Template:M summ EUA Annex EEP: Difference between revisions

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Searching out embedded templates in 2002 ISDA summ
Replaced content with "{{Emissons EEP summ|euaprov}}"
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This is all about the consequences should an EU Polluter not surrender the necessary {{euaprov|Emissions Allowance}}s to atone for its pollution by the annual deadline of 30 April prescribed in the {{euaprov|EU ETS}}.  If your transaction does not hinge on the purchaser having EUAs in its hands by that date, then you can switch all this EEP business off.
{{Emissons EEP summ|euaprov}}
 
Note: the [[Excess Emissions Penalty - Emissions Annex Provision|excess emissions penalty]] falls on those operators who actually emit carbon dioxide. To the extent you are a financial, and your business is in the trading, liquidity and market making of [[EUA]]s themselves, and not offsetting real-world carbon emissions they are designed to control, then {{euaprov|EEP}}s are not likely to come high up your list of priorities. That being said, there ''is'' an indirect implication for financial-only counterparties if they [[Failure to Deliver - Emissions Annex Provision|fail to deliver]] to operators in time so operators can surrender to the authorities by the {{euaprov|Reconciliation Deadline}}, since the former’s settlement failure brings a real world penalty charge on the later. Therefore you may wish to consider the otherwise rather perplexing {{euaprov|Failure to Deliver}} language in the {{euaprov|Annex}} dealing with that contingency.
 
===“Specified as applicable”===
And herein lies the folly of over-labouring your drafting. We know what to do it {{euaprov|EEP}} is specified as applicable, and we know what to do if {{euaprov|EEP}} is specified as inapplicable — but what to do if the parties neglect to specify anything at all? On this, the agreement, for all its wretched over-articulation, is quite mute. We would like to think, [[The onus of proof is on the person making an existential claim|the onus of proof generally being on she who makes an existential claim]] and all, it would default to {{euaprov|EEP}} ''not'' applying — but the [[JC]] has been surprised at conclusions English Courts have reached on matters less contentious than that, so we would not like to say.
 
{{jc:M summ EUA Annex EEP Risk Period}}

Latest revision as of 12:06, 13 September 2023

ISDA defines itself up the wazoo, with EEP, EEP Equivalent, EEP Amount, EEP Non-delivery, EEP Payment, EEP Risk Period and Indemnifiable EEP — of course they did, didn’t they — whereas IETA is a relatively spartan Excess Emissions Penalty (and no EEP Equivalent — it just defines it in EEA Amount as “if this sub-paragraph (b) is specified in Schedule 2 (Elections) as applying”) and EEP Status, while EFET just has EEP and EEP Equivalent, but nothing else.

EEP Amount is pretty much the same between ISDA and IETA. EFET goes off on one.

What is is all about

Well, the basic point of an Emissions Trading Scheme is to require emitters to surrender Allowance credits to atone for their pollution, on main of being whacked with financial penalties for failing to do so on time. These are the Excess Emissions Penalties, so this is what it is all about, compadres.

Relevant for operators and those settling contracts with them, who have to worry about Reconciliation Deadlines and such messy practicalities.

An “Excess Emissions Penalty” is a penalty payment levied under the EU ETS on a end-user who is a Receiving Party under an Allowance Transaction, and who missed the deadline for surrendering Allowances as a direct result of a failure by a Delivering Party to transfer Allowances when due under that Allowances Transaction. Only likely to be relevant if (i) your counterparty is some kind of power station or carbon monster and (ii) the Transaction is due to settle just before April 30th in any year, when Allowances must be submitted.

An EEP Equivalent is an amount for which a Receiving Party becomes liable to a third party end user under a different Allowance Transaction — along the contractual chain, as it were — which is nonetheless occasioned by Delivering Party failing to settle a transfer of Allowances under this one.

Obe case is an actual penalty, the other one a delta-one derivative of a penalty, and both amount to the same thing. IETA and ISDA recognise this by wrapping “EEP Equivalent” into the concept of EEP Amount (optionally, at any rate, although it is hard to imagine when you wouldn’t apply the equivalent).

You would like to think EFET’s Carbon Squad would have done likewise, or at least come up with a better term than “EEP or EEP Equivalent” — which appears a mouthwatering 48 times in the document — to define it, especially since there doesn’t seem to be any optionality under the EFET.

At least, we suppose, they didn’t say, “EEP or EEP Equivalent as the case may, for the time being and from time to time, without limitation, be”.

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