1. Tax Aspects of Tradable Emission Permits A Business Perspective An Theeuwes, Manager Tax Policy Shell International BV Stockholm,15 June 2009

2. Tax aspects of Tradable Emission Permits: what is the current situation? What are our business concerns about this? What specific tax obstacles do we see in this respect? What is our tax view on Tradable Emission Permits? Agenda for today

3. Tax Aspects of Tradable Emission Permits: current situation The GOOD NEWS More and more countries are choosing for an Emission Trading System (ETS) Accounting standards under development ETS and taxation begin to be considered in support of implementation of technological innovations to deal with climate change The BAD NEWS Multiple tools still considered to deal with Climate Change (ETS, Carbon Tax), complicating planning assumptions Regulatory frameworks set up are not sufficiently comprehensive: – Accounting treatment not regulated – Tax treatment often not specified – Liability, technical or legal issues may not be recognized Development and implementation of technological innovations to deal with Climate Change (like CCS) are costly Concerns on competitiveness hinder introduction of ETS

4. Business concerns Clear, simple, standard legislation with long term application Cost-efficient in content and application and avoiding duplication Supporting innovation and ensuring business competitiveness PREDICTABL E EFFICIENT SUSTAINABL E

5. Specific Tax obstacles Predictable planning to be possible (e.g. European ETS should avoid different local tax treatment) Tax rules applicable to ETS to be specified (e.g. Australian Tax legislation) Applicable tax rules to be aligned as much as possible (e.g. valuation rules) Conflicting interpretations to be avoided (e.g. service- intangible rather than good-tangible for VAT, import/export duties etc)

6. Specific tax obstacles All costs deductible (e.g. costs of obtaining additional rights not to be considered non-deductible fines) Easy to administer (e.g. to be treated within existing tax framework) Emissions covered by ETS not to be submitted to other carbon related levies (e.g. European Energy Tax Directive)

7. Specific Tax obstacles Tax treatment to support costly innovations (e.g. allowing tax deductibility of CCS costs taken as credit under ETS) Tax treatment in support of profit neutrality of ETS (e.g. not taxing grant as grants should be allowed to avoid carbon leakage) Avoiding double taxation of emissions trading (e.g. through valuation issues)

8. Linkages develop between all systems and more systems appear Pre-KyotoLinkage frameworkKyotoPost 2012 200020052010201520202025 Danish-ETS UK-ETS CDM Norwegian ETS EU-ETS New Zealand ETS Australian ETS US National ‘cap-and-trade’ Expanding EU-ETS CDM evolves to includes sectors Japan technology standards New technology mechanisms evolve (e.g. for CCS) China adopts CCS standard What is our tax view on Tradable emission permits? Emissions Trading goes Global – Tax rules are still local

9. To allow an international solution to an international problem An ETS should specify clear tax rules within existing tax frameworks, that allow deductibility of all relating costs, harmonized across applicable countries and supporting innovation and competitiveness