Knowledge that Transforms

This discussion reflects my thoughts on Lester and Olbert’s (2025) review of the tax literature. I address the notion of “real” effects in tax work and the reliance by Lester and Olbert (2025) on the Hall and Jorgenson (1967 ) neoclassical framework. I intend to complement the review by discussing some of the competitive advantages of accounting researchers working in taxation. I close by emphasizing some areas where accountants can potentially be the most impactful on tax research and listing some of my hopes for the future of this work.

This paper examines the role of reporting incentives on the trading of emission allowances. Our tests are based on a wide international sample of firms and data from the European Union Emission Trading System (EU ETS), which is the most liquid and developed in the world. We find evidence consistent with the notion that excess allowances combined with historical cost accounting for emission rights provide firms the opportunity to obtain a reporting benefit from selling emission allowances. We observe more frequent selling of allowances when the transactions are likely to boost earnings to avoid accounting losses. The documented trading activity increases in the ETS market towards the end of the year and is associated with selling imbalance and effects on carbon pricing, which in turn affect firms’ emission abatement incentives. Our results have implications for the debate on the institutional design of carbon markets and on the need to define an accounting standard for emission allowances.