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carbon credit

26 March 2008

Can any one tell me the accounting treatment for carbon credit? whether it has to be recognised on accrual basis or receipt basis?

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4 Replies

(Guest)

hi .....what is carbon credit

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CA Dilip (Financial Service) (181 Points)
Replied 28 March 2008

Businesses that are over their quotas must buy carbon credits for excess emissions, while those below can sell their remaining credits. The ones who are selling are companies that use clean technology and those buying are the world’s polluters. These credits can be exchanged between businesses or bought and sold in international markets at prevailing market price at two exchanges, namely the Chicago Climate Exchange and the European Climate Exchange. The Multi-Commodity Exchange of India (MCX) may soon become the third exchange in the world to trade in carbon credits.

As emission levels increase globally, the number of companies wanting/needing to buy more credits will increase, pushing up the market price and encouraging businesses to undertake eco-friendly activities that create for them carbon credits to sell. Developed countries have to spend nearly $300-500 for every ton reduction in CO2, against $10-$25 by developing countries. India’s GHG emission is below the target and so, it is entitled to sell surplus credits to developed countries. India is considered to claim about 31% of the total world carbon trade, which can give $25bn by 2010

This is what makes trading in carbon credits such a great business opportunity. Foreign companies which cannot fulfill the norms can buy the surplus credit from companies in other countries. Many Indian companies have been re-rated on the stock markets on the basis of the bonanza that will accrue to them when carbon trading kicks off. SRF Ltd and Shell Trading International have entered into sale and purchase Credit Emission Reduction. Suzlon Energy and Shriram EPC have business in wind energy which is eligible for carbon credit benefits. Shree Renuka Sugars is also expected to benefit from carbon credits. Gujarat Flourochemicals was among the early companies to register for Clean Development Mechanism (CDM) project

India has emerged as the dark horse in this race as more than 200 Indian entities have applied for registering their CDM Project for availing carbon credits. Currently, one carbon credit is worht 13 euros. Indian companies can have higher incomes more from carbon credits than their core business. The carbon credit market was worht $25 billion last year and is growing at tremendous space, and there is a demand to reduce 1 billion ton of carbon emissions in the world, so that threats like global warming could be dealt with

The 800 million farming community in India has also a unique opportunity where they can sell Carbon Credits to developed nations