Trading of Carbon Credits happens in the form of CERs or Certified Emissions Reductions. CERs are in the form of Certificates, just like a stock. A CER is given by the CDM Executive Board to projects in developing countries to certify that they have reduced green house gas emissions by one tonne of carbon dioxide per year. For example, if a project generates energy using wind power instead of burning coal, and in the process saves (say ) 25 tonnes of carbon dioxide per year, it can calim 25 CERs (One CER is equivalent to one tonne of carbon dioxide reduced).

Accounting Carbon Credits as per AS 12:

Some experts, having admitted that there are presently no guidelines/standards for accounting of Carbon Credits, have suggested that they be accounted as Government Grant. There logic is based on the definition of the term ‘Government’ prescribed in para 3.1 of AS-12, which reads: “Government refers to govt, govt agencies and similar bodies, whether local, national or international. “The logic forwarded appears to be misplaced, as intcase of financial transactions arising out of carbon credit, monetary consideration will total gambit, UNFCC CDM registry acts as a Demat banker recognizing CER credits and keeping an account of it. There is no grant at all from any agency. Further, as soon as Carbon Credits are accounted as Government Grants, Accounting Standard-9 ‘ revenue recognition’ will cease to operate , leading to other accounting and taxation complications.
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