FINANCIAL REPORTING FRAMEWORK FOR CARBON CREDIT ACCOUNTING

ABSTRACT

A famous ecologist says that 20 billion tonnes of carbon dioxide is generated every year by humanity that is absorbed by Nature. This tolerance of Nature could be reversed, if the carbon dioxide levels increase unabatedly. While this has become quintessential to reduce the emission levels, an entirely new industry has emerged having great potential and opportunities for the investors. This Global warming issue is a serious concern and Corporate are projecting to take initiatives by fulfilling their social responsibility and are making profits in the offing. It has become an emblem of bearing a meritorious entity showing responsible behavior towards the environment. Environmental awareness within the management community is reflected in frequent coverage of sustainability and environmental responsibility in management-oriented publications. These social developments create a need for financial information. Pundits are predicting that global carbon markets could well exceed the value of global oil markets in just a few years and the impact of emission allowances on the operation of almost every MNC is certain to be significant. As entities actually emit carbon, they incur a future obligation to relinquish an allowance to a regulator or incur penalties and under US GAAP and IFRS are a liability, which needs to be periodically measured and recorded. Therefore, these emissions allowances present challenges to accounting both for their value and for liabilities associated with their use. In spite of the growing importance of the emission allowances, there is no clarity on how they will be treated in financial accounting and reporting. The specific purpose of this paper is to examine how Carbon Credit accounting fits into the financial reporting framework.

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