Put Price on Carbon Liability

14 February 2008
Professor for Sophia University
Graduate School of Global Environmental Studies
Yoshihiro Fujii

• The Economics of Climate
Change• Stern said: Expected cost of cutting
emissions consistent with a 550ppm
CO₂estabilisation trajectory averages 1% ofGDP per year.
• = New markets will be created :worth
over $500bn a year by 2050.

Tax or Market?
• Does most of Governments haveenough money in their pockets?
• Companies hate to be taxed more.
• What about markets?
• //////////////////////////////////////////////////////////////• There are enormous amount of moneyin this planet.
• How much?

• $125trillion in global household wealth
only as of 2000 (=at least $160trillion incurrent year).
• But the richest 2% of adults own morethan half of them.
• We can use these money ?
• Yes. But we should make new canal formoney pouring LCSs.

Regional wealth Shares
Africa 1

China 3

India 1Other Asia-Pacific 3
Latin Americaand Caribbean 4Rich AsiaPacific 24

NorthAmerica
34

Europe 30

As of 2000

UN-WIDER 2006

Constructing new canal for LCSs
with shared roles.
• Governments regulate GHG gas aspollutants in legal framework.
• Financial authorities should treat carbon
liabilities of companies as material issues.
• Accountant organizations should set up
common international standards of carbon
liabilities on B/S of companies.

Is it same pricing carbon and pricing
carbon liability?
• Almost similar but slightly different.
• For companies it is very big different.
• Former affects for companies who
traded carbon credits.
• Latter affects all of companies value
not only present ones but also futureones.

Accounting for Emission Rights(Carbon Liabilities)•••

A history of IFRIC3
It’s draft proposal was issued in December 2004.
IFRIC is the International Financial Reporting Interpretations
Committee in the IASB (International Accounting Standards
Board) .
It specified that;
・Allowances are an intangible asset at fair value.
・This liability is measured at B/S as current market value.
・Companies will amortise the government grant (deferred credit) toprofit or loss.

・ IFRIC had strong opposition from companies above interpretations
especially treatment of emission liabilities as government grant.
•IFRIC Board decided to withdraw IFRIC3.

Two role for Financial institutions• They should evaluate carbon liabilities
of investments and loans to companies.
• They should also provide suitablecarbon investment products to global
investors.

Carbon Principles• Citi, JPMorgan Chase, Morgan Stanley• Climate change guidelines to powercompanies in the US.
• /////////////////////////////////////////////////////• 1- Energy Efficiency.
• 2- Renewable and Low carbon distributed
energy technologies.
• 3- Conventional and Advanced generation.

Measurement of Environmental
Liabilities• The amount of the obligation
embedded in the acquisition price ofthe asset.
• A market quote in active market fortransfer of the obligation( e.g. carbontrading).
• Application of an expected present
value technique to estimate fair value.

Calculating of Intangible Environmental
Assets• Capitalized Environmental Costs• Right of Recovery• Emission credits• Goodwill associated with a company’senvironmental performance or risk
profile.

Global Investment for Renewableenergy markets$117bn35%up

ＳＳＰ$86.5bn

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74%up
$49.6bn
80%up

Ｒ＆Ｄ$27.5 bn

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2004

2005

2006

2007

Thank you very much•

Yoshihiro Fujii