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OECD- Eurostat Task Force on Emission Allowances and Permits in the National Accounts OECD National Accounts Working Party Meeting Paris December 2010. Contact: [email protected] Background.

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Contact nadim ahmad@oecd org

OECD-Eurostat Task Force on Emission Allowances and Permits in the National AccountsOECD National Accounts Working Party Meeting Paris December 2010

Contact: [email protected]


  • 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
Task Force

  • 4 Options

    • Non-produced non-financial asset

    • Financial asset

    • Split asset

    • Multinational treatment

Final report
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
    Agreement on

    • Tax should be recorded when the event (emission) occurs

    • Tax payer should be the emitter

    Financial asset approach
    Financial asset approach

    • At issue:

      • any other financial asset.

      • 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
    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)


    • 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.

    Equivalent schemes
    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
    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
    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 assets1
    Collective approach with Financial assets

    • Also resolves problems caused by CER/CDMs.

      • All countries have a collective liability.

    What s needed
    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
    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 assets1
    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 needed1
    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 needed2
    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
    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
    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.