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5514.0.55.001 - Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 20/11/2012   
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EMISSIONS REDUCTION SCHEMES

TREATMENT AND RECORDING OF EMISSIONS REDUCTION SCHEMES IN ABS GOVERNMENT FINANCE STATISTICS


INTRODUCTION

A number of Commonwealth schemes have been established by the Australian Government to reduce greenhouse gas (GHG) emissions. These include the Renewable Energy Target and the Clean Energy Schemes. They are designed to reduce the volume of carbon dioxide (CO2) released into the atmosphere and thereby help mitigate the effects of climate change, and improve the global environment. More detailed information on such schemes, including their conceptual treatment in ABS statistics, is provided in the Information Paper: Recording Emissions Reduction Schemes in ABS Statistics (cat. no. 5257.0.55.001) released on 30 July 2012.

This amendment to Australian System of Government Finance Statistics: Concepts, Sources and Methods (cat. no. 5514.0), the ABS GFS Manual, relates to the Commonwealth schemes being introduced into ABS Government Finance Statistics (ABS GFS) and outlines their treatment in ABS GFS. The amendment should be read in conjunction with the ABS GFS Manual and is considered part of it. Specific changes to the ABS GFS Manual are detailed below in Specific References in the ABS GFS Manual. The amendment's date of effect is 1 July 2012.

A number of GHG emissions reduction or similar schemes also operate at the state level. State schemes include the New South Wales Greenhouse Gas Reduction Scheme, the Victorian Energy Efficiency Target Scheme and the Queensland Gas Scheme. State based schemes will be introduced into ABS GFS at a later date. The ABS is reviewing sources and methods for compiling data for them. The same principles that apply to the Commonwealth schemes will also apply to the state schemes.

The Australian Accounting Standards Board (AASB) staff have circulated a draft paper on issues relating to the accounting treatment of the carbon pricing mechanism from the Government perspective to selected AASB constituents for information and comment. The paper is not intended to be in the nature of authoritative guidance. At the time of writing, the accounting treatment and the impact on government reporting under AASB 1049 Whole of Government and General Government Sector Financial Reporting had not been finalised. Furthermore, the treatment of international permits in ABS statistics is still under discussion.


AUSTRALIAN GHG EMISSIONS REDUCTION SCHEMES

Four GHG emissions reduction schemes and policy instruments have been legislated for Australia by Commonwealth acts. The Renewable Energy Act 2000 legislated for the Renewable Energy Target and Renewable Energy Certificates. The Clean Energy Acts, including the Clean Energy Act 2011, legislated for the Carbon Tax and the Emissions Trading Scheme. The Carbon Credits (Carbon Farming Initiative) Act 2011 legislated for the Carbon Farming Initiative and Australian Carbon Credit Units. The details of these schemes and instruments are outlined below.

Renewable Energy Certificates

Renewable Energy Certificates (REC) are issued under the Renewable Energy Target (RET). In September quarter 2012, RECs data back to the beginning of the scheme in 2001 will be included in ABS GFS. This scheme is similar to the schemes operating at the state level in New South Wales, Victoria, and Queensland.

There are two types of certificates in the RECs scheme. Large-scale Generation Certificates (LGC) are issued to large–scale generators of electricity from renewable sources like commercial wind farms. Small-scale Technology Certificates (STC) are issued to promoters of small scale renewable energy like installers of solar panels. The entities who are issued RECs are called eligible entities. The liable entities under the scheme are usually retailers of electricity. They meet their share of the RET by surrendering RECs to the Clean Energy Regulator (CER) or by paying the shortfall charge for non-compliance. They are compulsorily required to discharge their obligations.

RECs are traded between eligible and liable entities in the 'spot' market recorded in the REC Registry maintained by the CER. The liable entities surrender RECs to the CER to fulfil their compliance requirements under the scheme and thus avoid penalties. RECs can be purchased in the market from other entities or the liable party itself may be entitled to them.

Carbon Tax

The Carbon Tax will be effective from 1 July 2012 to 30 June 2015. Companies identified as being large GHG emitters accrue a tax liability when they emit the gases. They are then obliged to surrender emissions units in respect of their carbon pollution. The units are in the form of permits issued at a fixed price. The permits are purchased from the government and surrendered by a specified due date. This discharges the tax liability of the emitter. The government may also issue free permits to parties in trade exposed industries, and buy back permits at a discounted value.

Emissions Trading Scheme

An Emissions Trading Scheme (ETS) will be introduced from 1 July 2015 to replace the Carbon Tax. It will set a limit on the total volume of GHG emissions for a given period. The government will then issue the number of permits to cover that amount. These permits will be traded in the market. Large GHG emitters will acquire permits and then surrender them to the government to discharge their emissions liability.

Some permits will be allocated by the government at no cost but the majority will be sold at auction well in advance of emissions events. Non-emitters and other entities, including non–residents, will be able to buy permits. The permits will be transferable in secondary markets. Derivatives like futures contracts will be allowable. There will be no government buy-back facility under the ETS.

Carbon Farming Initiative

Under the Carbon Farming Initiative (CFI), land-holders, farmers and forest growers are given incentives to undertake activities that generate GHG abatement. These activities include reducing or avoiding emissions, or removing carbon from the atmosphere and storing it in soil or vegetation. Australian Carbon Credit Units (ACCUs) are issued to entities undertaking eligible GHG abatement activities.

ACCUs are tradeable certificates that may be sold to liable GHG emitters who may then surrender them to the CER to discharge up to 5% of their emissions liabilities during the fixed price period (1 July 2012 to 30 June 2015). CFI credits are considered to be financial products for the purposes of the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001.

The issue of ACCUs is not being recorded in ABS GFS at this stage, but any reduction in government liability due to their surrender will be captured. The full impact of the CFI will be included in ABS GFS when the relevant data are available.


TREATMENT OF AUSTRALIAN GHG EMISSIONS POLICY INSTRUMENTS IN ABS GFS

The ABS has decided to apply fundamental System of National Accounts 2008 (2008 SNA) market valuation and accrual accounting principles in ABS statistics in its measurement of emission schemes. This is at variance with the 2012 decision of the UN Statistical Commission which effectively recommends historic valuation and cash accounting for key stocks and flows. The ABS approach, known as the financial asset approach, is described in the Information Paper cited above.

The ABS GFS classification of the financial asset/liability in the ETS will differ from the National Accounts to allow alignment with cash flow conventions. This will not impact on the broader aggregates. The treatment in ABS GFS is described below from the perspective of general government as the issuer of permits and from the perspective of public non-financial corporations (PNFC) and local government units (LGU) as potentially liable entities. The same principles apply to general government units who may be liable entities as well.

General Government (as the issuer)

LGCs will generally be classified as subsidies and STCs will generally be classified as capital grants. Under the RET, a subsidy is recorded when renewable electricity that is eligible for a REC is generated. This results in an accounts payable by the government as the government has a liability to issue a REC. The issue of a REC to an eligible entity acquits the accounts payable for the subsidy and generates an offsetting accounts payable by government.

A capital grant is recorded when RECs are issued on a one-off or irregular basis and are tied to the recipient having to acquire capital assets. The issue of a REC to an eligible entity for one-off purposes generates an accounts payable by government.

A tax on production, receivable by government, accrues at the time liable retailers purchase electricity. The accounts payable liability of government is extinguished when liable retailers surrender RECs to the government. Changes in the market price of RECs are revaluations of a liability.

Under the Carbon Tax, the sale of permits, at a fixed price, to emitters in advance is an accounts receivable by the purchaser and an accounts payable by government to recognise future surrender of permits. A tax on production accrues at the time of emissions, receivable by government. The liability of government is extinguished when emitters surrender permits to the government. The issue of free permits is treated as a subsidy from government to industry.

Under the ETS, the sale of permits by auction results in an accounts payable by government. A tax on production accrues at the time of emissions, receivable by government. The accounts payable by government is extinguished when emitters surrender permits to the government. Changes in the market prices of permits are revaluations of a liability.

Under the CFI, the issue of ACCUs to eligible entities is the payment of a subsidy that generates a liability of government. A tax on production accrues at the time of emissions, receivable by government. The liability of government is extinguished by the surrender of ACCUs to government. Changes in the market prices of ACCUs are revaluations of a liability.

The detailed treatment of RECs, the Carbon Tax and ETS permits, with respect to general government as the issuer of permits is outlined below in Table 1.

Public Non-Financial Corporations or Local Government Units (as the liable entities)

Under the RET, a tax on production accrues at the time the PNFCs purchase electricity, payable by the PNFCs. The liability is extinguished when the PNFCs surrender RECs to the government. Changes in the market price of RECs are revaluations of a financial asset.

Under the Carbon Tax, the sale of permits, at a fixed price, to the PNFCs/LGUs in advance is an accounts receivable by the PNFCs/LGUs. The issue of free permits is also an accounts receivable by the PNFCs/LGUs. A tax on production accrues at the time of emissions, payable by the PNFCs/LGUs. The tax liability of the PNFCs/LGUs is extinguished when they surrender permits to the government. In the fixed price period, ACCUs can be used to acquit up to 5% of an entity's liability during the fixed time period.

Under the ETS, a tax on production accrues at the time of emissions, payable by the PNFCs/LGUs. The liability is extinguished when the PNFCs/LGUs surrender permits to the government. The purchase of permits at auction or in the secondary market is treated as an accounts receivable (or acquisition of a financial asset) by the purchaser. Changes in the market prices of permits are revaluations of a financial asset.

The detailed treatment of RECs, the Carbon Tax and ETS permits, with respect to liable PNFCs and LGUs is outlined below in Table 2.


DATA SOURCES AND METHODS

To record the impact of GHG Emissions Reductions Schemes in ABS GFS, the ABS requires information from a number of data sources. It requires both price and volume data on components of the Clean Energy Schemes and RECs. It requires data for general government, PNFCs and LGUs, on a quarterly and annual basis. Sources include the Department of Finance and Deregulation (DoFD) and the CER.

The ABS has developed a model to estimate statistics on RECs by compiling and adjusting administrative data. RECs volume data are sourced from the REC Registry operated by the CER. These data are converted to an accruals basis and classified by industry, sector and state of liable entity. The RECs volume data are also converted into current prices using RECs price data. RECs data will be incorporated back to July 2001 in the relevant ABS GFS series.

DoFD will coordinate with the CER to provide data on the Clean Energy Schemes as part of its quarterly and annual provision of data to the ABS. DoFD will provide the ABS with quarterly taxation revenue based on emissions during the period and subsidy expense data. CER will provide the ABS with a quarterly report which will be used to model activities by sector, industry and state. The ABS will derive information on changes in the value of carbon units.


SPECIFIC REFERENCES IN THE ABS GFS MANUAL

The changes to the current ABS GFS Manual described below will be incorporated into the next release of the ABS GFS Manual when it is updated to bring it into line with the revised IMF GFS Manual. The specific references in the current ABS GFS Manual affected by this amendment are:

    Chapter 2 (Australian GFS Framework), the text on 'Other taxes on production' in paragraph 2.134 is amended to cite taxes relating to the clean energy initiatives as an inclusion in the category;
    ETF 1114 (Other taxes on production) in the Economic Type Framework, at Appendix 3, is amended to include a reference to taxes relating to the clean energy initiatives.

In the future, the Tax Classification, at Appendix 3, will include a new class to separately identify all production taxes relating to the clean energy initiatives introduced by government. TC 53 (Other taxes on the use of goods and performance of activities n.e.c.) will be expanded to include TC 535 (Clean energy and related taxes). Its scope will include taxes liable under RECs, the ETS and the CFI. These taxes are currently included in TC 539 (Other taxes on the use of goods and performance of activities n.e.c.).


TABLE 1 - TREATMENT OF AUSTRALIAN GHG EMISSIONS POLICY INSTRUMENTS WITH RESPECT TO GENERAL GOVERNMENT IN ABS GFS

Policy InstrumentEventTreatment in ABS GFSABS GFS Classifications

Renewable Energy Certificates (RECs) under the Renewable Energy Target
(from 1 January 2001)
Generation of renewable electricityIncrease in subsidy expense and increase in accounts payable by government valued at market priceETF 1242 (Subsidy expenses),
ETF 8240 (Accounts payable)

Issue of RECs via the registration processIncrease in capital transfer and increase in accounts payable by government valued at market price, offsetting decrease in accounts payable by government valued at market priceETF 1251 (Capital grant expenses),
ETF 8240 (Accounts payable)

Fees charged by government for administrationIncrease in sales of goods and servicesETF 1120 (Sales of goods and services),
ETF 8110 (Cash and deposits)

Incurrence of mandatory obligation by liable entitiesIncrease in tax on production receivable by government valued at market price and accounts receivable of government valued at market priceETF 1114 (Other taxes on production),
ETF 8130 (Accounts receivable)

Surrender of RECs by liable entitiesDecrease in accounts payable by government valued at market price and decrease in accounts receivable by government valued at market priceETF 8240 (Accounts payable),
ETF 8130 (Accounts receivable)

Payment of short-fall charge by liable entities for non-complianceIncrease in tax on production receivable by government valued at market priceETF 1114 (Other taxes on production),
ETF 8110 (Cash and deposits)

Secondary market tradingChange in market value of RECsETF 6139 (Revaluations of other liabilities)

Carbon Tax
(from 1 July 2012 to 30 June 2015)(a)
Sale of permits by government valued at fixed priceIncrease in accounts payable by governmentETF 2111 (Taxes received),
ETF 8240 (Accounts payable),
ETF 8110 (Cash and deposits)

Issue of free permits by governmentIncrease in subsidy expense valued at market price and accounts payable by government valued at market priceETF 1242 (Subsidy expenses),
ETF 8240 (Accounts payable)

Buy-back of free permits by governmentDecrease in accounts payable by governmentETF 2129 (Other payments),
ETF 8240 (Accounts payable),
ETF 8110 (Cash and deposits)

Emission of gases by pollutersIncrease in tax on production receivable by government valued at market price and increase in accounts receivable of government valued at market priceETF 1114 (Other taxes on production),
ETF 8130 (Accounts receivable)

Surrender of permits to governmentDecrease in accounts payable and accounts receivable by government valued at market priceETF 8240 (Accounts payable),
ETF 8130 (Accounts receivable)

Permits under the Emissions Trading Scheme
(from 1 July 2015)
Sale of permits by government at auctionIncrease in accounts payable by governmentETF 2111 (Taxes received),
ETF 8240 (Accounts payable),
ETF 8110 (Cash and deposits)

Issue of free permits by governmentIncrease in subsidy expense valued at market price and in accounts payable by government valued at market priceETF 1242 (Subsidy expenses),
ETF 8240 (Accounts payable)

Emission of gases by pollutersIncrease in tax on production receivable by government valued at market price and increase in accounts receivable of government valued at market priceETF 1114 (Other taxes on production),
ETF 8130 (Accounts receivable)

Surrender of permits to governmentDecrease in accounts payable and accounts receivable by government valued at market priceETF 8240 (Accounts payable),
ETF 8130 (Accounts receivable)

Secondary market tradingChange in market value of permitsETF 6139 (Revaluations of other liabilities)

(a) The timing of recording of subsidies will be reviewed when there is more data on the behaviour of participants.


TABLE 2 - TREATMENT OF AUSTRALIAN GHG EMISSIONS POLICY INSTRUMENTS WITH RESPECT TO LIABLE PNFC AND LGU ENTITIES IN ABS GFS

Policy InstrumentEventTreatment in ABS GFSABS GFS Classifications

Renewable Energy Certificates (RECs) under the Renewable Energy Target
(from 1 January 2001)
Generation of renewable electricity by PNFCsIncrease in subsidy revenue and increase in accounts receivable by PNFCs valued at market priceETF 1141 (Revenue from current grants and subsidies), ETF 8130 (Accounts receivable)

Issue of RECs via the registration process and purchase of RECs by PNFCs in the marketIncrease in accounts receivable by PNFCs valued at market priceETF 8130 (Accounts receivable)

Incurrence of mandatory obligation by PNFCsIncrease in tax on production payable by PNFCs valued at market price and increase in accounts payable of entity at valued at market priceETF 1224 (Production tax expenses),
ETF 8240 (Accounts payable)

Surrender of RECs by PNFCsDecrease in accounts receivable and accounts payable by PNFCs valued at market priceETF 8130 (Accounts receivable),
ETF 8240 (Accounts payable)

Payment of short-fall charge by PNFCs for non-complianceIncrease in tax on production payable by PNFCs valued at market priceETF 1224 (Production tax expenses),
ETF 8110 (Cash and deposits)

Secondary market tradingChange in market value of RECsETF 6129 (Revaluations of other financial assets)

Carbon Tax
(from 1 July 2012 to 30 June 2015)(a)
Purchase of permits at fixed price by liable entitiesIncrease in accounts receivableETF 8130 (Accounts receivable),
ETF 8110 (Cash and deposits)

Issue of free permitsIncrease in subsidy revenue and increase in accounts receivable valued at market priceETF 1141 (Revenue from current grants and subsidies), ETF 8130 (Accounts receivable)

Emission of gases by liable entitiesIncrease in tax on production payable valued at market price and increase in accounts payable by entity valued at market priceETF 1224 (Production tax expenses),
ETF 8240 (Accounts payable)

Surrender of permit by liable entitiesDecrease in accounts receivable and accounts payable valued at market priceETF 8130 (Accounts receivable),
ETF 8240 (Accounts payable)

Permits under the Emissions Trading Scheme
(from 1 July 2015)
Purchase of permits at auction by liable entitiesIncrease in accounts receivable valued at market priceETF 8130 (Accounts receivable),
ETF 8110 (Cash and deposits)

Issue of free permitsIncrease in subsidy revenue and increase in accounts receivable valued at market priceETF 1141 (Revenue from current grants and subsidies), ETF 8130 (Accounts receivable)

Emission of gases by liable entitiesIncrease in tax on production payable valued at market price and increase in accounts payable by entity valued at market priceETF 1224 (Production tax expenses),
ETF 8240 (Accounts payable)

Surrender of permits by liable entitiesDecrease in accounts receivable and accounts payable valued at market priceETF 8130 (Accounts receivable),
ETF 8240 (Accounts payable)

Secondary market tradingChange in market value of permitsETF 6129 (Revaluations of other financial assets)

(a) The timing of recording of subsidies will be reviewed when there is more data on the behaviour of participants.


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