Emission trading is carbon that measures the green. Emissions trading scheme is used to reduce the greenhouse gas and costs in equitable way that is incurring and expanding in national and international levels to obtain economic incentives for pollution control management. In the context of such scheme, participating entities will be reached though the emission obligation that is set by government. Sometimes emission trading is called cap and trade.
According to the (Green MPs, 2009) emissions trading can be effective and it has two main and important aspects that should be considered for the climate policy framework by putting price and a cap on carbon emissions. In the case of the carbon tax would be simpler, because it set the price and let the individual person to set or determine the reduced emissions. Environmental certainty provides the benefit to emissions trading, because the total allowed pollution is set by a cap then establishes the rules and let the price of pollution known by the market.
The first step headed toward for ascertain region emissions of carbon dioxide is the Kyoto Protocol. Australia now is compacting with issues that relate to carbon emissions trading to monitor the greenhouse gases from land based activities. The need for accounting standards is very important to be applied for carbon emissions (Kyoto protocol) because accounting make the financial reporting standards compatible as they are practicable and organise the future work programmes to ensure the compatibility is retained.
Accounting for emissions trading can be used to minimise the waste and pollution in Australia but it is being a body that complex the accounting systems. As in Western Australia (department of treasury and finance, 2008) indicated that the tool Carbon Accounting Toolbox would be complex and difficult for landholders, and should be simplified if they would be using it for reporting purposes. Therefore, they can use alternative tools to Carbon Accounting Toolbox for carbon indication such as monitoring, reporting and measurement.
According to Australian standards and accounting theories , adapting new accounting standards for carbon emissions trading would have a significant impact in increasing the cost and facing difficulties of operating new system that would be applied to not only single companies but to the entire sector of the financial and financial markets company. Therefore, poor and privileged company would face inconveniences of applying and working with the new system, then should perhaps train all their employees the use of the system and require a financial assistance for a task.
Producing new accounting standards for carbon emissions trading under Kyoto Protocol would have advantages and disadvantages that would affect the organisation's financial reports, by searching from different resources that accounting for emissions trading have an effect upon.
By adding new accounting standards to the emissions trading applying Kyoto protocol companies can be more aware of any environmental problems before they actually occur, because they would already have the accounts in their financial reports then it would be easy to modify. Economic interest group theory is connected to this advantage and it states organizations will form to protect the interests of the private sector in economic development (Deegan, 2008). In this case those groups will concentrate on the external factors that would minimise the costs to the organisation, for example reducing any legal costs from pollution and fines.
For a better reputation and more competitive organisation, stakeholder theory in ethical (normative) branch would function to this advantage through any individual who can be effected by the achievement of the firm's objective (Deegan, 2008). Better reputation would result from achieving of operating the new accounting standard for the emissions trading by saving the environment from pollution and waste. Therefore, it would be more competitive with other firms.
According to CPA meeting conducted July 2007 states that without new accounting standards some organisations or industries show carbon credits as a net position, while other organisation will show the carbon credits as gross position. Therefore, new accounting standards will help financial users as employees to analyse the carbon credit as net position or gross position. In this case institutional theory would apply to this advantage because it accounts the carbon emission in certain way the other industries would apply to them as well (Deegan, 2008). In this situation new accounting standards applied through institutional theory would have a benefit to financial reports that add value to the organisation and reduces financial risk and the costs applied to accounts would be the same for all organisations.
Beside the advantages of conducting new accounting standards for carbon emissions trading, disadvantages could result a lengthy process. Therefore, under conceptual framework that provide recognition and measurement rules within a 'coherent' and 'consistent' framework that is approached by normative accounting theory appeared a lack of consistency in the carbon emissions, therefore, (Australian Petroleum Production and Exploration Association, 2008) concluded that the growth of separate Australian Government, state and territory government policies and greenhouse in increasing the costs and uncertainty for Australian industry, including the upstream oil and gas industry. Therefore, the measurement of the costs would be hard to estimate future carbon figures because of lack of consistency that would misallocate the consistency and deadweight losses to the economy associated with hotchpotch of greenhouse measures in Australia.
Without appropriate framework and well trained employees the reliability of data would not be sufficient and effective. Then it would affect the process.
On the other hand (Deegan, 2008) demonstrated that Positive accounting theory that is known as managers are driven by self-interest and behaved or acted in an opportunistic way to increase their wealth would be a disadvantage for introducing new accounting standards for carbon emissions trading. According to (Australian Environment Business Network, 2007) implementing the new system increase in cost for monitoring, maintaining, controlling and allocation the resources the standards would be difficult and would take a time to the organisation to train employees and increase their skill set and acknowledging them of the new financial and accounting areas. However, managers that conduct positive accounting theory will find ways to try and get out of paying these costs. This will increase profitability in short term however will not for long term of incurring these costs therefore this will impact on reduction the quality of the financial reports.
Having too many accounting standards can have an impact on employees, because including new accounting standards the system change. Therefore, under economic interest group theory (Deegan, 2008) that different employees or groups might have a conflict with each other and lobby the government to put in place legislation that economically benefits them. (Baker and Stephan Hayes, 1995) states that this matter would have a negative effect on employee welfare caused by economic decisions. Therefore, it would be a disadvantage for the organisation to adopt new accounting standards.