5. CO2 emission rights
- 1 1. Basis of preparation
- 2 2. Basis of measurement and presentation
- 3 3. Principles of consolidation
- 4 4. Foreign currencies
- 5 5. CO2 emission rights
- 6 6. Government grants
With respect to the mechanism set up by the European Union to encourage manufacturers to reduce their greenhouse gas emissions, the Group was granted carbon dioxide (CO2) emission rights for some of its installations. The Group is also involved in the Clean Development Mechanism (CDM) under the Kyoto protocol. Under these projects, the Group has deployed facilities in order to reduce greenhouse gas emissions at the relevant sites in return for Certified Emission Reductions (CER).
In the absence of any IFRS regulating the accounting treatment of CO2 emission rights, the Group applies the Trade/Production model, according to which CO2 emission rights are presented as inventories if they will be consumed in the production process or as derivatives if they are held for trading. Energy Services is involved in CO2 instrument trading, arbitrage, and hedging activities. The net income or expenses from these activities are recognized in other operating income for the industrial component, where Energy Services sells the CO2 emission rights generated by Solvay, as well as for the trading component, where Energy Services acts as a trader/broker with respect to those CO2 emission rights.