BACKGROUND

‡ Concept of carbon credits came into existence
as a result of increasing awareness of the need for pollution control. ‡ Formalized in the Kyoto Protocol, an international agreement between 169 countries

CARBON CREDITS
‡ Certificates awarded to countries that are successful in reducing emissions of greenhouse gases. ‡ major industry sources of greenhouse gas emissions burning of fossil fuels, cement, steel, textile, and fertilizer manufacturers. ‡ main gases emitted by these industries - methane, nitrous oxide, hydrofluorocarbons (HFCs), etc, which increase the atmosphere's ability to trap infrared energy.

CARBON CREDIT: A GROWING ENVIRONMENTAL PROBLEM ‡ The greenhouse gas market has developed significantly over the past several years. Determining the potential causes of Global Climate Change has been a long term process that has involved the work of thousands of scientists around the world. There is likely to be significant economic and social costs. The Earth¶s temperature could rise by six and half degree fahrenheits by 2100. .

assigning mandatory emission limitations for the reduction of greenhouse gas emissions to the signatory nations. ‡ Countries that ratify this protocol commit to reduce their emissions of carbon dioxide and five other greenhouse gases. a total of 169 countries and other governmental entities have ratified the agreement including India. . ‡ As of December 2006. or engage in emissions trading if they maintain or increase emissions of these gases.KYOTO PROTOCOL [Kyoto Protocol to the United Nations Framework Convention on Climate Change] ‡ Amendment to the international treaty on climate change.

Objective Of The Protocol "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system." .

.2% below 1990 levels(base levels) during the commitment period i.‡ It aims to tackle global warming by setting target levels for nations to reduce greenhouse gas emissions worldwide. ‡ treaty expires in 2012. and international talks began in May 2007 on a future treaty to succeed the current one. China and Brazil. They are however free to sell carbon credits to other countries. ‡ US and Australia have refused to ratify this treaty. ‡ Initial target is to reduce the greenhouse gas emissions to 5. ‡ The Protocol will not apply to the developing but signatory countries like India.e 2008-12.

‡ They provide a way to reduce greenhouse gas emissions by giving them a monetary value. .WHAT ARE CARBON CREDITS?? ‡ Carbon credits are a tradable permit scheme.

‡ A credit gives the owner the right to emit one tonne of carbon dioxide. ‡ A credit can be an emissions allowance which is allocated or auctioned by the administrators of a cap-and-trade program or an offset of Greenhouse Gas equivalent carbon dioxide emissions. .

will have to buy carbon credit and pay for it to the companies who have earned carbon credits. ‡ Companies who are emitting more than they are supposed to.‡ Credits can be exchanged between businesses or bought and sold in international markets at the prevailing market price. .

MECHANISM TO ACQUIRE CREDITS .

MECHANISM TO ACQUIRE CREDITS ‡ Joint Implementation (JI) ‡ Clean Development Mechanism (CDM) ‡ International Emissions Trading (IET). .

JOINT IMPLEMENTATION(JI) ‡ a developed country with relatively high costs of domestic greenhouse reduction would set up a project in another relatively low cost developed country ‡ to assist industrialized countries in meeting their emission reduction targets through joint projects with other industrialized countries .

CLEAN DEVELOPMENT MECHANISM(CDM) ‡ a developed country can take up a greenhouse gas reduction project activity in a developing country where the cost of greenhouse gas reduction project activities is usually much lower ‡ The developed country would be given credits for meeting its emission reduction targets ‡ The developing country would receive the capital and clean technology to implement the project .

Objective of CDM ‡ To address the sustainable development needs of the host country ‡ To increase opportunities for reduction of emissions .

Project monitoring by the host country Verification and certification Issuance of Certified Emission Reductions (CERs) .CDM Project Life Cycle : 6 steps ‡ ‡ ‡ ‡ ‡ ‡ Submission of project design document to national CDM authority. Project registeration in the host country Project validation and registeration by Executive Board of the UN.

INTERNATIONAL EMISSIONS TRADING (IET) ‡ Under IET. countries can trade in the international carbon credit market ‡ Countries with surplus credits can sell them to countries with quantified emission limitation and reduction commitments under the Kyoto Protocol ‡ There are at least four exchanges for carbon credits: the Chicago Climate Exchange. such as Green Horizons engage in reforestation programs to generate Credits ‡ If a country is incapable of meeting its target of emissions. NordPool. European Climate Exchange. and PowerNext ‡ Other companies. it may conceivably buy credits from other countries that are under their targets .

SHARE OF MARKET BUYERS ‡ Japanese private firms are the biggest buyers of carbon Credits ‡ They are followed by the Government of Netherlands Japan 33 3 3 4 3 The Netherlands Carbon Finance Business USA Canada Other EU 3 .

Carbon Credit in India The following graph shows the figures for the carbon credit earned by various countries in the year 2007: .

crore) of income A total of 267 projects were registered in 2007 by India China earned $692. this is about $2 million (Rs 959. Nearly 18 million CERs (Certified Emmission Reductions) have been issued to India so far At an average market price of $1 (Rs 520) per CER.According to the statistics of 2007.2 crore) in carbon credits .8 7. million (or Rs 2.

ACCOUNTING FOR CARBON CREDITS ‡The IASB is still debating on an appropriate treatment for Carbon Emission Reductions (CERs) as an interpretation issued by IASB..IFRIC 3 (Emission Rights) was withdrawn in June 2005. ‡Based on IAS 20 requirements. a generating entity recognises CERs as asset. . ‡Most entities will measure the CERs at fair value to ensure appropriate matching with the costs incurred.

recognition of income is based on the criteria of reasonable assurance. both under AS 9 (Revenue Recognition) and AS 12 (Accounting for Government Grants). recognition of assets is based on criteria of probability/reasonable assurance as against absolute certainty prescribed in the ED. the generating entity should recognise CERs as asset only after receipt of communication for credit from United Nations Framework for Climate Change (UNFCCC) such assets meet the definition of the term ¶inventory· given under AS 2 (Valuation of Inventories) In most cases. For example. ‡ ‡ ‡ . The ED proposes to lay down the manner of applying accounting principles to CERs generated by an entity.‡ The Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) has issued an Exposure Draft (ED) of the Guidance Note on Accounting for Self-generated Certified Emission Reductions. According to the ED.