1. SO2 Emission Allowances and the US National Accounts
Ryan Greenaway-McGrevy
OECD taskforce on emission permits in the national accounts
Paris
July

2. Allowances and National Accounts
There is no direct recording of allowances in the US national accounts;
Emission auctions do not raise govt. revenue
All trade in allowances are private sector transactions.
Use (‘surrender’) of allowances are not payments of tax. (c.f. ‘financial asset’/ ‘NPNF asset’ treatments)
Nor is the initial distribution of allowances recorded in the national accounts.
The allowance is not considered a govt. liability upon issuance (c.f. ‘financial asset’ treatment).

3. Other Issues of Interest
Interstate trade in allowances and estimates of GDP by state:
Embedded in our source data but not separately identified.
Cross Border Trade:
Canada independently tackles acid rain problem
Canadian Council of Ministers of the Environment regulates sulfur levels directly.
Anyone can purchase allowances; implies trade in allowances possible.
Embedded in capital account source data

4. BEA position BEA favors the mixed asset approach
In favor of accrual of tax income
i.e. recognizing tax revenue when permit is surrendered.
Not in favor of
Entries for (a) ‘holding gains/losses’ and (b) ‘permits issued at below market price’ impacting the government balance sheet or income/financial accounts.
Reasons:
Permit (i.e. the prepaid tax) is not a conventional liability, and revaluations do not affect future ability of government to honor the liability.
Sets a precedent to re-classify all tax credits as subsidies/forgone taxation.
The market price for discounted permits is an inappropriate measure of forgone taxation (especially when a large number of permits are discounted.)