OECD-EUROSTAT TASK FORCE EMISSIONS PERMITS IN THE NATIONAL ACCOUNTS Issues 2-3 July 2009, Paris Contact:

12/19/2015 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 (cap and trade schemes etc) consistent with the principles embodied in the SNA, BoP, GFS, and the SEEA. Consider existing recommendations on the treatment of other licences and permits and justify any apparent divergence from them. Collaborate.

12/19/2015 Time-Frame Tight timetable First meeting in July 2009 July-November 2009: development of early recommendations and draft final report 9-10 November 2009 second and final meeting December - final report for the ISWGNA

12/19/2015 Starting-Point – SNA 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 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.

Unresolved issues 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? 12/19/2015

Emerging views – asset types Non-produced non-financial asset Financial Asset Split-asset 12/19/2015

non-produced non-financial Treat the permit in the same way as taxi-casino licenses (without monopoly profits). Pros Simple to implement. Tax receivable = cash received. Free-permits – easy to treat, either ignored or via recording a grant/subsidy at issue ( and another pro, recipient receives the subsidy ). Cons No relation to underlying activity. Tax-payer isn’t necessarily the emitter. NPISH acquisitions. 12/19/2015

non-produced non-financial Issue - Transactions Tax payment and Other changes in Volume Surrender -Transactions Other changes in volume When (period) At issue Changes in Value Recorded as OCV/revaluations whilst ‘live’ Free permits Either ignored or a corresponding grant/subsidy is recorded with imputed tax International Trade Trade in non-financial non-produced assets 12/19/2015

financial Acquisition of securities other than shares or other accounts receivable/payable (tax pre-payment) Pros Tax paid by emitter and consistent with underlying activity Tax receivable aligns with market-price of permits No asymmetric treatment of permits (tax received is indifferent to issue date/price). Consistent with securitisation operations (future tax revenue) if acquisition of securities other than shares Cons Tax recorded when permits surrendered – will need to develop estimates in-year (based on estimated emissions and prices). 12/19/2015

financial Cons Taxes received and cash paid will (probably) not align. For free permits subsidies may need to be imputed: Identifying the recipient will be non-trivial, particularly if permits change hands frequently and across borders, which will also lead to payments of subsidies from governments to non-resident producers. An alternative would be to ignore the subsidy component entirely. Non-trivial linking of permits issues in country A but surrendered in B. (Temporary) impact/rise on government debt. 12/19/2015

financial Issue - Transactions Securities other than shares Surrender -Transactions Tax paid (market-price) And possible subsidy imputed When (period) At surrender date but allocated to period of activity/emissions Changes in Value Revaluations Free permits Grant/subsidy is recorded or ignored International Trade Trade in financial assets 12/19/2015

Split- assets Acquisition of securities other than shares (tax-pre- payment) and non-produced non-financial asset (marketable contract) Pros Tax paid by emitter and consistent with underlying activity Tax receivable aligns with cash ( except in case of cross-border transactions, depending on application ) No imputation of subsidies (depending on application) Cons Possible negative assets (although not unique in SNA) Asymmetry problems. Tax received in a given year is dependent on the issue prices of the permits and not the number of permits. 12/19/2015

Split assets Issue - Transactions Securities other than shares and non- financial asset (marketable contract) Surrender -Transactions Tax paid (market-price) equivalent to issue price and OCV change in non- financial asset When (period) At surrender date but allocated to period of activity/emissions Changes in Value Revaluations in non-financial asset Free permits No grant/subsidy is recorded at issue, treated as OCV change. International Trade Trade in financial and non-financial bundled assets 12/19/2015

Cross-border issues: financial and split- assets Two possible options on where to record the tax. All taxes recorded in the issuing country when permits are surrendered. Problem: Country B would need to redistribute recorded taxes receivable to A. Or Enterprise B would need to record a tax-payment to government A. All taxes recorded in the country where permits are surrendered: Would mean that cash and taxes received would not align in cases of cross- border trade. 12/19/2015

Other issues CDM and JIMs Will the non-produced non-financial asset view work if permits are limited to one-year How should purchases by NPISH/households be treated 12/19/2015