An Overview of Carbon Credit Accounting in India

Are you looking to overcome sustainability challenges in a suitable system of valuation, accounting, and auditing at the international and national levels? Let FastZeal environmental consultants ensure that they overcome the difficulties while initiating carbon credit accounting.

The concept of carbon credit accounting was introduced to control the pollution emission of greenhouse gases (GHG) in the atmosphere. It refers to the systematic process of measuring, recording, and reporting the amount of greenhouse gases and carbon dioxide (CO2) emissions in the atmosphere. It further involves quantifying greenhouse gas emissions reductions achieved through various initiatives, such as renewable energy projects, afforestation, or energy efficiency measures.

Book an appointment with FastZeal professionals today to enable a comprehensive understanding of the net carbon balance in the given region, sector, organization, or project!

What is Carbon Credit Accounting?

Carbon credits are the certificates awarded for taking active participation in reducing the emissions that cause global warming. Carbon credits, often referred to as carbon allowances, are regarded as permits that allow industries to emit a certain amount of carbon dioxide or other greenhouse gases.

The carbon credits, which are created by the governing organizations, are often allocated to individual companies within their jurisdiction. The number of carbon credits issued to a particular company/ organization represents the cap and frame (i.e., emission limit).

Methods/ Techniques for Carbon Credit Accounting

Carbon credit accounting is the survival mantra for the coming generations, coping with a number of techniques, methods, and processes to remain in the race causing environmental and climate change issues.

Emission Inventories

This method/ technique ensures the compiling of detailed data on emissions from various sources like industrial processes, energy production, transportation, and agriculture. Moreover, the national or regional greenhouse gas inventories are considered the foundation for carbon credit accounting.

Activity Data & Emission Factors

This method/ technique integrates activity data with emission factors to represent the amount of carbon released per unit of activity. Moreover, the activity data, which refers to information on the quality of activities reducing emissions such as fuel consumption or electricity generation, assists in calculating the accurate emissions made.

Bottom-Up Approach

This method/ technique is often used for industries and organizations to assess the emissions at the individual source level and aggregate the data to determine the overall caron footprint.

Top- Down Approach

This method/ technique is typically used to estimate emissions from broader data such as national energy consumption or economic activity for the purpose of national or regional carbon credit accounting.

Remote Sensing & Satellite Data

This method/ technique is used for remote sensing technologies like satellite imagery, which can provide valuable data on land-use changes, deforestation, and other factors influencing carbon emissions.

Life Cycle Assessment (LCA)

This method/ technique is used to evaluate the environmental impact of products, processes, or services throughout their entire life cycle, including the emissions associated with their production, use, or disposal.

Carbon Offsetting & Removal

This method/ technique ensures offsetting emissions or removing carbon dioxide from the atmosphere through means of afforestation, reforestation, and making use of Carbon Capture and Storage (CCS) technologies.

Benefits of Accounting for Carbon Credits in India

The benefits of accounting for carbon credits in India, which may be regarded as a group action that keeps track of the number of dioxide equivalents, are as discussed below:

Mitigating Climate Change

It incentivizes organizations and individuals to invest in emission reduction projects, which assists in mitigating climate change by reducing overall greenhouse gas emissions.

Economic Benefits

It creates economic opportunities, especially in developing countries. It further enables organizations to participate in the global carbon market, attracting investments and fostering economic growth.

Meeting Emission Reduction Targets

The proper accounting for carbon credits in India assists the nations and industries to track progress toward the emission targets as part of international agreements like the Paris Agreement.

Encouraging Sustainability

It encourages the adoption of sustainable practices by providing financial incentives for reducing emissions and promoting the development and implementation of clean technologies.

Accurate Assessment of Carbon Footprint

It provides a systematic approach to quantity and accurately access the organization’s total greenhouse gas emissions, including carbon dioxide (i.e., carbon footprint).

Identification of Emission Hotspots

Carbon credit accounting allows organizations to identify the major sources and hotspots for carbon emissions, which are considered significant contributors to climate change.

Support for Climate Action Plan

Carbon credit accounting offers support in developing robust climate action plans and policies to meet their international commitments as outlined in the Paris Agreement.

Tracking Progress and Performance

Carbon credit accounting, which serves as an essential monitoring tool, enables tracking the effectiveness of emission reduction initiatives and policies.

Climate Transparency and Accountability

Carbon credit accounting enhances global climate transparency and accountability to accurately report their emissions, fostering trust and cooperation among nations.

Carbon Trading & Creation

It provides a supportive climate for the creation and trading of carbon credits as specified under the Carbon Credit Trading Scheme, enabling industries to invest in emission reduction projects to offset their own emissions.

Corporate Social Responsibility and Sustainable Business Practices

Carbon credit accounting is an indispensable tool that fulfils corporate social responsibility and sustainable business practices and commitments made by businesses.

Resilience and Adaptation

It contributes towards assessing the impact of climate change on specific regions or industries for developing adoption strategies to build resilience against climate change.

How is Carbon Credit Accounting Done?

As of now, there exists no separate Indian Accounting Standard to measure the income and expenditure of carbon credit projects and profits thereafter. The basic procedure for calculating a company's GHG emissions, popularly known as carbon accounting, as explained below:

• Carbon credit accounting usually begins with identifying/ recognizing the activities that reduce carbon emissions.
• A comprehensive environmental assessment ensures the calculation of the direct and indirect emissions from energy consumption.
• Keeping track of GHG emissions and their impacts on ecosystems is a crucial part of carbon accounting.
• Post assessment period, the carbon credits must be issued by the responsible authority, which verifies the alignment of reported reductions.
• After the issuance, the carbon credits are further traded, sold, or used for offsetting emissions by entities that need to meet their emission reduction target.
• The final step is the retirement of carbon credits, where carbon credits can no longer be traded or reused. Thus, it ensures permanent offsetting and accounting for carbon credits in India.
  
  

  Carbon Credit Accounting Framework in India

  The Science Based Targets Initiative, ISO 14064, and the Greenhouse Gas Protocol are the most widely used standards for carbon accounting. Some of the carbon credit accounting frameworks in India are as explained below:

  National Action Plan on Climate Change (NAPCC)

  The National Action Plan on Climate Change (NAPCC) is a framework launched to address the challenges posed by climate change and promote sustainable development. It further aims to recognize the country’s vulnerability to climate impacts.

  India further took proactive measures to mitigate greenhouse gas emissions and build resilience against climate change-induced risks. Moreover, NAPCC serves as a guiding document that leads carbon accounting for major carbon-emitting industries.

  Greenhouse Gas Protocol (GHG)

  Greenhouse gas protocol is a framework which enables measuring and disclosing the greenhouse gas emissions of the organizations, governments, and other bodies. The guidelines issued by the GHG Protocol enable organizations, governments, and other bodies to measure and disclose their greenhouse gas emissions in a way that advances their objectives.

  The India GHG inventorization program further creates a national model for emissions accounting and builds institutional capacity to carry out extensive GHG inventories & programs nationally and internationally supporting multiple business objectives. It is one of the most widely used greenhouse gas accounting standards provided by the GHG Protocol.

  ISO 14064 Standard

  ISO 14064 is a three-part international standard for GHG management activities, including the development of entity emission inventories. The minimum requirements for GHG inventories specified in the standards serve as a foundation for reliable and consistent independent auditing.

  ISO 14064 standard comprises three parts, namely,

  • Part 1 titled specification with guidance at the organization level for quantification and reporting greenhouse gas emissions and removals.
  • Part 2 deals with measuring and disclosing emission reductions resulting from project activities.
  • Part 3, titled Specification with guidance for the validation and verification of greenhouse gas assertions.

  Science-Based Target Initiative (SBTI)

  The Science Based Targets initiative was started in 2015 to assist businesses in setting emission reduction goals. The We Mean Business coalition, Amazon, Bezos Earth Fund, IKEA Foundation, Rockefeller Brothers Fund, and UPS Foundation all contributed to its funding.

  Science-based targets give businesses and financial institutions a clearly defined path for reducing greenhouse gas (GHG) emissions, preventing the worst effects of climate change, and ensuring future-proof business growth.

  Corporate Accounting and Reporting Standards

  Corporate Accounting and Reporting Standard (CAR) developed by the International Accounting Standards Board (IASB), is an international accounting standard that assists the industries to account for their greenhouse gas emissions. It further enables companies to measure and report their GHG emissions data in a reliable and accurate way.

  The CAR is further divided into two major parts dealing with GHG accounting and reporting principles and GHG accounting and reporting for organizations.

  Difference b/w Carbon Credit, Carbon Allowance & Carbon Offset

  Though the terms carbon credit, carbon allowance, and carbon offset are used interchangeably, there exists a thin line of difference based on different operating mechanisms. The table provided outlines the difference between carbon credit, carbon allowance, and carbon offset:

  S. No.	Aspect	Carbon Credits	Carbon Allowance	Carbon Offsets
  1	Meaning	Carbon credit is a tradable unit representing 1 metric ton of CO2 equivalent GHG emissions reduced/removed from the atmosphere.	Carbon allowances, also termed as carbon permits, are government permission slips that allow a company to emit 1 metric ton of CO2 equivalent to GHG.	Carbon offset, generated by projects, refers to a reduction in emission of CO2 or other GHG made in order to compensate for emissions made elsewhere.
  2	Market Type	Carbon credit originates from international voluntary and compliance carbon markets.	Carbon allowance comes from legally binding markets.	Carbon offset originates/primarily found in voluntary carbon market for offsets.
  3	Example	Examples of carbon credit projects include afforestation, changing to cleaner fuels, replacing fossil fuel-powered energy with renewables, etc.	Examples of carbon allowance projects include EU emissions trading system (ETS), US regional greenhouse gas initiative, etc.	Examples of carbon offset projects are categorized into avoidance/reduction projects, and removal/sequestration projects.
  4	Tradability	Carbon credit works on/traded in both voluntary and compliance markets.	Carbon allowances work under these so-called cap-and-trade systems, which tend to have a fixed supply reducing every year.	Carbon offsets are not directly traded but are often purchased as a part of the offset program.
  5	Generation in Carbon Market	Carbon credits are primarily generated through projects that take in carbon or reduce the amount of carbon released into the atmosphere.	Carbon allowances are not generated by projects designed to specifically cut greenhouse gas emissions.	Carbon offsets are usually generated by projects with clearly defined objectives.

Reasons to Trust FastZeal for Carbon Credit Accounting

FastZeal offers assistance in determining how carbon credit accounting could benefit your business. By streamlining carbon accounting, we are at the forefront of this trend and will be a crucial partner in assisting businesses in achieving their objectives. Given below are the reasons why entities engaged in carbon credit trading scheme trust us-

• Provide Effective Carbon Accounting and Reporting Solutions
• More than 10 Years of Experience in Environmental Consulting Space
• Network of 500+ Legal Experts to Ensure the Matters Concerning Carbon Credit Accounting
• Smooth Assistance in Initiating Accounting for Carbon Credits in India
• Risk Management Strategies to Mitigate Uncertainties in Projects Involving Carbon Credits such as Afforestation or Renewable Energy
• Calculation of Carbon Footprint and Immediate Action to Cut Greenhouse Gas Emissions Quickly
• Assistance in Expert Accounting for Carbon Credits in India