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Pollutant Pricing Mechanisms (formerly Emissions Trading Schemes) [Research]

Next steps:

After considering the feedback from the 2015 Agenda Consultation, the Board created a list of future research projects. These projects, which include this project, are not currently active, but the Board expects to start, or restart, work on them before the next Agenda Consultation, which is expected to start around 2021.

Last updated:

November 2016

Overview

The IASB added a project to its agenda in September 2005 to develop comprehensive guidance on the accounting for emissions trading schemes.  Such schemes are an integral part of the Kyoto Protocol to reduce greenhouse gases. Among the reasons for adding the topic to the agenda, the IASB noted in particular the increasing international use (or planned use) of schemes designed to achieve reduction of greenhouse gases through the use of tradable permits. It also noted that there was a risk of diverse accounting practices for such schemes following the withdrawal of IFRIC 3, Emission Rights, and that this would impair the comparability and usefulness of financial statement information. Over a number of years the project went in a number of directions but in February 2015 evolved into a new project, renamed from "Emission trading schemes" to "Pollutant pricing mechanisms". This was to reflect a January 2015 Board decision to change the scope, the approach and the direction of the project. The Board decided to take a fresh start and discard all tentative decisions taken in previous versions of the project. In addition, the scope of the project was broadened to consider a variety of schemes that use emissions allowances to manage the emission of pollutants.

The objective of the project is to develop comprehensive guidance on the accounting for emissions trading schemes, including (but not limited to) the following issues:

  1. Are emissions allowances assets? Is this conclusion affected by how the allowance is acquired? What is the nature of the allowance (e.g. license to emit or form of emission currency)? If allowances are assets, should they be recognized and, if so, how should they be measured initially?
  2. What is the corresponding entry for an entity that receives allowances from government free of charge? Does a liability exist? If so, what is the nature of the liability and how should it be measured both initially and subsequently?
  3. How should allowances be accounted for subsequently? Is the existing model in IAS 38 Intangible Assets or IAS 39 Financial Instruments: Recognition and Measurement appropriate? If not, what is the appropriate accounting?
  4. When should an entity recognize its obligations in emissions trading schemes and how should they be measured? How does the standard, IAS 37 Provisions, Contingent Liabilities and Contingent Assets apply?
  5. What are the overall financial reporting effects of the above decisions?

 

Other developments

November 2016

After considering the feedback from the 2015 Agenda Consultation, the Board created a list of future research projects. These projects, which include this project, are not currently active, but the Board expects to start, or restart, work on them before the next Agenda Consultation, which is expected to start around 2021.

July 2016

On July 20, 2016, the IASB staff updated the Work Plan in respect of this project to indicate that this project is on hold. The Board plans no further work until the revised Conceptual Framework is closer to finalization.

February 2015

In February 2015, the project was re-named “Pollutant pricing mechanisms”. Previously, it was named “Emissions Trading Schemes”.

 

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