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

Abstract

Tackling climate change requires not only reducing GHG emissions but also removing GHG from the atmosphere. Carbon-offset producers purport to provide such removals. But existing carbon-offset markets have been criticized for poor measurement practices and inadequate controls, resulting in transaction of products that do not materially sequester carbon. To address these challenges, we apply basic financial-accounting principles to develop an accurate and auditable framework for offset accounting. The offset-accounting principles in this paper complement and extend the E-liability method of accounting for GHG emissions. Together, rigorous accounting for emissions and offsets can improve and expand markets for impactful decarbonization.