OECD-Eurostat Task Force on
Emission Allowances and Permits
in the National Accounts
OECD National Accounts Working Party Meeting
Paris December 2010
Contact: nadim.ahmad@oecd.org
Background
• 17.363 Governments are increasingly turning to the
issuing of emission permits as a means of controlling
total emissions. These permits do not involve the use
of a natural asset (there is no value placed on the
atmosphere so it cannot be considered to be an
economic asset) and are therefore classified as taxes
even though the permitted “activity” is one of creating
an externality. It is inherent in the concept that the
permits will be tradeable and that there will be an
active market in them. The permits therefore constitute
assets and should be valued at the market price for
which they can be sold.
Task Force
• 4 Options
– Non-produced non-financial asset
– Financial asset
– Split asset
– Multinational treatment
Final Report
• Focuses on cap and trade schemes
• Task Force was split between financial asset
and split-asset approaches.
• Both approaches recognised as having merit and consistent
with 2008 SNA principles
• In recognising that the different positions were
unlikely to be bridged, the ISWGNA has been
asked to make a recommendation.
Agreement on
• Tax should be recorded when the event
(emission) occurs
• Tax payer should be the emitter
Financial asset approach
– At issue:
• ....like any other financial asset.
• ....free allocation of assets implies a capital transfer,
valued at market price
• Government gross liabilities and net-borrowing, i.r.o of
free allocations, increase.
– At tax event
• A tax is recorded = to value of financial asset
• Government liabilities extinguished
• For multinational schemes, when polluter in country A
surrenders permit issued by government B, either (a)
a tax to R.O.W or debt cancellation.
Split asset approach
– At issue:
•
•
•
•
Price paid by purchaser = a financial asset.
Difference between market & purchase price = NPNF
No imputed capital transfers for free allocations.
Government gross liabilities increase. Net debt
unaffected and no change to net-lending.
– At tax event
• A tax is recorded = to value of financial asset. NPNF
disappears as OVC.
• Government liabilities extinguished
• For multinational schemes, when polluter in country A
surrenders permit issued by government B, only a tax
to R.O.W is recorded (reflecting the raison d’ etre for
the option that cash received=taxes recorded)
Problems
• Key problem relates to ‘indifference’
– What do the accounts show if an emitter with 2
allowances, one issued by gov A and one
issued by gov B, decides to surrender the
allowance issued by A rather than B.
• Are government accounts indifferent to the
indifference of the emitter?
• In both options the answer is no.
Financial asset
Taxes
- ROW
Net
lending
Fin
liabilities
Variant 1
Variant 2
Variant 1
Variant 2
Variant 1
Variant 2
Year 1
Gov A Gov B
50 10
0 200
50 10
200
50 190
100 0
Year 2
Gov A Gov B
50 10
50 0
50 10
50 0
0 180
50 0
Year 3
Gov A Gov B
0 10
50 0
0 10
50 0
0 170
0 0
Year 4
Gov A Gov B
0 10
0 0
0 10
0 0
0 160
0 0
Year 5
Gov A Gov B
0 160
0 0
0 160
0 0
0 0
0 0
Split-Asset
Taxes
from
dom ent
Taxes
from
non-res
Taxes
paid
to
R.O.W
Net
lending
Fin
liabilities
NPNF
Cash
V1
V2
V3
V1
V2
V3
V1
V2
Year 1
Gov A Gov B
50
0
50
10
0
10
Year 2
Gov A Gov B
50
0
50
10
50
Year 3
Gov A Gov B
0
0
0
10
50
Year 4
Gov A Gov B
0
0
0
10
0
Year 5
Gov A Gov B
0
0
0
10
0
150
100
100
50
50
V3
0
V1
V2
V3
V1
V2
V3
V1
V2
V3
50
50
0
50
50
100
100
10
0
10
110
150
140
0
40
50
0
150
50
50
50
0
0
50
100
0
10
10
150
130
0
30
50
0
150
0
0
50
0
0
0
100
50
50
50
50
10
50
10
50
10
0
10
10
150
120
0
20
50
0
150
0
0
50
0
0
0
0
10
10
150
110
0
10
50
0
150
0
0
50
0
0
0
150
110
10
0
0
0
0
0
0
150
100
100
Equivalent schemes
• CDM, CERs etc.
• Ideally they should have the same asset
classification
• But with the financial asset approach, this
is not really possible without allocating the
‘ liability’ in a way that is difficult to
interpret.
Dealing with indifference
• Key is to recognise the international nature
of schemes
– In particular the implicit collective nature of
the schemes.
• When governments sign-up to the scheme
there is an implicit understanding that they
collectively share a part of (and liability for)
all allowances issued.
Collective approach with
Financial assets
• Each government has a liability to each
allowance issued in % to its share of the
total allocation of allowances in the
scheme.
• As such when ANY allowance is
surrendered all governments either
– (a) receive a tax in proportion to their share.
– (b) have a debt cancellation in line with their
share.
• This eliminates problems caused by
indifference
Collective approach with
Financial assets
• Also resolves problems caused by
CER/CDMs.
– All countries have a collective liability.
What’s needed
• Country A’s share in total allocation
• Information on total new issues, wherever
they are issued (and those issued in A)
• And total surrenders, wherever they are
surrendered (and surrenders in A).
Note: the ‘pure’ approach also requires information on
which country issued the allowance surrendered in A
and allowances issued by A surrendered elsewhere.
Collective approach with Split
assets
• Similar to financial asset approach but
additional constraint that cash received =
taxes recorded.
• Collective responsibility maintained but
value of liability of each government to any
allowance is determined by their
outstanding liabilities divided by all total
allowances not yet surrendered.
Collective approach with Split
assets
• This means that when any allowance is
surrendered Gov A receives a tax
payment in proportion to its liability
exposure to that allowance.
• Again, this eliminates problems caused
by indifference
What’s needed
• Stock measures of total liabilities for A =
total cash received minus taxes received
since the start of the scheme by A.
• Estimates of total outstanding allowances
in the market at time t.
• Number of allowances surrendered by
domestic enterprises at time t
• Total number of allowances surrendered
at time t.
What’s needed
• Calculating stocks, easy, since in the first
year that country A issues allowances
liabilities = cash received.
• This does however mean that the value of
the financial part of any allowance can
change – a necessary condition to deal
with indifference.
Additional benefits of
collective treatment
• Timely estimates of taxes
– Typically the actual surrender date is some time after
emissions occur (tax event).
– What is known at the time are the actual quantity of
emissions and the price of the allowances at that time.
– The pure financial and split asset approaches require
assumptions about the share of allowances
surrendered in A that were issued in A and the
number of allowances issued in A that were
surrendered elsewhere. The split-asset approach also
requires assumptions on the issue price of each
surrendered allowance.
• The collective approach does not require such assumptions
Further considerations –
permits
(a priori permission to engage in activities)
• If permits were sold (as opposed to allowances)
the TF deliberations point to taxes being
accrued to the period when emissions occurred;
irrespective of whether government has a
liability to reimburse permits in the case they
were not used.
• The TF therefore recommended that the
ISWGNA review this condition in the SNA
treatment of taxi and casino licenses.