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Accounting for Carbon Offsets – Establishing the Foundation for Carbon-Trading Markets

By: Robert S. Kaplan, Karthik Ramanna and Marc Roston
  • Format:Print
  • | Language:English
  • | Pages:17
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Abstract

Tackling climate change requires reductions in current and future greenhouse gas (GHG) emissions as well as the removal of existing GHG from the atmosphere. Carbon-offset producers purport to provide such removals. But poor measurement practices and inadequate controls have led to extensive trading of instruments that do not materially reduce the supply of atmospheric GHG. To address these challenges, we apply basic financial-accounting principles to develop an accurate and auditable set of offset accounting principles. These principles complement and extend the E-liability method of accounting for GHG emissions. Having rigorous accounting for both emissions and offsets will expand market forces for impactful decarbonization.

Keywords

Carbon Offsetting; Climate Change; Environmental Regulation; Corporate Accountability

Citation

Kaplan, Robert S., Karthik Ramanna, and Marc Roston. "Accounting for Carbon Offsets – Establishing the Foundation for Carbon-Trading Markets." Harvard Business School Working Paper, No. 23-050, February 2023.

About The Author

Robert S. Kaplan

Accounting and Management
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