Carbon emissions to be disclosed in balance sheet from 2015

By Kim Eun-jung

SEOUL, July 8 (Yonhap) -- South Korean companies will be required to disclose carbon emissions in their balance sheet to inform investors and stakeholders when the cap-and-trade system takes effect next year, the Korea Accounting Standards Board (KASB) said Tuesday.

The accounting standard agency has recently drawn up a draft that requires companies to include activities related to greenhouse gas emissions in financial statements sent to the Korea Exchange, the nation's main bourse. The exchange is preparing to open the carbon exchange market at the start of 2015.

The latest move comes after the environment ministry in May announced detailed plans to curb carbon emissions in 2020 to 30 percent below business-as-usual levels, as part of Seoul's effort to do its part in respect to the Kyoto Treaty.

"As the greenhouse gas emission trading goes into effect in 2015, the need for the new accounting standard has arisen so companies subject to the system can make comparable financial statements," the KASB said in a report. "The new accounting model is designed to conform with (the cap-and-trade) system that uses the market mechanism to effectively reduce greenhouse gas emissions, while minimizing its impact on the product costs."

Under the first stage of the scheme that extends from 2015 through 2017, carbon dioxide emissions from power generators and manufacturers will be capped at 1.64 million tons per year.

Based on target emissions, the government would then allocate emissions allowances in the coming months, giving companies the right to emit a specified amount of greenhouse gases into the atmosphere. In the first stage, the government will give the emissions rights to selected companies for free.

The new accounting model recognizes the greenhouse gas emissions obligation as "intangible assets" when actual emissions levels are lower than the emissions allowances a company holds, while classifying an excess of emissions as "current liabilities."

For instance, if a company that has 100 emissions rights only uses 80, the used amount will be listed as liquid assets, while the remainder will be classified as intangible assets.

For an emissions right brokerage firm, sales of emissions allowances for cash or other monetary consideration will result in a gain, similar to the manner in which gains and losses on operating assets are typically classified.

The KASB said it will collect opinions from stakeholders before finalizing its draft in September and reporting it to the Financial Services Commission. It aims to proclaim the new accounting standard within this year.

However, it faces challenges as business groups and major manufacturers have voiced strong concern over the planned market, saying the extra cost for emissions would hurt their global competitiveness. The government has yet to finalize its carbon emissions reduction target and the size of the allowances.

"Stakeholders have called for a new model that is consistent with accounting standards adopted by international companies because it is hard to predict when the carbon trading market will be fully activated," the board said, noting it will consider standards commonly used in Europe, which has the largest carbon emissions exchange.

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