The Valuation and Reporting of Organizational Capability in Carbon Emissions Management

Under various carbon emissions trading schemes proposed around the world (including the United States), organizations will need to implement carbon management schemes to meet carbon ration targets, earn revenue, and reduce costs. Emission Trading Schemes will impact the accounting profession significantly; however, discussions on how to report these transactions are in the very formative stages. So far the accounting literature has focused on the reporting of current carbon assets and liabilities in the balance sheet and the timing effects of carbon releases in the income statement. However, there has been little or no discussion as to how to value and report the underlying non-current assets (and liabilities) that produce or use carbon allowances on the balance sheet. This paper proposes a model for valuing an organization's non-current carbon sequestration and emission capabilities. A new metric, Environmental Capability Enhancing Asset (ECEA), is introduced as the underpinning for the conversion of non-monetary CO2 emission and sequestration measures to monetary values. The process of bringing these monetized values within the boundaries of conventional (double-entry) GAAP is also demonstrated. [PUBLICATION ABSTRACT]