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Accounting for emission rights an urgent topic for national standard setters

25 May 2012

In November 2010, the IASB deferred its project on emission trading schemes in its movement to concentrate on the major projects of the MoU that were to be finalised by June 2011. With those projects still not finalised and with global sustainability moves resulting in new laws and regulations, national standard setters are beginning to move forward on their own.

The French standard setter Autorité des normes comptables (ANC) has recently presented a discussion paper Accounting for Emissions Trading Schemes Reflecting Companies’ Business Models that is intended "to inspire the international debate and, as soon as possible, the development of an international accounting standard by the IASB."

The European Union Emissions Trading System (EU ETS) launched in 2005 will move into Phase III in 2013 which will lead to the gradual phasing out of free emission rights and a move towards auctioning of emission rights. Consequently, the questions of whether tradeable permits in emission trading schemes (allowances and credits) are assets and how they should be accounted for need to be addressed. The ANC proposes an accounting approach that builds on the business model of a company as "under IFRS, a uniform measurement of purchased allowances, regardless of the use they are put to, would be irrelevant".

In Australia, the newly introduced Carbon Pricing Mechanism (CPM) is split into phases as well. The fixed price phase in which a carbon tax is levied on certain entities is to run from 1 July 2012 to 30 June 2015. In the following flexible price phase, permits (carbon units) can be traded.

In an agenda paper published by the staff of the Australian Accounting Standards Board (AASB) that is predominently dealing with possible financial reporting implications of the fixed price phase, the staff announces: "The financial reporting implications of the flexible price phase will be considered when the IASB progresses its project on accounting for ETSs." However, the staff also notes: "The AASB has contingency plans in place to provide any necessary financial reporting guidance under Australian Accounting Standards in regard to the flexible price phase, should it be established that a pronouncement from the IASB will not be forthcoming in time to provide a basis for accounting treatments in the flexible price phase."

It is likely that the IASB will be taking up the project on emission trading schemes (ETS) again since during the discussion of the agenda consultation last Wednesday research on emissions trading schemes was named as one of the possible priority projects for the future agenda.

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