Regulatory derivative

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Regulatory derivative
/ˌrɛɡjəˈleɪtᵊri/ /dɪˈrɪvətɪv/ (n.)
A financial instrument whose payoff derives from the existence, or otherwise, of given laws or regulations.

Quite a weird concept, but the emissions allowance is one such financial instrument. Its value derives solely from its regulator’s own prevailing attitude towards climate change and energy transition. This can abruptly change, should your north sea gas pipeline suddenly be cut off altogether, for example.

See also

• Emissions Anatomy