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Deloitte paper on 'cap and trade programs'

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18 Feb 2010

Deloitte's Climate Change and Sustainability Services team has published a paper on Cap and Trade Programs for Greenhouse Gas.

Concern for the potential implications of climate change is leading governments to consider policies and programs designed to reduce greenhouse gas emissions. Cap and trade programs are one option that is considered to be effective in creating a financial incentive for emissions reductions for large emitters in industrial sectors. The purpose of the paper is to present the key characteristics of greenhouse gas emissions cap and trade programs. A knowledge of cap and trade mechanisms is essential to understanding the impact on business, including carbon management, accounting, and tax implications.

The IASB's Emissions Trading Schemes Project

The IASB has on its agenda a project on Emissions Trading Schemes. The goal of that project, being conducted jointly with the US FASB, is to develop comprehensive guidance on the accounting for emissions trading schemes. The Board has decided tentatively that if an entity receives emission allowances free of charge from the government:

  • The entity should recognise the allowances as assets and measure them initially at fair value.
  • Because the entity incurs an obligation to reduce its emissions below the level represented by those allowances (ie its cap), the entity should recognise a liability that represents its promise to pay allowances throughout the commitment period. The liability exists irrespective of whether the entity has already emitted.
Click to download Cap and Trade Programs for Greenhouse Gas (PDF 1,123k).

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