the UK sample and only marginally in the Danish
sample. There is, however, no indication of a sys-
tematic bias in responses to the questionnaire.
The data below are a selection of the survey ques-
tions, as this article focuses on the cognitive sources
companies made use of to develop a strategic
response to the EU ETS. The question of which
company unit was responsible for emissions trading
was put as follows: ‘‘In 2005 [2006, 2007], which
unit in your company was responsible for the deci-
sion-making on emissions trading?’’ The exact
wording of the questions on the use of advice was:
‘‘In preparing the ?rst trading year, which units
within your company and which external organisa-
tions have provided advice and/or support?’’ and
in the second and third questionnaire: ‘‘In the trad-
ing year 2006 [2007], which units within your com-
pany and which external organisations have
provided advice and/or support?’’. The data on
the trading rates is provided in Table 2 as back-
1
These industries are only indirectly covered by the EU ETS,
e.g., through combustion.
490 A. Engels / Accounting, Organizations and Society 34 (2009) 488–498
ground information (‘‘Has your company traded
emission allowances in the year 2005?’’). The project
ultimately aims at a multivariate analysis of com-
pany behaviour in the EU ETS.
2
As this article’s
purpose is a more descriptive overview of the use
of expertise, the results are given as a straightfor-
ward frequency distribution.
Basic ?ndings: Country di?erences and varying
emphases over time
Even though the EU ETS is a common environ-
mental policy tool for all member states, it has been
introduced and implemented into the various
national contexts in very di?erent ways. The di?er-
ences relate to the amount of allocated allowances
(or, in other words, to the degree of scarcity that
was introduced by national authorities), to the
way in which the allocation was organised (whether
or not auctions were used)
3
, to the di?erential treat-
ment of industry sectors, to the introduction of rules
of exception, and to some other options (Convery
et al., 2008). It is therefore not surprising to see that
country di?erences occur with regard to the number
of companies that made use of the trading tool. The
survey reveals that the rate of companies that traded
in each of these years not only varies across the four
countries but also over time (Table 2). While Ger-
man companies seemed to be very hesitant in the
?rst trading year, the share of companies that
traded in 2006 and 2007 rose from less than one-
third to almost half of all companies that answered
the questionnaire. A similar development can be
seen in the Dutch samples, where less than 40% of
the companies traded in the ?rst year of the scheme,
but almost 80% in both 2006 and 2007. In Den-
mark, however, the trend seems to point in the other
direction. While half of the companies traded in
2005, and slightly over half in 2006, this share of
companies fell below 40% in the last year of Phase
Table 1
Response rate of companies covered by the EU ETS in Germany, the UK, Denmark, and the Netherlands
# of companies covered
by the EU ETS
% of companies
in EU4
# of returned
questionnaires
Response rate
in %
2005 Germany 953 55.9 249 26.1
United Kingdom 408 23.9 69 16.9
Denmark 216 12.7 40 18.5
Netherlands 127 7.5 29 22.8
EU4 1704 100.0 387 22.7
2006 Germany 933 55.5 243 25.1
United Kingdom 407 24.2 65 16.0
Denmark 216 12.9 42 19.4
Netherlands 124 7.4 26 21.0
EU4 1680 100.0 367 21.9
2007
*
Germany 904 55.3 215 23.8
United Kingdom 397 24.3 46 11.6
Denmark 213 13.0 36 16.9
Netherlands 120 7.3 18 15.0
EU4 1634 100.0 315 19.3
*
As of 12th June 2008.
Table 2
Rate of trading
2005 2006 2007
Germany 27.3 47.0 48.8
UK 47.8 46.2 52.2
DK 50.0 52.4 38.9
NL 37.9 76.9 77.8
EU4 34.1 49.6 49.8
% of companies with trading activities N: 2005 = 387,
2006 = 367, 2007 = 315.
2
Martin Huth’s dissertation project builds on a multivariate
analysis of institutional factors in?uencing company behavior.
3
The European Emissions Trading Directive allowed member
states to allocate up to 5% via auctions in Phase 1 (Directive
2003/87/EG).
A. Engels / Accounting, Organizations and Society 34 (2009) 488–498 491
1. The least changes are found in the UK samples.
Their share of companies that traded allowances
has been almost 50% for all three consecutive years.
We have commented elsewhere on how these coun-
try di?erences may relate to the national institu-
tional contexts in which companies operate
(Engels et al., 2008).
In this article, however, the main question is how
companies try to make sense of emissions trading,
how they learn to account for carbon, and which
sources of knowledge and expertise they use in this
process. In a ?rst step, it is interesting to discover
the level of knowledge companies have acquired
over time. In the survey this was operationalized
by a question on knowledge of the company’s
abatement costs: ‘‘Are you familiar with your com-
pany’s costs of reducing CO
2
emissions?’’ This is a
simple but meaningful indicator, as companies need
this information to make sense of the price for
allowances that can be bought in the trading
scheme. If companies emit more CO
2
than their ini-
tial allocation allows, they must decide whether to
buy additional allowances in the market or to strive
for technological adjustments reducing the com-
pany’s emission levels. Obviously, what happened
in the real market in Phase 1 of the EU ETS was
a price decline so dramatic that companies did not
have to make this calculation. At least during the
second half of Phase 1, it was certainly cheaper to
buy than to invest in technological changes. None-
theless, it is surprising to see the low level of knowl-
edge in the companies that responded to the survey
(Table 3). Over the course of three years, the share
of companies that is not familiar with their own
abatement costs stays at slightly below one-third
(Table 3; last line EU4). Even more explicit is the
?nding that the share of companies responding to
this question with ‘‘yes’’ falls from 37% to 32%. This
trend is mostly due to the large German sample in
which only approximately one fourth of the compa-
nies claimed to know their abatement costs in spring
2008, when they answered the third questionnaire.
The Danish samples show a similar pattern over
time, albeit from a much higher level. Only the
Dutch samples show a rise in knowledge, as the
share of companies that know their abatement costs
rises from well below one-third in the ?rst two years
to 50% after the third trading year. Again, the Uni-
ted Kingdom is the country with the most stable
pattern over time. The relatively high rate of compa-
nies that traded in each of the three years (Table 2)
corresponds to the relatively high level of companies
that know their own abatement costs (Table 3),
which is more than 50% of the companies in each
year.
Which company unit was responsible for emis-
sions trading in the ?rst three years? Was decision
competency located at the highest level in the orga-
nizational hierarchy, or in a specialised department
at the operational level? This section deals with the
question of which company unit was assigned
responsibility for emissions trading in Phase 1.
The results are summarised in Table 4. In all four
countries, the largest group of companies located
the responsibility for emissions trading at the high-
est level of the organisational hierarchy in 2005: it
was seen as a task of the Executive Board/the Board
of Directors by more than 50% of the companies in
Germany and the Netherlands, by 40% of the
companies in the UK and by a stunning 73% of
the Danish companies. This rate is lower in all coun-
tries in the last year of Phase 1, with a di?erence of
12% in Germany, 28% in the UK, 33% in the Neth-
erlands, and 9% in Denmark. It seems that more
companies have developed a more speci?c under-
standing of emissions trading over the years, so that
the responsibility can be transferred to a specialised
company unit such as Controlling or the Environ-
Table 3
Knowledge of costs reducing CO
2
emissions within the own company
Summer 2006 Spring 2007 Spring 2008
No M/L Yes No M/L Yes No M/L Yes
Germany 38.4 30.8 30.8 40.2 35.4 24.4 37.4 37.0 25.6
UK 14.7 29.4 55.9 12.5 34.4 53.1 15.2 32.6 52.2
DK 10.0 42.5 47.5 19.0 31.0 50.0 30.6 36.1 33.3
NL 38.0 31.0 31.0 42.3 26.9 30.8 22.2 27.8 50.0
EU4 31.2 31.8 37.0 33.0 34.0 33.0 32.5 35.7 31.8
% of companies with degree of abatement cost knowledge per country and year, N: Summer 2006 = 384, Spring 2007 = 361, Spring
2008 = 315; M/L ‘‘More or less’’.
492 A. Engels / Accounting, Organizations and Society 34 (2009) 488–498
Table 4
Responsible unit within the company
Germany United Kingdom Denmark Netherlands
2005 2006 2007 2005 2006 2007 2005 2006 2007 2005 2006 2007
Executive board /
Board of directors
53.5 47.4 41.8 Executive board /
Board of directors
40.6 27.7 13.1 Executive board /
Board of directors
72.5 73.8 63.9 Executive board /
Board of directors
51.7 57.7 18.8
Manufacturing 11.3 8.1 15.2 Environmental
department
23.3 32.3 43.4 Manufacturing 20.0
*
13.9 Controlling 13.8
*
37.5
Environmental
department
9.2 12.0 12.3 Manufacturing 11.6
* *
Environmental
department
* * *
Environmental
department
10.4
*
0.0
Controlling 6.0 5.6 8.5 No explicit
responsibility
10.1
*
13.0 Controlling
* *
0.0 Portfolio
management
10.3
* *
Specialised trading
?oor
5.6 6.4 4.7 No statement
* * *
Specialised trading
?oor
* * *
Risk management 7.0
* *
Portfolio
management
4.8 7.3 6.6 Risk management
* * *
Legal department 0.0 0.0 0.0 Manufacturing
* * *
No statement 4.0 4.7 6.2 Portfolio
management
* * *
Risk management 0.0 0.0 0.0 Trading outsourced
to third parties
*
0.0 0.0
No explicit
responsibility
2.0 5.5 2.8 Specialised trading
?oor
*
7.7
*
Portfolio
Management
0.0 0.0 0.0 Legal department 0.0 0.0 0.0
Trading outsourced
to third parties
2.0 2.6
*
Controlling
*
7.7
*
No explicit
Responsibility
0.0
*
0.0 Specialised trading
?oor
0.0
*
0.0
Risk management
* * *
Legal department 0.0 0.0 0.0 Trading outsourced
to third parties
0.0 0.0
*
No explicit
Responsibility
0.0 0.0 0.0
Legal department 0.0 0.0
*
Trading outsourced
to third parties
0.0 0.0
*
No statement 0.0 0.0 0.0 No statement 0.0 0.0
*
% of companies with responsible unit per country and year, N: 2005 = 387, 2006 = 367, 2007 = 315;
*
>5 cases; results are given in a frequency ranking per country in 2005. Each
column sums up to 100% if all values are included.
A
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mental Department. It was only in the UK that a
discernible share of companies had not developed
explicit responsibility by 2007 (13%).
How did the responsible organizational unit form
its information base of rules and criteria for deci-
sion-making? The ?rst option is to ask other units
within the same company for advice and support.
Where does the company locate its own expertise,
where does it look for information and advice
(Table 5)? The answers are given by country and
by year; the sources of advice are ranked per coun-
try according to their importance in the ?rst trading
year.
A look at the country rankings shows that the
Environmental Department is the most important
location in all countries except for Denmark, where
only less than one ?fth of the companies used the
expertise of this company unit. An unspeci?ed
‘‘other’’ source is mentioned quite frequently in all
countries; the survey unfortunately does not provide
information on what this source might be, or if it is
a mixture of several sources. The Environmental
Department stays the single most important source
of advice in Germany all through Phase 1, although
in 2007, 3% fewer companies answered that they
had used this source of advice. However, the role
of manufacturing decreases signi?cantly: in 2007
merely one fourth of the companies sought advice
from their manufacturing units as compared to
almost 40% in 2005. This might correspond with
the initial complexity of technical questions in mon-
itoring a company’s CO
2
emissions. On the other
hand, a growing number of companies seem to
regard Controlling as important.
In the United Kingdom, the Environmental
Department is considered an important source of
advice by even more companies than in the German
samples, followed by ‘‘other’’, and Risk Manage-
ment, Manufacturing and the Legal Department.
The latter was dropped by many UK companies
as a source of expertise in 2007. This might be a hint
that most companies had solved legal problems in
the third year of the trading scheme. Manufacturing
is the most important source of expertise in Den-
mark, and remains so throughout Phase 1. The sec-
ond most important source in 2005, Controlling,
was dropped by many companies in the following
two years. However, ‘‘other’’ and the Environmen-
tal Department have been used more often over
the years. In the Netherlands in 2005 and 2007,
the Environmental Department was seen by most
companies as a source of internal advice, with a T
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494 A. Engels / Accounting, Organizations and Society 34 (2009) 488–498
slump in 2006. Controlling lost its importance over
time and was used as often as Manufacturing at the
end of Phase 1. The Legal Department and Risk
Management were regarded by at least 20% of the
companies as a relevant source of advice in the ?rst
year, but less so in the third year.
Overall, these data reveal di?erent patterns as to
the type of emissions trading problems regarded as
most pertinent in a speci?c country. The changes
over time might indicate learning processes or sim-
ply a shift in the perception and interpretation of
the environmental policy tool. Without qualitative
data it is di?cult to achieve a deeper understanding
of the internal consulting process companies employ
to develop an orientation in the new trading scheme.
However, there are quite a few hypotheses that can
be generated from the data-base. The Environmen-
tal Department seems a natural candidate for inter-
nal consulting, since emissions trading was
introduced as a new environmental policy tool.
Against this background, it is surprising to see that
often less than 50% of the companies in a country
sample use this source of advice, with only one
fourth or less in the Danish sample.
We assume that the Environmental and the Legal
Department are the most important company units
to ensure that companies operate within legal limits.
The compliance aspect of trading is very important
in these departments. The Manufacturing units, on
the other hand, can be expected to have more tech-
nical expertise on actual emission levels and on the
company speci?c technological options to reduce
or avoid emissions. It is important to note that
those company units that come closest to a trading
or arbitrage perspective (Risk Management, Portfo-
lio Management and Specialised Trading Floor)
were only rarely used as a source of advice in the
?rst three trading years. Another interesting result
is the minor importance of the Communications
Department, apart from 17% to 14% in the German
samples. Obviously, emissions trading is not
regarded so much in terms of an ‘‘image’’ problem
in the three other countries. In Germany, however,
emissions trading has always been criticised in the
mass media and by environmental NGOs as corpo-
rate green-washing, or has been compared to the
selling of indulgences. Companies in Germany
therefore also need to know how emissions trading
might a?ect their wider public image.
Many companies did not rely on internal sources
of advice alone. They were able to choose between
various types of expertise provided by, e.g., private
consulting ?rms, state agencies or industrial associ-
ations, but also between services o?ered by insur-
ance companies, banks, environmental NGOs or
research institutions. Other options were to learn
from one another or to participate in workshops
o?ered by a range of providers. Answers to the
related question are summarised in Table 6.
A comparison of the country rankings reveals
that companies in the four countries relied on the
di?erent sources of external advice to varying
degrees. In Germany, the UK and the Netherlands,
companies contracted specialised private consulting
?rms and attended workshops the most frequently,
with Dutch companies relying even more on work-
shops than on specialised consulting ?rms. How-
ever, in Denmark a relatively large number of
companies did not use any form of external advice
at all. Other country di?erences refer to the relative
importance of industrial associations on the one
hand, which were very important for German ?rms,
and banks on the other. Dutch companies relied
most strongly on the expertise of banks, while they
were not often consulted by companies in most
other countries. State services were – at least in
the initial phase – most important in the UK and
in the Netherlands but ranked lower in Germany
and, even more distinctly, in Denmark.
Changes of relative importance occurred over
time in all countries. While German companies used
specialised private consulting ?rms throughout
Phase 1, the number of companies that obtained
expert advice through workshops, industrial associ-
ations, other emitters and state services declined.
Banks increased in importance, which were, after
all, consulted by 14% of the companies in 2007.
Companies that did not use any external advice also
increased: their share almost doubled from 12% to
over 23%. Changes in the UK samples reveal a dif-
ferent pattern: the three most important sources of
advice in 2005 (specialised private consulting ?rms,
workshops and state services) noticeably lost their
importance over the years. Instead, advice by other
emitters and industrial associations was in greater
demand in 2006 and 2007. Similar to the German
samples, the share of companies without external
advice rose from 13% to almost 22%. In Denmark,
the high share of companies that used no external
advice fell continuously to only 28% in 2007. It
seems that companies have mostly turned to other
emitters in their search for expertise, as there has
been a sharp increase from 7% to more than 30%.
Other changes are di?cult to interpret as the num-
A. Engels / Accounting, Organizations and Society 34 (2009) 488–498 495
Table 6
Sources of external advice
Germany United Kingdom Denmark Netherlands
2005 2006 2007 2005 2006 2007 2005 2006 2007 2005 2006 2007
Specialised private
consulting ?rms
46.2 41.9 45.1 Specialised private
consulting ?rms
49.3 30.8 30.4 No external advise/
support
45.0 35.7 27.8 Workshops 34.5 38.5
*
Workshops 36.9 23.5 21.9 Workshops 30.4 26.2 15.2 Specialised private
consulting ?rms
22.5 19.0 19.4 Specialised private
consulting ?rms
27.6
* *
Industrial
associations
34.1 29.9 24.7 State services 21.7 10.8
*
No statement on
external advice
12.5 14.3
*
No external advise/
support
20.7
*
38.9
Other emitters 16.5 14.1 8.4 Other emitters 15.9 26.2 23.9 Industrial
associations
* * *
Banks 17.2
* *
No external advise/
support
12.0 17.1 23.3 Other 15.9 10.8 10.9 Other emitters
*
26.2 30.6 State services 17.2 26.9 0.0
State services 9.6 5.6 4.2 Industrial
associations
14.5 24.6 19.6 Workshops
* * *
Other
* * *
Other 9.2 8.1 7.4 No external advise/
support
13.0 15.4 21.7 General private
consulting ?rms
* * *
General private
consulting ?rms
* * *
Banks 7.6 13.2 14.0 Environmental
NGOs
8.7 12.3 10.9 Insurance companies
*
0.0 0.0 Industrial
associations
* *
0.0
Scientists, research
institutions
4.8
* *
General private
consulting ?rms
*
20.0 10.9 Banks
*
0.0
*
Other emitters
* * *
General private
consulting ?rms
3.6 8.5 7.0 Banks
* * *
State services
* *
0.0 No statement on
external advice
* * *
Insurance companies
* * *
Scientists, research
institutions
* * *
Other
* * *
Insurance companies 0.0 0.0
*
Not statement of
external advice
*
4.7 4.2 No statement on
external advice
*
0.0
*
Environmental
NGOs
0.0 0.0 0.0 Environmental
NGOs
0.0 0.0 0.0
Environmental
NGOs
* *
0.0 Insurance companies 0.0 0.0 0.0 Scientists, research
institutions
0.0 0.0 0.0 Scientists, research
institutions
0.0
*
0.0
% of companies mentioned external source of advice per country and year, multiple response set, N: 2005 = 387, 2006 = 367, 2007 = 315; > 5 cases; results are given in a frequency
ranking per country in 2005.
4
9
6
A
.
E
n
g
e
l
s
/
A
c
c
o
u
n
t
i
n
g
,
O
r
g
a
n
i
z
a
t
i
o
n
s
a
n
d
S
o
c
i
e
t
y
3
4
(
2
0
0
9
)
4
8
8
–
4
9
8
ber of cases in most remaining cells is below ?ve. In
the Netherlands, most sources of advice important
in the ?rst year sharply declined in Phase 1 (work-
shops, specialised private consulting ?rms and state
services). Only banks remained relatively important,
while the share of companies that did not use exter-
nal sources of advice grew.
Discussion and conclusions
What are the implications of these rather descrip-
tive ?ndings for the question of how companies
learn to account for carbon? The results of the sur-
vey indicate that companies use various sources of
information and expertise to make sense of carbon
markets. The distribution patterns vary across
countries and over time. The sources of expertise
can form speci?c cognitive bases in which compa-
nies develop a new mindset to account for carbon.
This can be demonstrated by comparing banks with
industrial associations. The latter were particularly
important in Germany. However, German indus-
trial associations were very reluctant to accept the
new environmental policy tool and engaged in lob-
bying activities to prevent the EU ETS from becom-
ing mandatory for German companies. When this
failed, they focussed on supporting companies to ?le
claims against their individual noti?cation in the
National Allocation Plan (Seht and Ott, 2000;
Schafhausen, 2006). Their expertise would therefore
focus not on the trading aspects but rather on legal
complaints. It would be di?cult to derive an active
trading strategy from this type of expertise alone.
On the other hand, banks, and to some degree
insurance companies, would rather see emission
allowances in a ?nancial framework, in which
allowances could be used to hedge against ?nancial
risks or even to achieve additional gains through
arbitrage. It is also interesting to see that specialised
private consulting ?rms were the single most impor-
tant source of expertise, as they o?er exclusive
advice to the individual company. Obviously, emis-
sions trading was regarded by many companies as a
strategic problem that did not allow them to rely on
publicly available general information but rather
forced them to seek customised support. Through
participation in workshops, on the other hand, com-
panies had access to a shared pool of knowledge.
They could exchange information with other partic-
ipants and ?nd out how emissions trading was
regarded and interpreted by other companies.
Many companies use external sources of exper-
tise, combine this with the internal insights gener-
ated by specialised company units, and develop a
strategic response to the EU ETS that is imple-
mented by yet another company unit. In an ideal
typical perspective, one company might use a bank
as external source and Portfolio Management as an
internal source of advice before assigning the
responsibility for emissions trading to the com-
pany’s specialised trading ?oor. Another might
combine external support by an industrial associa-
tion (critical of the EU ETS) with internal advice
by the Communications Department, while the
responsible unit is the Manufacturing unit itself.
We would expect a strong trading or even arbitrage
perspective in the former case and a reluctant and
compliance-related orientation in the latter. Ongo-
ing research will provide a more complete picture
of how this process evolves within the organisation.
Therefore, this type of data is interesting at two
levels of analysis: ?rst, at the company level the indi-
vidual combination of di?erent sources of advice and
the change over time will probably lead to a speci?c
understanding of emissions trading and how to deal
with it. Based on the ?ndings of the quantitative sur-
vey, several qualitative company case studies were
conducted in 2008 to analyse this process in more
detail.
4
Second, the results indicate that companies
are confronted with di?erent national cultures of
expertise (Engels et al., 2008). This argument is clo-
sely related to other ?ndings discussed in the litera-
ture on emissions trading. One ?nding is that the
degree to which emissions trading can di?use to
new political constituencies depends on the existence
or emergence of a specialised service industry (Voß,
2007a, 2007b). It is plausible to assume that this
service industry is not uniformly distributed across
Europe, but that the type of specialisation (technical,
?nancial, law), the size of the service providers, and
the structure and density of the service industry var-
ies across countries (Engels et al., 2008). A further
important ?nding is that national regulatory tradi-
tions ease or hamper the companies’ ability to learn
to account for carbon in the framework of a trading
scheme. E.g., while the EU ETS presented new chal-
lenges for both German and UK companies, the lat-
ter were able to tie the new challenges to past
4
Lisa Knoll’s dissertation project at the University of Ham-
burg relates to these corporate case studies and analyses the social
formation of various CO
2
-trading strategies.
A. Engels / Accounting, Organizations and Society 34 (2009) 488–498 497
experiences with market based mechanisms. On the
other hand, for German companies the introduction
of emissions trading really meant a break in the path
which required fundamentally new ways of thinking
about industrial CO
2
emissions (Bailey, 2007).
However, apart from information on which per-
spectives are developed, the survey also reveals a
level of ignorance among some of the companies,
showing that they have not used Phase 1 to develop
such a perspective. One indicator for this is the large
share of companies that up to this date do not know
their own abatement costs. This remains a puzzle,
even with the explanation that an allowance price
of near zero does not incur costly search strategies
within the companies. It should have been obvious
that emitting carbon will be restricted and will most
probably continue to become more expensive in the
long run. Moreover, a number of companies did
not use external sources of advice, and at times no
internal sources of expertise were consulted. In some
cases, companies did not even assign an explicit
responsibility for emissions trading. In their preli-
minary assessment of lessons learned from the ?rst
trading period of the EU ETS, Convery et al. con-
clude that ‘‘[m]arket e?ciency depends on market
participants’ ability to access reliable information’’
(p. 15). After all, this not only applies to the infra-
structures and data banks provided by the European
Commission, but also to the companies’ willingness
to invest in knowing their own (carbon) market
fundamentals.
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