Taxation of Cross-Border Transfers of Carbon Emission Allowances Under Linked Emissions Trading Schemes

Transnational Environmental Law, Vol. 6, No. 2, pp. 335-361, 2017

Sydney Law School Research Paper No. 17/60

Posted: 26 Jul 2017

See all articles by Celeste Black

Celeste Black

The University of Sydney Law School

Date Written: July 23, 2017

Abstract

Economic arguments in support of linking emissions trading schemes suggest that such linking could provide access to lower cost abatement options and increase market stability. The decisions of whether and how to link emissions trading schemes often focus on the design features of the relevant schemes, but an additional factor which has the potential to undermine the efficiency of linked schemes is taxation. This article systematically tests two alternative approaches to the direct (income) taxation of cross-border transfers of emission allowances for differential tax outcomes. Four hypothetical transactions are considered under three different linking mechanisms and on the assumption that a tax treaty based on the OECD Model Tax Convention on Income and on Capital is in force. This analysis evidences that, in some cases – and especially if the relevant jurisdictions adopt different approaches to the taxation of allowance transactions under domestic law – there is the potential for timing differences or double taxation that could impact on the efficiency of the linked trading schemes. It is therefore important for tax implications to be considered as part of any linking proposal.

Keywords: Emissions trading schemes, Carbon trading, Linking emissions trading schemes, International tax, Carbon emission allowances

JEL Classification: K10, K20, K22, K30, K32, K33, K34

Suggested Citation

Black, Celeste, Taxation of Cross-Border Transfers of Carbon Emission Allowances Under Linked Emissions Trading Schemes (July 23, 2017). Transnational Environmental Law, Vol. 6, No. 2, pp. 335-361, 2017, Sydney Law School Research Paper No. 17/60, Available at SSRN: https://ssrn.com/abstract=3007441

Celeste Black (Contact Author)

The University of Sydney Law School ( email )

New Law Building, F10
The University of Sydney
Sydney, NSW 2006
Australia

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