5.2 Fair Value of Carbon Liabilities

5.2.1.    Scope

Fair value of carbon liabilities applies to the liabilities defined in Future operational carbon liability §4.4.

5.2.2.     Definition of fair value for a Future Operational Carbon Liability.

The future operational carbon liability represents theoretical current value of a future carbon obligation that the reporting entity is committing to, as a result of its ownership of the asset.  This represents the future emissions that will take place because of the operation of the asset and are necessary for the asset to fulfill its expected functions. The future operational carbon liability represents the theoretical cost of the future carbon emission of the asset as it is delivering its expected economic value to the reporting entity.

This future operational liability is fair valued, as its current value is depended on (i) the price of carbon at the reporting date and (ii) the valuation parameters used in the determination of the GAAP book value of the associated asset on the GAAP balance sheet of the company (see Fair Value of Carbon Liabilities §5.2.3.)

5.2.3.    Measurement

Future operational Liability is initially measured as follow:

The initial measurement of a future operational liability is based on the current location based emission of the asset over one reporting period. The current level of emission is assumed to be constant over the useful life of the asset.

Future operational carbon liability= V(c ;p)


c  is the amount of carbon would be emitted by the asset during the reporting period,

This amount can either be estimated by the reporting entity for the purpose of the specific asset, or it can be derived from an estimate of the consumption of similar assets already in operation.    

p is the market price of carbon at the reporting date,

V(c ;p) is the valuation function consistent with the one used to value the underlying asset in the reporting entity GAAP accounts.

The initial measurement of the Future Operational Carbon Liability is recognized on the carbon balance sheet, and balanced by an equivalent counter booking in the entity’s carbon P&L.

For example, in the case of a real estate asset which is valued using the “equivalent yield approach”  V(c;p) be defined as follow:

Future operational carbon liability = (a ×c × p)/ EqY


a is the total lettable area of the asset (sqm),

c is the amount of operational carbon emitted to operate one sqm of lettable area of an equivalent asset (ton/sqm),

p is the market price for one ton of carbon at the reporting date (EUR/ton),

EqY is the individual equivalent yield used in the valuation of the asset at the reporting date for the IFRS financial statement (percent).

5.2.4.    Change in the fair value of Future Operational Carbon Liability

Future operational liability is remeasured at each subsequent reporting date using the same approach then for the initial measurement.

Changes in the Future Operational Liability can be driven by either one or a combination of the following:

  • Change in the emission of the asset (for example as a result of an optimisation of the usage of the asset).
  • Changes in the price of carbon.
  • Change in the underlying parameter used to value the asset under the reporting entity GAAP.

Change in the Future Operational Carbon Liability is booked on the balance sheet with a counter booking entered on the carbon P&L of the entity and shall differentiate between the impact of the change which is driven by:

  • the change in carbon price which shall be booked through the line-item “Gain/Loss because of the change in carbon price”


  • the impact of the change which is driven by other valuation factors which shall be booked in their respective line-item

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