Carbon Accounting in India PDF
Carbon Accounting in India PDF
Carbon Accounting in India PDF
Keywords
Dr. Meghna Chotaliya
Assistant Professor in Accountancy, R.D.National College, Bandra (w), Mumbai- 400 05
ed Certified Emission Reductions (CER) in 2009 enumerating money exchanges hands in return for forest carbon offset
suggested accounting principles for CERs generated by an ownership rights. Accordingly, forest carbon offsets qualify
entity which provides for accounting principles relating to as assets for financial accounting purposes because they
recognition, measurement and disclosures of CERs gener- are entity controlled and provide future economic benefits.
ated by CDM as stated hereunder: The use of the forest carbon offsets determines their nature,
which in turn dictates how they should be classified in the finan-
1. Expenses in the research and development phase: While cial statements. This directly impacts the financial value per-
undertaking the project for reduction in carbon emission, ceived by the public and private sectors of forest carbon offsets.
cost incurred on development should be accounted for
as enumerated in AS 26 for intangible assets. Cost in- 6. Conclusions and Suggestions:
curred on receiving CER is measured with certainty at In order for the forest carbon market to function adequately
the time of incurring those expenses whereas revenue and develop fully, clear financial accounting standards for for-
recognition will happen only at the time of sale of CERs. est carbon offsets must be established. Lack of uniform finan-
So there is a mismatch in accounting for expenses and cial accounting makes it difficult to fairly compare financial
revenue statements between forest carbon offset projects, whether
they are in the public or private sector. Difficulty regarding
2. CERs held with the CDM Executive Board : The exposure information transparency and comparability will persist in the
draft on guidance note on accounting for carbon cred- forest carbon markets regardless of international policy direc-
its states that when the CERs are in the approval stage, tion till uniformity is established with respect to accounting
these should be accounted for as per the provisions of practices.
AS 29 as Contingent Assets, and once approved, should
be recorded in the books as an intangible asset. Until authoritative guidance is issued, an organization
should keep in mind several key considerations when es-
3 CERs held for sale : In case an enterprise possesses CER tablishing a policy for accounting for environmental as-
to be traded in the ordinary course of business, i.e., the sets:
enterprise would hold the asset as available for sale, the 1. Develop an accounting policy based on thoughtful analy-
same should be accounted for as Inventory under provi- sis as to the use of the environmental assets by the or-
sions of AS 2.Further, intent of the entity would determine ganization and with consideration of how future events
whether these credits should be recorded as intangible may impact financial results. The policy must be applied
assets or as inventory as also the cost at which CERs be consistently; therefore decisions made now may impact
recorded in the books, as huge amount of expenditure is future reporting.
incurred in this respect. 2. Monitor issues that may arise during the accounting pe-
riod (e.g., expense recognition, impairment, accounting
5.2 Taxation for Carbon Credits: for shortfalls of allowances or credits, vintage-year swaps,
Income from sale of CERs should be accounted for under and revenue recognition for excess sales) to ensure ap-
the head Business and Profession. However, in case of sale propriate consideration and resolution.
of Intangible, it would be taxable under the head Capital 3. Present and disclose environmental assets in line with ac-
Gains though most companies in India are recording earn- counting policy and intended use (based on materiality)
ings from carbon credit trading as Income from Other Sourc- 4. Evaluate instruments for derivative accounting. Forward,
es currently. Claims for concessional rate of taxation should future, swap or option contracts may qualify as derivative
also be made if credit is held for more than 36 months im- instruments.
mediately preceding the date of transfer. This gives an op- 5. Remember to account for renewable energy credits,
portunity to take a decision about timings of sale of such whether they are generated through production, pur-
credits, keeping a balance between cash flow needs, interest chased on the market, or embedded within a power pur-
factor and difference in rate of tax between long term and chase agreement.
short-term holdings. As there would be no cost of acquisition 6. Finally keep an eye on the FASBs updates to watch for
for self-generated CER credits, section 55(2) of the Income new guidance about how to account for carbon credits
Tax Act will come into operation, and total sale considera- and emission allowances.
tion will be liable for Capital Gains Tax (long term/short term)
according to the period of holding Trading in CER is carried An appropriate and uniform classification of forest carbon off-
out either in spot market or in futures. Service tax could be sets in the financial statements is imperative both for internal
applicable on account of dealing in CERs on the exchange decision making and for external stakeholders . There should
platform, and in case of contracts resulting in delivery, VAT be financially accountability for our forestry carbon offsets with
could also be applicable. Typically, carbon credits in In- permanence, regularity, consistency, prudence, and full dis-
dia are sold to overseas buyers; hence, there would be no closure and materiality for our forestry carbon offset market to
VAT applicable on these goods.Whenever the asset is sold, grow as an industry into an alternative investment asset class.
REFERENCE 1. Ardern, D., & Keys, R. (2008). IASB Agenda Proposal on Intangible Assets. International Accounting Standards Board. | 2. Financial Accounting
Standards Board (FASB). (2001, June). Statement of Financial Accounting Standards No. 142: Goodwill and Other Intangible Assets: http://
www.fasb.org/pdf/fas142.pdf | 3. CA (Dr) Satyajit Dhar ,Carbon Emissions trading in India, A study on Accounting & Disclosures Practice, The Chartered Accountant
Journal, December 2012, Pg 85-91 | 4. Text on Kyoto Protocol | 5. Talitha Haller and Gabriel Thoumi: Financial Accounting for Forest Carbon Offsets and Assets(2009)
: Accounting for Carbon: The impact of Carbon trading on Financial Statements,KPMG LLP UK. | 6. CA Vineet Raju P, Carbon Credits-An Accounting Perspective,
The Chartered Accountant Journal, November 2012,Pg 64-69. |