Template:M summ EUA Annex Abandonment of Scheme: Difference between revisions

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[[Abandonment of Scheme - Emissions Annex Provision|What]] happens if, in its infinite wisdom, the European Union decides that an {{euaprov|Emissions Trading Scheme}} is a silly idea and we should just embrace a future as Venusians, or Scottish vintners or something similar. You may see people tinker around with this — our favourite is “... or there is a proposal to abandon the {{euaprov|Scheme}}... ” which given its looseness (there’s always some wingnut from a minority in an some oil-burning pressure group proposing something like that) and the lack of consequences beyond the transaction should it happen or not happen — it isn’t like it is an illegality or something where you can go to prison if you blithely carry on — there really seems no sensible call for this.
[[Abandonment of Scheme - Emissions Annex Provision|What]] happens if, in its infinite wisdom, the European Union decides that an {{euaprov|Emissions Trading Scheme}} is a silly idea and we should just embrace a future as Venusians, or Scottish vintners or something similar. You may see people tinker around with this — our favourite is “... or there is a proposal to abandon the {{euaprov|Scheme}}... ” which given its looseness (there’s always some wingnut from a minority in an some oil-burning pressure group proposing something like that) and the lack of consequences beyond the transaction should it happen or not happen — it isn’t like it is an illegality or something where you can go to prison if you blithely carry on — there really seems no sensible call for this.
===What happens===
{{quote|
LEAR: Now, behold these windy allowances <br>
To whose young regulators <br>
The storied mines of France and Burgundy <br>
Once strove to submit; that airy scheme now lies abandoned. <br>
Wherefore am I girdled around by these confounded dockets. <br>
Must they exhaust me so? <br>
:''Enter CORDELIA, strumming on a lute.''
CORDELIA: ’Tis the point, Sirrah. <br>
LEAR: Fair Cordelia! <br>
CORDELIA: My Liege. <br>
LEAR: Maketh thou an offer — <br>
Rid me of these papery ghosts! <br>
What will you take? And at what price? Speak. <br>
CORDELIA: Nothing, my lord. <br>
KING LEAR: Nothing! <br>
CORDELIA: Nothing. <br>
KING LEAR: Nothing will come of nothing: speak again. <br>
CORDELIA: Well, pops, that’s hot air for you. <br>
::Shakespeare: ''King Edward Lear, II, ii''}}
If there is such an abandonment, the annex allocates the loss by requiring the person writing the option refunding whatever has been paid by way of premium or forward purchase, putting the parties back in the position they would have been in had the transaction never existed. Thereby, whoever went long the EUA exposure is reset to zero: the {{euaprov|Delivering Party}} has nothing and has to deliver nothing (yay), but has to give back to {{euaprov|Receiving Party}} anything it had already paid in the expectation of getting something (boo, kind of, but fair enough); and where {{euaprov|Delivering Party}} has bought a {{euaprov|Put}} — being the right to sell something at a set price in the future if that happens to be more than the prevailing market price — {{euaprov|Receiving Party}} has to refund that [[premium]] (boo) but equally doesn’t have to pay the strike for an asset that doesn’t exist anymore (yay).
===Financing structures===
It might not gladden the heart of those financing another’s {{euaprov|Allowance}} inventory to discover that, due to such a Scheme abandonment, the {{euaprov|Forward Sale Transaction}}, by which she expected to deliver back those {{euaprov|Allowances}} against payment in full, plus interest, of the amount she provided by way of financing has been cancelled at zero. She might be, as they say, a bit ''cheesed off'' to find that, instead, she should just be a good sport and put all this down to experience.
Expect, therefore, amendments to this rather curious provision. The value of a regulatory allowance granting one permission to do something one no longer needs permission to do, or which is no longer effective to give permission to do it, is, we rather think, zero. The value of the payment commitment made, in a kinder time, to buy that thing forward is rather different. If one were to use a more standard ISDA termination methodology, one might expect the purchaser to wear this risk, not the Seller.

Latest revision as of 14:42, 19 May 2023

What happens if, in its infinite wisdom, the European Union decides that an Emissions Trading Scheme is a silly idea and we should just embrace a future as Venusians, or Scottish vintners or something similar. You may see people tinker around with this — our favourite is “... or there is a proposal to abandon the Scheme... ” which given its looseness (there’s always some wingnut from a minority in an some oil-burning pressure group proposing something like that) and the lack of consequences beyond the transaction should it happen or not happen — it isn’t like it is an illegality or something where you can go to prison if you blithely carry on — there really seems no sensible call for this.

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