16.5.1.2. Risk of changes in CO₂ emission allowances prices

The Company is centrally managing risk related to settlement cost of CO₂ emission in the Group in line with the assumptions set forth in the adopted Market Risk Hedging Policy approved by ORLEN Management Board.

Under realized strategy the Company purchases allowances for its own needs as well as in order to secure estimated volume and costs of purchase of CO₂ emission rights for Group companies.

Deficit of CO₂ allowances is estimated on the basis of, among others, current balance of possessed emission allowances, executed transactions for purchase of emission allowances with future delivery, realized and estimated emission in future periods from particular installations in the ORLEN Group and forecasts of free emission allowances allocation.

As part of cooperation within the strategy of hedging the risk of CO₂ emission settlement costs, as well as activities in the field of managing activities controlled by optimizing cash flow and debt level, the Group separates the portfolio in concluded contracts for the purchase of CO₂ allowances:

• CO₂ "own-use" portfolio - concerning contracts which will be used for the purpose of fulfilment of the redemption obligation these contracts will not be measured at fair value, in accordance with the exemption included in IFRS 9;
• CO₂ "transaction" portfolio without hedge accounting - concerning contracts which, in accordance with the implemented strategy of hedging the risk of the cost of CO₂ emission settlement, may be settled in cash or in the form of exchange for another financial instrument at later dates and are recognized as Derivative instruments not designated for hedge accounting purposes classified as financial assets/liabilities at fair value through profit or loss in accordance with IFRS 9;
• CO₂ "transaction" portfolio covered by hedge accounting - concerning contracts that are designated as a hedging instrument as part of hedging cash flows resulting from highly probable forecasted future purchases of CO₂ allowances by the Group. The effective part of the change in the fair value of these instruments is recognized in the revaluation reserve due to the application of hedge accounting, and then is reclassified in the period of recognition of the hedged item (purchase of CO₂ allowances) to intangible assets or assets held for sale, respectively.

The effect of the valuation of CO₂ futures contracts without hedge accounting was recognized in Other Operating Income in position Settlement and valuation of derivative financial instruments relating to operational exposure. Additional information is presented in note 13.10 and 13.11.

Sensitivity analysis for changes in prices of CO₂ emission allowances

Analysis of the influence of changes in the carrying amount of financial instruments on result before tax to a hypothetical change in prices of CO₂ emission allowances.

At the same percentage interest rates decrease, the sensitive analysis presents variations of the same value as in the above table but with the opposite sign.

Applied for the sensitivity analysis for changes in prices of CO₂ emission allowances, prices were calculated based on their historical volatility in 2022.

The net carrying amount of commodity risk hedging instruments described in note 16.5.1.1 and 16.5.1.2. as at 31 December 2022 and as at 31 December 2021 amounted to PLN (13,856) million and PLN 629 million, respectively.