AOSSG Emission Trading Schemes Outline of progress and Issues for discussion

AOSSG AOSSG Emission Trading Emission Trading

SchemesSchemes Outline of progress

andIssues for discussion

Presented by Presented by CASC and ASBJCASC and ASBJ

Agenda-K-2

23/4/22 2AOSSG ETS Project

CASC & ASBJ

OutlineOutline Progress on the ETS projectProgress on the ETS project

Summary of answers to Summary of answers to Questionnaire of AOSSG ETS Questionnaire of AOSSG ETS ProjectProject

Feedback to IASBFeedback to IASB


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Ⅰ Ⅰ Progress on the ETS Progress on the ETS projectproject

In March, we drafted action plan and timeline In March, we drafted action plan and timeline on the ETS, and issued it to all AOSSG on the ETS, and issued it to all AOSSG members.members.

In April, we drafted a questionnaire of AOSSG In April, we drafted a questionnaire of AOSSG ETS project, and invited all AOSSG members ETS project, and invited all AOSSG members to provide the accounting practices.to provide the accounting practices.

Up to June, 10 comments received from Up to June, 10 comments received from Korea, Australia, India, New Zealand, Korea, Australia, India, New Zealand, Pakistan, Sri Lanka, Turkey and so on. Pakistan, Sri Lanka, Turkey and so on.

On July 20, CASC and ASBJ held the On July 20, CASC and ASBJ held the preliminary meeting in Beijing. preliminary meeting in Beijing.


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Ⅱ Ⅱ Summary of answers to Summary of answers to Questionnaire of AOSSG ETS Questionnaire of AOSSG ETS

ProjectProject The following jurisdictions have provided The following jurisdictions have provided us their answers to the questionnaire:us their answers to the questionnaire:

Non-Annex 1 of Non-Annex 1 of KPKP

Annex 1 of KPAnnex 1 of KP

ChinaChina JapanJapanKoreaKorea AustraliaAustraliaIndiaIndia New ZealandNew ZealandPakistanPakistan TurkeyTurkeySri LankaSri LankaHong KongHong Kong


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11 ．． CountryCountry’’s obligation to reduce s obligation to reduce emissions emissions Does your country have a specific obligation Does your country have a specific obligation

to reduce emissions under the to reduce emissions under the KYOTO KYOTO PROTOCOL (KP)PROTOCOL (KP) framework? (1.1 and 1.2) framework? (1.1 and 1.2)

Japan, Australia, New Zealand, Japan, Australia, New Zealand, TurkeyTurkey ChinaChina, Korea, , Korea, IndiaIndia, , PakistanPakistan, Sri Lanka, Sri Lanka Any other similar schemes besides carbon Any other similar schemes besides carbon

emission rights, such as mechanisms for emission rights, such as mechanisms for sulfur dioxide or renewable energy sulfur dioxide or renewable energy resources? (1.3)resources? (1.3)

Australia:Australia: the Renewable Energy Act (2006), a the Renewable Energy Act (2006), a Renewable Energy Certificate SystemRenewable Energy Certificate System


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Are there any laws or regulations Are there any laws or regulations related to the schemes promulgated by related to the schemes promulgated by the domestic relevant departments? the domestic relevant departments? (1.4)(1.4)

China:China: Operation and Management of Clean Development Operation and Management of Clean Development

Mechanism Projects Mechanism Projects Japan:Japan: The Experimental Emission Trading Scheme and The Experimental Emission Trading Scheme and

the Tokyo Programthe Tokyo Program New Zealand:New Zealand: Climate Change Response (Emissions Climate Change Response (Emissions

Trading) Amendment Act 2008Trading) Amendment Act 2008 Pakistan:Pakistan: Ministry of Environment Ministry of Environment’’s National Operational s National Operational

Strategy on Clean development. Mechanism Income tax Strategy on Clean development. Mechanism Income tax ordinance, 2001 exempts revenue from sale of CERs.ordinance, 2001 exempts revenue from sale of CERs.


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22 ．． Emissions allowances Emissions allowances and its trading situationsand its trading situations

Are the emissions allowances for the Are the emissions allowances for the compliance period allocated free of charge compliance period allocated free of charge in advance exchanged or issued after the in advance exchanged or issued after the completion of emissions reductions? (2.1)completion of emissions reductions? (2.1)

Japan:Japan: issued allowances at the beginning of a period, orissued allowances at the beginning of a period, or issued allowances equivalent to a gap between a target issued allowances equivalent to a gap between a target

and an actual emissions after the period. and an actual emissions after the period. Australia:Australia: in advance in advance New Zealand:New Zealand: a number of mechanisms to freely grant a number of mechanisms to freely grant

allowances.allowances.


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Exchanges for emissions trading and Exchanges for emissions trading and active emissions trading market ?(2.2 active emissions trading market ?(2.2 and 2.3)and 2.3)

China:China: Tianjin Climate Exchange, Shanghai Environment Tianjin Climate Exchange, Shanghai Environment

and Energy Exchange and Beijing Enviroment Exchange and Energy Exchange and Beijing Enviroment Exchange Japan:Japan: Tokyo Stock Exchange Group and Tokyo Tokyo Stock Exchange Group and Tokyo

Commodity Exchange just established a joint venture for Commodity Exchange just established a joint venture for setting up an emissions trading exchange in April 1, setting up an emissions trading exchange in April 1, 2010.2010.

Australia:Australia: In 2007, there was an Australian Climate In 2007, there was an Australian Climate Exchange but the website is no longer active.Exchange but the website is no longer active.

New Zealand:New Zealand: New Zealand Carbon Exchange New Zealand Carbon Exchange


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how are the emissions allowances how are the emissions allowances valued? (2.4)valued? (2.4)

New Zealand:New Zealand: A cap on the price of carbon of $25 until A cap on the price of carbon of $25 until

2013.2013. There is no floor priceThere is no floor price Turkey:Turkey: valued with reciprocal agreements valued with reciprocal agreements Sri Lanka:Sri Lanka: based on international accepted based on international accepted

marketsmarkets


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33 ．． Accounting standards Accounting standards for emission rightsfor emission rights

Japan:Japan: ASBJ issued ASBJ issued ““Practical Solution on Practical Solution on

Tentative Treatment of Accounting Tentative Treatment of Accounting for Emission Tradesfor Emission Trades”” in 2004. in 2004.

Revised it to clarify accounting Revised it to clarify accounting treatments related to the treatments related to the experimental emissions trading experimental emissions trading scheme in 2009.scheme in 2009.


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44 ．． Comments on the Comments on the accounting issues in Cap and accounting issues in Cap and

Trade SchemesTrade Schemes Should the granted allowances received Should the granted allowances received

free of charge from government be free of charge from government be recognized as assets? (4.1.1)recognized as assets? (4.1.1)

China, Korea, Australia, New Zealand, Sri Lanka, China, Korea, Australia, New Zealand, Sri Lanka, Hong Kong:Hong Kong: as assets as assets

Japan: Japan: as assets or off balance sheet items (views are as assets or off balance sheet items (views are divided)divided)

Turkey:Turkey: as a public good as a public good When should the entity recognize these When should the entity recognize these

assets? (4.1.2)assets? (4.1.2)China, Japan, Korea, Australia, New Zealand, Sri China, Japan, Korea, Australia, New Zealand, Sri

Lanka , Hong Kong :Lanka , Hong Kong : when they are received or when they are received or controlled by the entitycontrolled by the entity

Turkey:Turkey: It should be carried out off balance sheet items. It should be carried out off balance sheet items.


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Nature of the assets (4.2.1 and Nature of the assets (4.2.1 and 4.2.2)4.2.2)

China,China, Japan, Korea, Australia, New Japan, Korea, Australia, New

Zealand:Zealand: intangible assets intangible assets Hong Kong:Hong Kong: intangible assets or intangible assets or

inventories, depending on how the inventories, depending on how the holder intends to use it.holder intends to use it.

Sri Lanka:Sri Lanka: finance instruments finance instruments


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Initial measurement (4.3)Initial measurement (4.3) China, Australia, New Zealand, Sri Lanka:China, Australia, New Zealand, Sri Lanka: fair value fair value Korea, Turkey :Korea, Turkey : initially measured at acquisition cost initially measured at acquisition cost Japan : :Japan : : fair value or initially measured at acquisition cost fair value or initially measured at acquisition cost Hong Kong:Hong Kong: Full market value approach Full market value approach –– based on the market value based on the market value

at date of initial recognition; at date of initial recognition; Cost of settlement approach at initial market value Cost of settlement approach at initial market value ––

based on the market value at date of initial recognition;based on the market value at date of initial recognition; Cost of settlement approach at nominal amount Cost of settlement approach at nominal amount –– based based

on cost.on cost.


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Subsequent measurement (4.4.1 and 4.4.2)Subsequent measurement (4.4.1 and 4.4.2) Australia, New Zealand, Sri Lanka:Australia, New Zealand, Sri Lanka: fair value fair valueJapan: Japan: should not remeasured (subject to should not remeasured (subject to

impairment);impairment); should not be amortized /depreciatedshould not be amortized /depreciatedChina, Korea:China, Korea: cost model cost modelHong Kong:Hong Kong: Cost or revaluation model under IAS 38 Cost or revaluation model under IAS 38 ““Intangible AssetsIntangible Assets””..

Cost model under IAS 2 Cost model under IAS 2 ““InventoriesInventories””


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Liability (4.5.1 and 4.5.2)Liability (4.5.1 and 4.5.2)

China, Japan, Korea, Australia, New China, Japan, Korea, Australia, New Zealand, Hong Kong, Sri Lanka, Zealand, Hong Kong, Sri Lanka, Turkey:Turkey: As emissions have occurred. As emissions have occurred.


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Measurement of liability (4.6.1 and Measurement of liability (4.6.1 and 4.6.2)4.6.2)

Australia, New Zealand , Sri Lanka :Australia, New Zealand , Sri Lanka : fair value fair valueKorea:Korea: based on the carrying amount of based on the carrying amount of

allowances on handallowances on handChina, Japan: China, Japan: based on the carrying amount of allowances on based on the carrying amount of allowances on

handhand but for the excess of actual emission over the but for the excess of actual emission over the

allowance on hand, based on market valueallowance on hand, based on market value


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Earnings from the granted Earnings from the granted allowances (4.7.1 and 4.7.2)allowances (4.7.1 and 4.7.2)

Australia, China, Japan, Sri Lanka, New Australia, China, Japan, Sri Lanka, New

Zealand:Zealand: Government grants Government grantsKorea:Korea: When granted allowances are initially When granted allowances are initially

measured at cost, earnings from the reception measured at cost, earnings from the reception of granted allowances will not be recognized.of granted allowances will not be recognized.

Turkey:Turkey: carried out in equity in a special fund, carried out in equity in a special fund, as capital reserveas capital reserve


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If recognized as profit or loss, should the If recognized as profit or loss, should the earnings be recognized within profit or earnings be recognized within profit or loss for the current period at one time or loss for the current period at one time or allocated through profit or loss through allocated through profit or loss through the whole compliance period? (4.7.3)the whole compliance period? (4.7.3)

China, Japan,China, Japan, Korea, Hong Kong:Korea, Hong Kong: on a systematic and on a systematic and rational basis over compliance period (on the basis of rational basis over compliance period (on the basis of passage of time or in proportion to actual emissions)passage of time or in proportion to actual emissions)

New Zealand,New Zealand, Sri Lanka:Sri Lanka: at one time when the entity at one time when the entity obtains control of the granted allowancesobtains control of the granted allowances


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how should the entity initially and how should the entity initially and subsequently measure the purchased subsequently measure the purchased allowances as a buyer? (4.8.1 and 4.8.2)allowances as a buyer? (4.8.1 and 4.8.2)

Australia, New Zealand:Australia, New Zealand: at fair value at fair valueChina, Korea, Turkey:China, Korea, Turkey: cost model cost modelJapan:Japan: for trading, at fair value;for trading, at fair value; for sale in the ordinary course of business, in for sale in the ordinary course of business, in

accordance with IAS 2;accordance with IAS 2; for the purpose of offsetting an entityfor the purpose of offsetting an entity ’’s emission s emission

obligations, at cost.obligations, at cost.Hong Kong:Hong Kong: Full market value approach;Full market value approach; Cost of settlement approach at initial market value;Cost of settlement approach at initial market value; Cost of settlement approach at nominal amount.Cost of settlement approach at nominal amount.


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Assets and revenues related to CERs Assets and revenues related to CERs (4.9.1, 4.9.2, 4.9.3)(4.9.1, 4.9.2, 4.9.3)

China, Korea, Australia, New Zealand, India, China, Korea, Australia, New Zealand, India, Turkey :Turkey : to recognize asset and revenues when to recognize asset and revenues when the entity has controlthe entity has control

Pakistan:Pakistan: Current assets relating to CERs should be Current assets relating to CERs should be

recognized from commencement date of the recognized from commencement date of the CDM project. CDM project.

Costs incurred on generation of CERs included Costs incurred on generation of CERs included in the asset valuation. (treat as inventory).in the asset valuation. (treat as inventory).

Revenues from CERs should be recognized on Revenues from CERs should be recognized on the contract date for the sale of the CERs.the contract date for the sale of the CERs.

Sri Lanka:Sri Lanka: As the contract progress. As the contract progress.


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Liability related to CERs (4.10.1 Liability related to CERs (4.10.1 and 4.10.2)and 4.10.2)

Korea, India, New Zealand:Korea, India, New Zealand: No liability No liability should be recognized.should be recognized.

Australia, China, Hong Kong, Sri Lanka, Australia, China, Hong Kong, Sri Lanka, Pakistan:Pakistan: The obligation should be The obligation should be recognized as a liability during recognized as a liability during production process.production process.


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Forward contract (4.11)Forward contract (4.11)Korea:Korea: Within the scope of derivatives under IAS 39, the entity Within the scope of derivatives under IAS 39, the entity

should consider whether hedge accounting is applied to should consider whether hedge accounting is applied to that contract.that contract.

If hedge accounting is not applied to that contract, the If hedge accounting is not applied to that contract, the profit or loss of changes in the fair value of that contract profit or loss of changes in the fair value of that contract should be recognized in profit or loss for the period.should be recognized in profit or loss for the period.

IAS 37 should be applied if the forward contract is firm IAS 37 should be applied if the forward contract is firm commitment, onerous contract and out of the scope of commitment, onerous contract and out of the scope of derivatives underderivatives under

Australia, China, New Zealand:Australia, China, New Zealand: IAS 39 IAS 39Sri Lanka:Sri Lanka: fair value fair value


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Reward or penalty (4.12)Reward or penalty (4.12)China, Korea, New Zealand, Sri China, Korea, New Zealand, Sri

Lanka, Hong Kong:Lanka, Hong Kong: recognized as recognized as gains/income or losses/expenses.gains/income or losses/expenses.


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Presentation and disclosure (4.13)Presentation and disclosure (4.13)Australia, China, New Zealand :Australia, China, New Zealand : both financial and non- both financial and non-

financial information, (the related assets and financial information, (the related assets and liabilities, the sales volume, sales price, the CDM liabilities, the sales volume, sales price, the CDM information, etc. in notes)information, etc. in notes)

Korea:Korea: (a) the characteristics of the scheme; (b) the (a) the characteristics of the scheme; (b) the accounting policies; (c) the quantity and the amount accounting policies; (c) the quantity and the amount of granted and purchased allowances; (d) the of granted and purchased allowances; (d) the quantity and the amount of allowances derecognized quantity and the amount of allowances derecognized during the period; (e) the quantity and the amount during the period; (e) the quantity and the amount of allowances that should be surrendered at the end of allowances that should be surrendered at the end of the compliance period; (f) the fair value of of the compliance period; (f) the fair value of granted and purchased allowances at initial granted and purchased allowances at initial recognition and at the end of the reporting period;recognition and at the end of the reporting period;

Hong Kong:Hong Kong: the appropriate accounting policy / the appropriate accounting policy / principles, and follow the other detailed disclosure principles, and follow the other detailed disclosure requirements in the relevant standards that the requirements in the relevant standards that the assets / liabilities are accounted forassets / liabilities are accounted for

Sri Lanka:Sri Lanka: Separate disclosure as a note. Separate disclosure as a note.


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5. IASB discussion5. IASB discussion Does your country agree with IASB’s tentative

decisions? If not, why? Are there any more appropriate proposals? (5.1, 5.2 and 5.3)5.1, 5.2 and 5.3)

China, Hong Kong, New Zealand, Sri Lanka:China, Hong Kong, New Zealand, Sri Lanka: Agree with IASB. Agree with IASB.Japan:Japan: Views are divided on whether allowances should be recognized initially at Views are divided on whether allowances should be recognized initially at

fair value or not.fair value or not. Disagree with the recognition of a liability for the obligation to reduce its Disagree with the recognition of a liability for the obligation to reduce its

emissions when the allowances are granted.emissions when the allowances are granted.Korea:Korea: Agree with the scope of the project, and the initial measurement of Agree with the scope of the project, and the initial measurement of

liability which is related to actual emissions in excess of allowances on liability which is related to actual emissions in excess of allowances on hand. hand.

Disagree with the initial measurement of allowances received free of Disagree with the initial measurement of allowances received free of charge from government. charge from government.

Australia:Australia: Disagree that liabilities should be recognized when the assets are Disagree that liabilities should be recognized when the assets are recognized. Liabilities should only be recognized when emissions occur.recognized. Liabilities should only be recognized when emissions occur.

Turkey:Turkey: The right to pollute is a public good. Ownership status of the The right to pollute is a public good. Ownership status of the company of this right is very questionable.company of this right is very questionable.


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ⅢⅢ. Feedback to IASB (General . Feedback to IASB (General comments)comments)

Urgent need for authoritative standard applied to Urgent need for authoritative standard applied to ETSETS

The reduction of greenhouse gases to promote the prevention of global The reduction of greenhouse gases to promote the prevention of global warming is a central issue for both developed and developing countries.warming is a central issue for both developed and developing countries.

A number of governments around the world have implemented or are A number of governments around the world have implemented or are considering introduction of schemes to reduce emissions through the use of considering introduction of schemes to reduce emissions through the use of market mechanism – emission trading schemes market mechanism – emission trading schemes （（ ETSETS ）） ..

There is no authoritative guidance that deals specifically with accounting There is no authoritative guidance that deals specifically with accounting for ETS since withdrawal of IFRIC 3.for ETS since withdrawal of IFRIC 3.

Considerable diversity in practice has arisen due to the several approaches Considerable diversity in practice has arisen due to the several approaches developed and applied to account for ETS.developed and applied to account for ETS.

Support for IASB/FASB project scheduleSupport for IASB/FASB project schedule The discussion in joint meetings should be accelerated to publish an The discussion in joint meetings should be accelerated to publish an

exposure draft in H2 of 2011 and to finalize a standard in 2012.exposure draft in H2 of 2011 and to finalize a standard in 2012.


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ⅢⅢ. Feedback to IASB (Specific . Feedback to IASB (Specific comments)comments)

Deliberate the issues from global perspective

A wide range of schemes other than EU-ETS now exists or will be introduced to help to reduce emission levels and promote investment in alternative forms of energy.

Accounting not only for cap & trade schemes but also for baseline & credit schemes should be discussed as a main issue in the project.

Main features of cap & trade schemes around the world may be different from those of EU-ETS in such as a commitment period, a compliance period and allocation of allowances for future compliance periods.

There may be no active market in some cases.


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Address the accounting for CERs Asia-Oceania countries except for Australia, New Asia-Oceania countries except for Australia, New

Zealand, and Japan have no obligation to reduce Zealand, and Japan have no obligation to reduce missions under the Kyoto Protocol.missions under the Kyoto Protocol.

This project should be scoped broadly so as to This project should be scoped broadly so as to address the accounting for project-based certificates address the accounting for project-based certificates such as certified emission reductions (CERs).such as certified emission reductions (CERs).


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Deliberate concurrently with IAS20Deliberate concurrently with IAS20 The accounting for allocated allowances for less than The accounting for allocated allowances for less than

fair value is interrelated with the accounting for fair value is interrelated with the accounting for government grants.government grants.

This projects should be conducted concurrently with This projects should be conducted concurrently with the revision of IAS 20 the revision of IAS 20 Accounting for Government Accounting for Government Grants and Disclosure of Government AssistanceGrants and Disclosure of Government Assistance..

Documents

AOSSG Emission Trading Schemes Outline of progress and Issues for discussion