If companies don’t know how to account for carbon credits, they don’t really know how to deal in them – and, with no agreed-on rules for such accounting, each company is following its own rules. That could cost dearly down the road, which is why the International Forest Carbon Association is pushing for clarity on this issue.
Early in the film Stand by Me, Gordy turns to the other kids in exasperation.
“Alright, alright, Mickey's a mouse, Donald's a duck, Pluto's a dog,” he says. “What's Goofy?”
It’s a serious question, because the answer determines whether Goofy stays in a hotel or in a kennel – and, in some families, whether he rides in the car or on the roof.
Accountants are asking similar questions about carbon credits, and whether they are intangible assets, service agreements, financial derivatives, or commodities. The answers to those questions determine whether the offsets are marked to market, valued at cost, or something in between – and those are big issues in a market where prices fluctuate daily and positions are measured in millions.
The International Accounting Standards Board (IASB) issued guidance in 2004 for offsets trading on the European Union Emissions Trading Scheme (EU ETS), then retracted it in June, 2005 after several participants raised questions. Since then, with Europe being the only carbon game on the planet, the issue faded. But with California, Ireland, and others implementing greenhouse gas regimes involving forest carbon, Scott Deatherage sees a recipe for confusion.