Carbon emissions accounting explained

A new discussion paper entitled Accounting for carbon under the UK Emissions Trading Scheme is the first attempt to clarify the financial accounting treatment for Direct Participants in the UK Emissions Trading Scheme.

The International Emissions Trading Association (IETA), the UK Emissions Trading Group (UKETG), and Andersen, produced the report, following extensive consultation with stakeholders from a broad range of geographies and constituencies.

One of the authors, Simon Page, told edie, “When we first started work on this paper it was immediately apparent to me that it was critical that finance directors of companies had to be involved in climate change because of the financial implications that emissions trading schemes have.” He continued, “By publishing this paper we are seeking to raise the profile of emissions trading within the finance function and ensure that it receives the attention that it deserves and requires”.

Andrei Marcu, Executive Director, IETA described the new Discussion Paper as “a pioneering piece of work, on a highly complex topic”.

The UK has a commitment to reduce its greenhouse gas emissions by 12.5% below 1990 levels over the period 2008 to 2012, under the Kyoto Protocol. However, in addition to this, the UK Government has set a separate domestic goal of reducing emissions of carbon dioxide to 20% below 1990 levels by 2010, and has announced a series of policy measures designed to meet these targets, which includes the UK Emissions Trading Scheme, which began on 1 April 2002 (see related story).

The Discussion Paper outlines the obligations required of companies participating in the UK Emissions Trading Scheme. ‘Companies which participate in the UK Scheme must consider the accounting treatment and related disclosures in their financial statements of the resulting assets liabilities and material financial exposures that arise as a result of their participation’.

The paper represents a key stage in a private sector initiative that supports the efforts of the UK Government in implementing the world’s first economy-wide greenhouse gas emissions trading scheme. This is providing UK businesses with early experience of accounting and financial risk management implications, ahead of other countries.

Although the Discussion Paper is based on the UK scheme, it is of relevance to companies that are impacted by the pending introduction of the European and other Kyoto related emissions trading schemes. John Craven, Head of UK Emissions Trading Scheme Secretariat noted the wider implications of the paper, “I not only support it as recommended reading for UK Scheme participants, but would also suggest that is serves as useful homework reading for potential players in other markets, as they open up around the world”.

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