Carbon Emissions Trading

Today, the problem of the environmental protection is one of the major challenges. In this respect, the global climate change is definitely one of the most serious challenges the mankind is currently facing. The problem of the climate change, in its turn, is, to a significant extent, provoked by carbon emissions which pollute air and contribute to the development of the greenhouse effect. At the same time, the world community attempts to tackle the problem of the global climate change through the minimization of carbon emissions. For this purpose the Kyoto protocol was ratified by many countries, but some countries, including the US, which is the world’s leader in terms of carbon emissions and air pollution, refused to sign the protocol. Nevertheless the Kyoto protocol was the first step toward the minimization of carbon emissions. However, the ratification of the Kyoto protocol raised a serious problem ”“ the problem of carbon emissions accounting.

In actuality, there is no universal approach to accounting of carbon emissions, but it is obvious that carbon emissions accounting should be grounded on international standards which could be applied in any country of the world and mirrored the actual level of carbon emissions in order to define the amount of carbon emissions of each country that ratified the Kyoto protocol.

In order to understand the significance of the effective accounting of carbon emissions at the international level, it is important to understand the significance of the Kyoto protocol itself. In fact, the Kyoto protocol was introduced as a measure that is supposed to reduce carbon emissions internationally. The main idea of the Kyoto protocol is the idea of the gradual reduction of carbon emissions and provision of countries with certain quotas on carbon emissions (Tietenberg, 2006). The latter are particularly important because carbon emissions quotas have become subjects to trading because some countries, who exceed their carbon emissions quotas, can buy the extra amount of carbon emissions, while countries that do not fully use their carbon emissions quotas can sell them to those countries which exceed their quotas. In such a way, carbon emissions are subjects to trading and this is exactly where the need in the effective, accurate and internationally acceptable accounting arises.

First of all, it is necessary to identify the major sources of the carbon emission, which are similar worldwide (see Graph 1). In this respect, it is possible to sing out fossil fuels as the major source of carbon emissions. In actuality, one of the major areas where fossil fuels are used is transportation, including motor vehicles, rail, air and shipping. At the same time, the emission of carbon occurs extensively in heating applications, including process heating and space heating, water heating and cooking (Millard-Ball, 2007). In addition, fossil fuels are used for the generation of energy and electricity. At the same time, electricity production and cogeneration are important sources of carbon emissions because in these processes coal, oil and natural gas are used. In such a way, it is obvious that the areas where carbon emissions occur are extensive, but, when the major sources of pollution are identified, they can be used in accounting of carbon emissions.

The accounting of carbon emissions can occur through the calculation of amount of fuel combusted and carbon emitted, i.e. carbon released = amount of fuel combusted x CEF
where the CEF = (carbon emitted) / (amount of fuel combusted). At the same time, it is very important to introduce international standards of accounting because the calculation of the amount of carbon emissions should meet standards that are accepted worldwide. For instance, the use of metric system should be applied to simplify the process of carbon emissions accounting because the US or the UK normally do not use metric system that may create certain difficulties in calculations of the amount of carbon emissions (Lecocq, 2005). However, the use of metric system is not the most important problem. In fact, what does matter is the introduction of international accounting standards, which could assess and account all the carbon emissions based on the aforementioned equation, carbon released = amount of fuel combusted x CEF where the CEF = (carbon emitted) / (amount of fuel combusted). In such a way, the introduction of international standards will simplify the accounting. At the same time, it is important to use international standards in accounting of carbon emissions in order to identify the general level of emissions through the analysis of the combusting fossil fuels, including fuel used in transportation, heating applications and electricity production and cogeneration.

On the other hand, it is important to understand the fact that accurate accounting is not always possible even if international standards of accounting are being introduced. What is meant here is the fact that some countries are unwilling to ratify the Kyoto protocol, which undermines the very concept of the Kyoto protocol and its effectiveness (Willey and Chameides, 2007). In addition, even if all the countries ratify the Kyoto protocol, there is a risk that some countries will not provide the full information about their carbon emissions because of the poor development of their accounting systems. At this point, it is worth mentioning the fact that in many developing countries, there is a risk of illegal use of fossil fuels in heating applications, which cannot be accurately accounted, while they can influence the overall balance of the country carbon emissions (Kimble, 2002).

Furthermore, carbon emissions trade raises the problem of the pricing of carbon emissions, which also affects accounting because carbon emissions should have their price, but there is no similar product or service to carbon emissions. At this point, it is also necessary to introduce international standardize to establish the adequate price of carbon emissions units in international trade (Hansjürgens, 2006).

On the other hand, prices cannot remain unchanged that means that it is necessary to develop a clear formula with the help of which it is possible to define the price of carbon emissions. For instance, it is possible to link the price of carbon emissions units to the oil price or other fossil fuel.

Thus, taking into account all above mentioned, it is possible to conclude that the accounting of carbon emissions heavily depends on the introduction of international standards of accounting. What is meant here is the fact that the use of international standards will simplify the accounting and it will make accounting applicable internationally without any restrictions and limitations. At the same time, the development of international standards of carbon emissions accounting should be based on the understanding of the basic sources of carbon emissions since through the calculation of the amount of fossil fuels consumed by every country it is possible to calculate the overall carbon emissions of every country. Finally, it is important to lay emphasis on the fact that the introduction of accounting of carbon emissions should be accompanied by the ratification of the Kyoto protocol by all countries in order to make it effective. Otherwise, there is no use in carbon emissions accounting and the Kyoto protocol if the largest countries emitting carbon are left aside.