The Board discussed the initial accounting for emission allowances that entities receive free of charge from government in cap and trade emission trading schemes.
The Board decided tentatively that an entity should recognise emission allowances received free of charge from government as assets. The allowances should initially be measured at fair value.
The Board decided tentatively that if an entity receives allowances free of charge from the government, the entity incurs an obligation to reduce its emissions below the level represented by those allowances (ie its cap). Only if the entity fulfils this obligation will it be entitled to retain some of the allowances. The Board decided tentatively that the entity should recognise a liability for this obligation. The liability is measured initially at the fair value of the allowances received.
At future meetings, the Board will consider the subsequent accounting for the emission allowances, the liability that is recognised on receiving allowances and the liability that arises when an entity produces emissions.