Carbon expenses represent the theoretical outflow that would have been born by the reporting entity if it had to pay a price for carbon.

Carbon expenses are recognized in the period where the carbon is emitted by the reporting entity.

Carbon expense calculated as follow:

Carbon Expense =UpC x Ap

Where:

UpC is the amount of Unpaid-carbon emitted by the reporting Entity which is not used for the production of an Embedded Carbon Asset (§ 4.1). For example, for a real estate company, this would be the carbon emitted in order to operate the heating or cooling system of the building. The carbon emitted to replace the heating or cooling system would not qualify to be reported under this line item as it is used to produce an Embedded Carbon Asset (in that example under §4.1.1 (c))

Ap is the mathematical average price of carbon over the reporting period.   

In order to allow the user to understand if any “paid-carbon” was also emitted during the reporting period, the reporting entity shall disclose the value of the Carbon Expense calculated on the basis of the full carbon emission (paid and unpaid), the value of the Unpaid-carbon, and the reconciliation between the two values.