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| The {{euaprov|Excess Emissions Penalty}} is made flesh in [https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32003L0087 Article 16] of the [[EU ETS Directive|EU ETS directive]].
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| {{subtableflexpad|48|1|Hey titty bum bum}}
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| '''Article 16: Penalties'''<br>
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| :1. Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that such rules are implemented. The penalties provided for must be effective, proportionate and dissuasive. Member States shall notify these provisions to the Commission by 31 December 2003 at the latest, and shall notify it without delay of any subsequent amendment affecting them.
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| :2. Member States shall ensure publication of the names of operators who are in breach of requirements to surrender sufficient allowances under Article 12(3).
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| :3. Member States shall ensure that ''any operator who does not surrender sufficient allowances by 30 April of each year<ref>In ISDA Emissions Annex speak, the “{{euaprov|Reconciliation Deadline}}”.</ref> to cover its emissions during the preceding year shall be held liable for the payment of an [[Excess Emissions Penalty - Emissions Annex Provision|excess emissions penalty]]''. The [[Excess Emissions Penalty - Emissions Annex Provision|excess emissions penalty]] shall be EUR 100 for each tonne of carbon dioxide equivalent emitted by that installation for which the operator has not surrendered allowances. Payment of the [[Excess Emissions Penalty - Emissions Annex Provision|excess emissions penalty]] shall not release the operator from the obligation to surrender an amount of allowances equal to those excess emissions when surrendering allowances in relation to the following calendar year.
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| :4. During the three-year period beginning 1 January 2005, Member States shall apply a lower [[Excess Emissions Penalty - Emissions Annex Provision|excess emissions penalty]] of EUR 40 for each tonne of carbon dioxide equivalent emitted by that installation for which the operator has not surrendered allowances. Payment of the [[Excess Emissions Penalty - Emissions Annex Provision|excess emissions penalty]] shall not release the operator from the obligation to surrender an amount of allowances equal to those excess emissions when surrendering allowances in relation to the following calendar year.}}
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| 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.
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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”.