The Board discussed the accounting for the right to receive allowances in an emissions cap & trade scheme before the related allowances have been issued. The Board addressed the issue in relation to (a) schemes with voluntary participation (voluntary schemes), which involve contracts between knowledgeable and willing parties and (b) statutory schemes with mandatory participation.
Many emissions trading schemes split the commitment period into annual compliance periods. That means an entity:
- receives allowances under its allocation in yearly instalments at the beginning of each compliance year, and
- surrenders allowances at the end of each compliance year to offset its emissions in that compliance year.
The Board discussed two views on when an entity controls a resource related to its future instalments:
- According to View 1, an entity does not control a resource until the contingencies related to the right to receive allowances are resolved.
- According to View 2, an entity controls a resource when the entity holds a right that will result in the entity receiving allowances if the entity takes specified actions (typically, continuing to emit at a specified level). That right is an option and the entity exercises it by undertaking the specified actions.
The staff did not ask the Board to make any decisions at this meeting but asked the Board for direction in developing accounting guidance for emissions trading schemes.
The boards will discuss accounting models for emissions trading schemes (both voluntary and statutory) in the first quarter of 2010.