OECD-EUROSTAT TASK FORCE ON
EMISSION PERMITS
Update
National Accounts Working Party Meeting
Paris 4-6 November 2009
Contact: nadim.ahmad@oecd.org
Background
• Tradable emission permits gaining increasing
economic importance.
• 2008 SNA provides limited guidance
•
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 … … 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 tradable
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.
Current situation
• Countries beginning to develop methodologies
to tackle recording but with divergent views – in
particular regarding:
– The nature of the asset
– The timing of the tax
• Considerable concern from users on impact on
net-lending, taxes, debt and wealth – particularly
concerning imputations for free permits.
AEG – November 2008
• ETS permits issued under cap-and-trade schemes should be
recorded as taxes.
• The group favoured treating payments for permits as pre-paid taxes,
paid as emissions took place but noted the implications for the
measurement of government debt.
• No recommendation on whether taxes and subsidies should be
imputed when permits are issued without charge or at cost lower
than the market price.
• Discussions did not reach a recommendation about how to record
changes in the value of payments during their lives.
• No recommendations were reached for the treatment of other forms
of emissions permits.
AEG – November 2008
– What type of asset is the ETS permit?
– What transactions should be recorded when a permit is issued?
– What transactions should be recorded when a permit is
surrendered?
– In which period(s) should transactions be recorded?
– How should changes in the value of permits be treated?
– How should permits that are issued free or at a cost lower than
market price be treated?
– How should international trade in permits be recorded?
– Should all emission permit schemes be recorded in the same
way?
OECD-Eurostat TF
• Mandate:
• Investigate the nature of all relevant aspects of emission permits
granted under an ETS and any similar types of emission permits.
• Develop comprehensive guidelines for recording the associated
flows and stocks of emission permits.
• Consider existing recommendations on the treatment of other
licences and permits and justify any apparent divergence from them.
• Collaborate with any other task force or working group addressing
these issues, including the UN Committee of Experts on
Environmental Economic Accounting (UNCEEA)
• First meeting July 2009: Second meeting 9-10 November 2009
Key issue
• Two important perspectives to consider:
• The perspective of government and cash revenue it
generates.
• And the perspective of companies that surrender permits
- in particular their equivalence in permits acquired
directly from government, via secondary parties, or from
other mechanisms such as Clean Development
Mechanisms
• Still to be finalised but possible recommendation is that
permits acquired via CDMs (CERs) etc should be treated
as non-financial non-produced assets, with an imputed
tax recorded at surrender.
Options (a/b)
• Non-produced non-financial asset
• Simple analogy with taxi licenses - Taxes
recorded when licenses are purchased
• Cons
– But this has significant impact on taxes recorded in
that period – particularly for auction tranches.
– Taxes do not align with underlying activity
(emissions).
– Tax payer may not be the emitter – particularly
problematic for cross-border.
– Impact on net-wealth.
– CER/ERU consistency problems vis-à-vis timing.
– But: no imputations for free permits and cash=taxes.
Options (c)
• Non-produced non-financial asset
• Taxes recorded when licenses are surrendered
• Cons
– Cash received ≠ taxes recorded
– Impact on net-wealth
– Imputations for free permits (but no impact on netlending)
– But: taxes align with underlying activity, emitter is the
tax payer and no differentiation between types of
permits at surrender date (fee, auctioned, secondary,
CERs)
Options (d)
• Financial asset
• Pre-payment of taxes (securities), with taxes
recorded when permits are surrendered.
• Cons
– Cash received ≠ taxes recorded
– Impact on government debt (problematic for cross-country
comparability in international schemes, related to the indifference
of the emitter to the permits it surrenders – and problematic for
recording cross-government debt cancellation)
– Imputations for free permits would affect net-lending
– Different asset from CERs
– But: taxes align with underlying activity, emitter is the
tax payer and no differentiation in taxes recorded
between types of permits at surrender date (fee,
auctioned, secondary, CERs)
Options (e)
• Two (split) asset approach - Part financial
asset and part non-financial asset
•
•
•
•
Cons
Impact on net-wealth
Negative N-P,N-F asset
Impact on government debt (with consequential problems as in
financial asset case)
• Taxes do not reflect opportunity cost to emitter – plus,
indifference of emitter also has adverse impact on taxes recorded.
• But: taxes align with timing of underlying activity, emitter
is the tax payer and cash=taxes – however this
identity requires taxes on production to other
governments.
Options (f)
• Two (split) asset approach - Part financial
asset and part non-financial asset but recording
market price at surrender as the tax.
•
•
•
•
•
Cons
Cash received ≠ taxes recorded
Impact on net-wealth
Negative N-P,N-F asset
Impact on government debt (with consequential problems as in
financial asset case)
• But: taxes align with timing of underlying activity, emitter
is the tax payer and no differentiation in taxes recorded
between types of permits at surrender date (fee,
auctioned, secondary, CERs .
Summary
No panacea – all options present complications
for the accounts, reflecting fact that market sets
the price at the surrender date.
Choice is ultimately between:
• Aligning cash and taxes - but this will not reflect
opportunity cost to emitter (creates indifference)
• Or reflecting taxes as equal to market price of permits at
surrender – creating problems for taxes raised.