Negative Low Emission Vehicle Credits (IAS 37)

The Committee received a request relating to particular government measures to encourage reductions in vehicle carbon emissions.

The request described measures that apply to entities that produce or import passenger vehicles. Under the measures, entities receive positive credits if they have produced or imported vehicles whose average fuel emissions are lower than a government target. Entities receive negative credits if they have produced or imported vehicles whose average fuel emissions are higher than the target.

The measures require an entity that receives negative credits for one year to eliminate those negative credits, either by purchasing positive credits from another entity or by generating positive credits itself in the following year. If an entity fails to eliminate its negative credits, the government can impose sanctions on the entity.

The request considered the position of an entity that has produced or imported vehicles with average fuel emissions higher than the government target, and asked whether such an entity has a present obligation that meets the definition of a liability in IAS 37.