This paper examines the implications of using different approaches when it comes to accounting for carbon emissions. This essay provides a brief background on the Kyoto protocol. Then it goes into the issues surrounding accounting for carbon. The starting place that needed to be addressed was how to account for carbon credits and the free allowances, next was the obligation. The paper subsequently examines the current practices for accounting for carbon, such as the IFRIC 3 approach, the net liability approach, and the recognition of government grants approach, followed by that there was some other issues that had to be alluded to that are important for when accounting for carbon.. Finally this paper attempts to formulate an ideal structure for how to report carbon in accounts.
Accounting for carbon has become more of an issue as time has passed. With the introduction of the Kyoto Protocol, markets have been developed for the trading of carbon over a wide series of industries. The Kyoto Protocol was a treaty brought into place to ensure the reduction of greenhouse gas emissions. The European Union Emissions Trading Scheme (henceforth known as EU ETS) is a mechanism used to reduce greenhouse gases. The EU ETS is a cap-and trade scheme, under which companies are told how much CO2 they can emit (the cap), and if they emit less than the cap, they have surplus left for sale. If they emit more that the se cap they can buy credits from other businesses that come in under their cap (the trade) (Ratnatunga and Balachandran, 2009)
What kind of asset is a carbon credit?
A carbon credit can be accounted for in many different ways. The top two approaches that have been used by companies as found by Lovell,...
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...ounting, Organizations and Society, 34 (3), 499--534.
Lovell, H., Bebbington, J., Larrinaga, C. and Sales De Aguiar, T. 2013. Putting carbon markets into practice: a case study of financial accounting in Europe. Environment and Planning C, 31, 741--757.
MacKenzie, D. (2009). Making things the same: Gases, emission rights and the politics of carbon markets. Accounting, Organizations and Society, 34 (3), 440--455.
Pricewaterhousecoopers/ Internantional Emissions Trading Assosiation (PWC/IETA) (2007), Trouble- Entry Accounting- Revisited, London.
Ratnatunga, J., Balach & Ran, K. (2009). Carbon business accounting: the impact of global warming on the cost and management accounting profession. Journal of Accounting, Auditing \& Finance, 24 (2), 333--355.
Smith, R. (2007). Development of the SEEA 2003 and its implementation. Ecological Economics, 61 (4), 592--599.
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