Journal of Accountancy recently published a comprehensive article on accounting for greenhouse gases. Their summary is provided below.
Concerns over the environmental, economic and health risks posed by greenhouse gas emissions have become a frequent topic of discussion. Recent events and initiatives suggest that climate change ranks high on the U.S. political agenda.
Cap-and-trade programs have emerged globally as the most prevalent market mechanism used by countries to limit greenhouse gas emissions. In such programs, a government sets a targeted level of emissions for companies for a specified time period and uses “allowances” to assign a monetary value to pollution. Companies that emit less than their target may have excess allowances, whereas those that exceed their targets can acquire additional allowances. Companies generally can sell or purchase allowances directly with other companies, through a broker, or on an exchange.
Users of financial statements require expanded and transparent disclosure of the financial results related to pollution emissions. However, attempts by FASB and the IASB to provide definitive accounting guidance have been unsuccessful, leading to diversity in global accounting practices.
FASB and the IASB are working jointly to examine the accounting issues related to cap and- trade programs and other market-based mechanisms designed to limit emissions. A final standard is anticipated in 2010.
See the full article here.