ABSTRACT: This paper briefly describes cap and trade programs. Emission allowances in such programs can be used, sold, or retired by recipient companies. Such allowances provide value for the recipient organization and necessitate the determination of proper accounting for their receipt. The accounting suggested by IFRIC 3 is discussed and suggestions are made as to alternative methods to account for emission allowances. However, to truly provide companies with financial incentive to reduce emissions and to retire, rather than sell, their emission allowances, public policy needs to be changed to provide a tax incentive equivalent to the fair market value of retired allowances to compliant companies.

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