19. CO2 emission allowances

The Group purchases CO2 emission allowances for its own purposes. CO2 emission allowances received for free under the National Allowance Allocation Plan and additional CO2 emission allowances purchased for redemption, i.e. to comply with the obligation to settle CO2 emissions, are recognised in a separate item of assets. Emission allowances received for free under the National Allowance Allocation Plan are recognised at zero value.

CO2 emission allowances received for free for a given financial year that are not allocated to the Group’s allowance registry and the precise quantity of which is unknown are recognised if they meet the definition of assets. In this case, the Company’s Management Board specifies the most reliable quantity of CO2 emissions that the Group would receive, which is then recognised in the statement of financial position at nominal value, i.e. zero. Recognition takes place at the date on which the planned quantity of CO2 emission allowances is approved. It is permissible to adjust the estimated quantity of CO2 emission allowances recognised in the registry as at the reporting date using more recent information received by the Group from personnel responsible for implementing investments notified to the National Investment Plan. Additional CO2 emission allowances purchased for redemption are recognised at purchase price less impairment.

A registry for CO2 emission allowances is maintained separately for each installation in the following groups of rights:

1. CER green,
2. EUA free and purchased

In the aforementioned groups inventory is managed using the FIFO method, i.e. 'first in, first out,' for each of the installations, or using the weighted average purchase price approach.

When CO2 emission allowances are actually granted, which were initially recognised based on an estimate, their number is prospectively adjusted in compliance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

If the actual number of CO2 emission allowances granted for a given reporting period is specified in the next reporting period, the difference (excess/shortage) between the estimate and the actual number of allowances for the given reporting period should be recognised as an adjustment of allowances granted for the next reporting period.

Because of the CO2 emissions that accompany the electricity generation process, the Group is required to settle such emissions by presenting a specific quantity of CO2 emission allowances for redemption. The costs of compliance with the above obligation are recognised in accounting books systematically over an annual reporting period in the form of a provision for estimated CO2 emissions for each installation proportionally to the actual and planned electricity production, and are recognised as cost of core activity.

Redemption of allowances is recognised in allowance groups:

1. CER green,
2. EUA free and purchased

using the FIFO approach, i.e. 'first in, first out,' for each of the installations, or using the weighted average purchase price approach.

Revenue from sale and the value of sold CO2 emission allowances sold are recognised in operating revenue or costs, respectively.

Determining the impairment of CO2 emission allowances requires net realisable values to be estimated based on the most up-to-date sales prices at the time when these estimates are made.