Contact: nadim.ahmad@oecd.org Update on the Treatment of Emission Permits in the National Accounts OECD National Accounts Working Party Meeting Paris October 2011 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. 2008 SNA Research Agenda, # A4.47

AEG November 2008 Permits issued under cap-and-trade schemes should be recorded as taxes. Favoured treating payments for permits as pre-paid taxes, paid as emissions took place But did not reach a recommendation on: Whether taxes and subsidies should be imputed when permits are issued without charge or at cost lower than the market price. How to record changes in the value of payments over time Treatment of other forms of emission permits. Agreed it would be useful to create a task force

Task Force Created in 2009 Considered 4 Options Two physical meetings: July, November 2009 Final report in October 2010 Considered 4 Options Non-produced non-financial asset Financial asset Split asset Multinational treatment

Final Report Focuses on cap and trade schemes The majority of the Task Force preferred the split-asset approach but a significant minority preferred the financial asset. Both approaches recognised as having merit and consistent with 2008 SNA principles. Both views took the position that taxes should be paid by the emitter (tax on production) And both consistent with earlier AEG guidance that taxes should be recorded at the time of emission. Recognising the two positions would not be bridged, TF asked ISWGNA to make a recommendation.

ISWGNA – February 2011 ISWGNA recognised that both options had merits and weaknesses that if all permits were issued via auction the two positions would be broadly similar ISWGNA preferred split-asset approach, reflecting impact on government accounts, especially because currently most permits are issued for free advantage of minimising imputations And equivalence with permits issued under other mechanisms, e.g. CDMs. SNA News and Notes: February 2011

UNSC – March 2011 UNSC considered the issue an interpretation and not clarification issue, so, passed to the AEG.

AEG: July-October 2011 July October Large majority agreed with the split-asset approach but emphasised Simplicity And the need to address presentational issues related to the current account balance October ISWGNA modified its earlier guidance to reflect these two concerns. Large majority again agreed with the split-asset approach

ISWGNA – October 2011 Update to February 2011 News and Notes reflecting the AEG consultation. Simplified approach is to treat permits issued under (multinational) cap and trade schemes in the same way (in practice) as if they were purely national schemes, effectively assuming no flows of taxes to/from R.O.W The tax recorded for any single permit surrendered in relation to emissions in period t is equivalent to the total stock of relevant other accounts payable divided by the total number of active permits issued and remaining in circulation) at time t.