Relationship between Accounting and Carbon Offsets
Introduction
“Is Carbon Offsets the End of Greenhouse Gases?” This is the question being discussed in this whole paper. Carbon offset schemes are the strategies which allow companies and individuals to invest in environment-friendly projects all around the globe for the sake of balancing out the carbon footprint of the companies and countries. These projects are usually initiated in the developing countries for the reduction of any future emissions. It can include any of the several strategies. It may include the rolling out clean energy technology or ripping up carbon credits by using emissions trading scheme. Other strategies include the soaking up of carbon from the atmosphere by planting trees. While some organizations work on offsetting their carbon footprint entirely, others try to neutralize it for a specific activity like taking a flight. It is done by using the online mediums for calculating the emissions of one flight trip and then paying the amount which offsets the carbon footprint to any offset company in any part of the world making the flight carbon neutral. Even though the costing of the carbon offset schemes varies widely, the typical fee usually remains the same. Many products have now also started pricing the products including the carbon neutrality price on it. With the rising awareness concerning the environment protection, the concept of carbon offsetting has become increasingly popular but also more controversial as well. Traditionally, criticism has been much towards the planting of trees which is to some extent valid as well, however, in reality, the best schemes of carbon offsets has been switched from the traditional tree planting to clean-energy projects including capturing methane gas at the landfill sites and distributing the efficient cooking stoves (Clark, 2011).
I-Historical Background of Carbon Credit
One would be surprised to learn that by 1870, the level of CO2 in the environment of the earth has been about 290 parts per million, which have increased to 385 parts per million until 2009 showing about 70% increment. It shows that there have been significant changes happening in our environment.
Carbon emissions have been long tracked down to analyze its influence and impact on the environment. The scientists realized in 1960 that the effects of carbon emission would be apparent by 2000. These scientists were correct. In 1988, the intergovernmental panel on Climatic change was formed, while in 1997 the Kyoto protocol settles targets for the reduction in emissions asking the nations to sign in with the Treaty. By 2001 the IPCC had published statements regarding global warming and its existence, ending the debate among the scientists on its existence. The protocol has been in effect since 2005, and then many countries have signed the treaty which has been the originator of the idea of carbon credits, and cap-and-trade system (EnviroCitizen.Org, 2011).
A-Carbon Offsets
Carbon offsets are the more of a less restricted means for reduction of the carbon emissions. Everyone has access to carbon offsets, and anyone can buy it to neutralize the carbon emissions created by them. With all the awareness regarding environmental protection and sustainability, it is most possible that most people have heard about the term carbon credits. Hundreds of companies are being founded daily for trading these carbon credits. Companies purchase carbon credits to offset their footprint while individuals can purchase these credits as well. There are several variations of carbon credits. These include the carbon offsets, the cap-and-trade system, and the carbon project. To a wide extent, these all are similar in their function. Except for the cap-and-trade system, which is different from the rest of the functions as it is solely targeting businesses. Businesses are given certain carbon credits or offsets through this function. If a business does not reach the specified amount of the credits or offsets, then it is needed to purchase the remaining credits or offsets. And if exceeded the number of offsets or credits, then it is required to sell it to the ones who need it. It shows that companies working harder to make their operations greener get to earn money by selling their extra credits and offsets. It motivates everyone to have excess carbon offsets or credits.
B-Green House Gases
The historical background of the greenhouse gases and global warming can be traced back to 1896 when the Swedish scientist Svante Arrhenius claimed that fossil fuel combustion could result in global warming. How did the relationship between the concentration of carbon dies oxide in the atmosphere to the temperature? This research was in actual the result of the investigation of the causes of Ice Ages concluding in the concept that humans are warming up the earth. The topic was forgotten for a very long time until 1955; Gilbert Plass concluded with the same results after developments were seen in the infrared spectroscopy.
By early 1960, Charles Keeling used the latest technology of that time to produce the concentration curves of the CO2 in Mauna Loa and Antarctica which has since then become the icons of global warming. The curve showed the declining temperature from 1940 to 1970. By 1980, annual mean temperature curve was seen rising questioning the rise of a new ice age which was then feared. This curve increased so steeply that it gave rise to the theory of global warming. It soon became a hot topic which was discussed on a global scale (Jones & Henderson-Sellers, 1990). Not until 1990, scientists started to question the greenhouse effect theory as major uncertainties were seen in the model outcomes. Since then, in 1998, the data was scrutinized to see if the warming trend has been overestimated. However, it is now revealed that until now, the year 1998 has been the warmest year globally on record followed by the years 2002, then 2003 and 2001 and 1997. These warmest years all happened since the year 1990. From 1998 onwards, the uncertainties related to the greenhouse effect theory have caused less use of the term, and now global warming or climatic change is more used in its place (Enzler, 2016).
II-The effect of Green House Gases on Environment
The building up of greenhouse gases like CO2 in the atmosphere has appeared to have in specific caused adverse effects on the global climate of the planet. Climatologists believe that the inclining concentration of the Co2 in the atmosphere and other gases of the greenhouse gas released by several activities of humans like deforestation and burning fuels have led the Earth to warmth. That this mechanism is known as the greenhouse effect, makes the earth a habitable planet as it shields us from the unneeded radiation from the sun and prevents heat loss from the atmosphere. However, these same gases have altered the composition of the atmosphere and led the earth to become warmer. Water vapor, Ozone, Nitrous Oxide, Carbon Dioxide, Chlorofluorocarbons, and methane gases are normally known as greenhouse gases. A study conducted investigating the effects of these greenhouse gases on the environment shows the following effects.
A-Global Warming
The increase in the concentration of greenhouse gases has caused a reduction in the decline in the infrared radiation which is changing the balance between the outgoing and incoming radiation. It is leading the Erath and its lower atmosphere to warm up as it is the only way it can get rid of the extra radiations and energy. It has been forecasted by the IPCC that by 2100, the mean global surface temperature would have increased by 5.8 degrees centigrade. This projection has taken into account the delaying effects and the aerosols which cool the atmosphere.
B-Sea-Level Rising
With global warming, sea level is bound to rise because of two different processes. Firstly, the warm temperature causes thermal expansion in the sea level, causing it to rise. Secondly, the melting glaciers and ice sheets on the poles is rising the water-level as well. It has been forecasted that the earth seal level would rise by 0.09 to 0.88 m between the time periods of 1990 to 2100.
C-Impact on Human Life
There has to be a substantial impact of these greenhouses’ imbalances in human life as about half of the population lives near the sea. It would have a severe economic impact on the coastal areas by increasing the erosion rates of beaches and increasing seal level declining the fresh waters. Agricultural impact includes the plantations growing bigger and faster, while changing the soil moistures, changing climates on the local and regional scale. The effects are more certain on aquatic systems as well as loss of the coastal wetlands would yield a reduction in the fish population. It would decline the freshwater fish species while increasing the seawater species (Latake, Pawar, & Ranveer, 2015).
III-Ways of Reducing Pollution via Carbon Offsets
Carbon offsets include projects like renewable energy projects like the replacement of coal-fired power energy plants, the building of wind or solar energy plants. It also includes the energy efficiency improvement that helps in the insulation of the building to decline the heat loss and use efficient vehicles for transportation. It would also include the energy efficiency improvement of other appliances as well, including stoves, refrigerators, air conditioners, etc. It includes the carbon sequestration in forests and soils like activities are by planting trees.
Furthermore, it includes the strategies of reducing halocarbons by reducing industrial greenhouse gases. The carbon-offset is a process through which carbon offsets can be sold as well as bought as part of the compliance with the Kyoto Protocol, United National Framework Convention on Climatic Change, or through European Union Emission Trading Schemes.
A-Types of Carbon Offsets
The types of carbon offset projects can be classified as per the type of project. Each of the carbon projects for offsets has its pros and cons. While some of these projects provide high benefits, there are others which are easy to manage and organize. These include energy efficiency projects, renewable energy projects, industrial gas projects, methane capture project, carbon capture, and storage projects, and projects for biosequestration including agriculture and forestry.
IV-The relation between Accounting and Carbon Offsets
The emitters of the carbon die oxide, more specifically the organizations emitting the carbon, is required to account for their emission allowances. The 1995 Clean Air Act has established the cap-and-trade system for the accounting of the sulfur die oxide and nitrous oxide emissions for the electric power producer. As per this act, the producers are allotted or are needed to acquire emission credit for covering their emissions of SO2 and NOx. However, other than this, the US GAAP does not address the accounting for emission programs. FASB is, however, working with the IASB on addressing carbon emissions.
It is discussing taking steps to regulate the emissions of the largest emitters and to require them to disclose the impact of their emissions in their Annual Reports. It shows that companies should have a proper carbon management strategy to allow them to comply with the regulating and reporting strategies for carbon emissions. There have been various models which have been used by US companies to report the emissions and carbon credits. Accounting under the intangible asset model measures the emission credits in the open market at a cost. The accounting model under the inventory model measures the emission credits at weighted-average cost. Another model which is used is accounting with liability and gain recognition, which measures the emission credits unless the actual level of the emissions for a period exceeds the credits that are allotted on the balance sheet. Accounting with vintage year swaps shows the process in which allowances or emission credits are swapped. Furthermore, companies also practice entering into swaps, forward contracts, and options for emission credits which are termed as Derivative accounting (EY.Com, 2018).
V-The outcome of Countries Implementing the Carbon Offsets
As more and more regions are implementing the regulations of carbon emissions and carbon offsets, the companies now have the choice to reduce their emissions staying within their caps, buying needed credits and selling the exceeding credits, and by buying international offsets. With the current ongoing of the world in this regard, the world would be able to achieve only half of the reduction in its emissions, which is needed to limit global warming to 2 degrees by 2020. It includes the envisioned action of deforestation in Amazon rainforest by 2017 and increases in the Chinese renewable energy by 2020 by 15% (Brinkman, 2010).
Conclusion
In the end, it is clear from the above discussion that carbon offsets the end of greenhouse gases and this report shows how the theory of the greenhouse effect, carbon emissions, and global warming has evolved during the last century and has now reached the point of urgency causing nations, organizations and individuals to rethink their way of living life. The report shows the ways carbon offsets and carbon credits can be reported and is reported by companies around the world and in the US. It also shows the outcome of the compliance with the emission allotments and the results if the target is achieved by 2020.
References
Brinkman, M. (2010, Feburary 1). A new look at carbon offsets. Retrieved from https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/a-new-look-at-carbon-offsets
Clark, D. (2011, September 16). A complete guide to carbon offsetting. Retrieved from https://www.theguardian.com/environment/2011/sep/16/carbon-offset-projects-carbon-emissions
EnviroCitizen.Org. (2011). The history of Carbon Credits. Retrieved from https://www.envirocitizen.org/blog/2015/10/10/history-carbon-credit/
Enzler, S. M. (2016). History of the greenhouse effect and global warming. Retrieved from Lenntech: https://www.lenntech.com/greenhouse-effect/global-warming-history.htm
EY.Com. (2018). Accounting guidance for Emissions Programs. Retrieved from https://www.ey.com/us/en/industries/oil—gas/carbon-market-readiness—4—accounting-guidance-for-emissions-programs
Jones, M. D., & Henderson-Sellers, A. (1990). History of the greenhouse effect. Progress in Physical Geography, 14(1), 1-18.
Latake, P. T., Pawar, P., & Ranveer, A. C. (2015). The Greenhouse Effect and Its Impacts on Environment. International Journal of Innovative Research and Creative Technology, 3(1), 333-337.
Weeks, J. (2018, November). Carbon Trading. Retrieved from https://library.cqpress.com/cqresearcher/document.php?id=cqrglobal2008110000
Weinstein, J. (2010, June 13). Carbon Credit Financing In The Developing World. Retrieved from http://developeconomies.com/development-economics/using-carbon-credits-to-finance-clean-energy/
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