Carbon Credit Accounting: Opportunities and Challenges

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Carbon Credit Accounting – Opportunities and Challenges
Abstract
The Ninth Conference of the Parties (COP‐9) decided to adopt an accounting system based on expiring carbon credits to address the problem of non‐permanent carbon storage in forests established under the Clean Development Mechanism (CDM). This article reviews and discusses carbon accounting challenges and opportunities. As the issues for accounting of CER credits is new and it is on elementary stage, it will generate a fair amount of debate among accountancy professionals. ICAI may come up with some guidelines in due course. The views of taxation authorities would be another interesting dimension. This article may serve as a starting point for such discussions and debate. Despite several unresolved issues carbon credits have emerged as a sought commodity for trade and will continue to interest the country for some time in near future. As a matter of fact carbon credit can be a boon for Indian companies but we need a proper accounting technique to show them in books. In this article opportunities and challenges in carbon credit accounting has been described. If these challenges resolved properly an accurate and quintessential technique can be invented. This article rightly points out the opportunities and challenges in carbon credit accounting.

Keywords:-
Kyoto Protocol; Clean Development Mechanism(CDM); Carbon accounting, Certified Emission Reductions (CERs), Green House Gases.

Introduction of Carbon credit:-
A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent (tCO2e) equivalent to one tonne of carbon dioxide. Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon credit is equal to one metric tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Green-house gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources. The goal is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon intensive approaches than those used when there is no cost to emitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction schemes between trading partners and around the world. There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint on a voluntary basis. These carbon off -setters purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. Buyers and sellers can also use an exchange platform to trade, such as the Carbon Trade Exchange, which is like a stock exchange for carbon credits. The quality of the credits is based in part on the validation process and sophistication of the fund or development company that acted as the sponsor to the carbon project. This is reflected in their price; voluntary units typically have less value than the units sold through the rigorously validated Clean Development Mechanism. Definitions:-

The Collins English Dictionary defines a carbon credit as “a certificate showing that a government or company has paid to have a certain amount of carbon dioxide removed from the environment”. The Investopedia Inc investment dictionary defines a carbon credit as a “permit that allows the holder to emit one ton of carbon dioxide”..which “can be traded in the international market at their current market price”. History and Background:-

Burning of fossil fuels is a major source of industrial greenhouse gas emissions,...
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