Climate

change and
accounting
Learning objective 11.6 Evaluate the
implications of climate change for
accounting
Climate change and
accounting – Kyoto
protocol
• Climate change is considered the one of the most
pressing sustainability issues
• Resulted in the Kyoto Protocol which was
negotiated in 1997
• Negotiated in 1997.
• The Kyoto Protocol commits signatories to
achieve specific greenhouse gas (GHG) or
carbon emission reduction targets.
• Followed up with the Paris Agreement in 2015
• Commits signatories to further greenhouse
gas (GHG) or carbon emission reductions by
2020

LO 11.6 Climate change and accounting

Emission reduction schemes

• Emission trading schemes or a carbon tax are one such response to mitigate or
reduce climate change
• Emissions trading scheme [ETS] is also known as a cap and trade scheme
• Designed to control emissions through the trading of excess emissions
permits
• Essentially governments create tradeable emissions permits based on the
Kyoto target.
• Permits are either given to business, sold or auctioned

LO 11.6 Climate change and accounting

Emission reduction schemes

• Caps or limited are set on the level of emissions the organisation is permitted
• Organisations then obtained permits equal to the amount of their
emissions
• Exceed the permitted emissions – must buy more permits to avoid costly
fines
• Led to secondary markets where CHG permits are brought and sold
• Over time governments can lower the caps, thus moving towards
achieving the national emissions education target.

LO 11.6 Climate change and accounting

Emission reduction schemes

• European Union Emissions Trading Scheme [ EU ETS]

• Established in January 2005
• New Zealand’s ETS came into play in 2010 … now expanded to more industry sectors
• Canada’s scheme came into play in 2011
• China introduced a pilot trading scheme in 2013/14
• Other schemes in Japan, South Korea and the United Kingdom
• No schemes in the US or Australia.
• Australia has “The Emissions Reduction Fund”

LO 11.6 Climate change and accounting

Accounting for carbon emissions

• Currently no guidance on how to account for carbon pollution permits or

emissions trading activities.
• The IASB project on accounting for carbon emissions is on hold.
• Referred to by the IASB as ‘Pollutant Pricing Mechanisms’.
• Pending further work on the Conceptual Framework.

LO 11.6 Climate change and accounting

Accounting for carbon emissions

• Carbon trading schemes:

• Organisations required to account for both purchased and allocated
emissions allowances.
• How to report annually?
• Fair value or at cost?
• Allocated vs purchased emission allowances.
• Hedge accounting to reduce the risk of allowance asset and emissions
liability.

LO 11.6 Climate change and accounting

Accounting for climate change

• Climate also impacts the value of assets and asset impairment decisions.
• For example, land and assets which produce products that are no
longer considered ‘green’ products and technologies.
• Disclosure of risk and risk management strategies are also impacted.

LO 11.6 Climate change and accounting

Climate change and
accounting
Learning objective 11.6 Evaluate
the implications of climate
change for accounting

LO 11.6 Climate change and accounting