Transactions - Emissions Annex Provision

EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions A Jolly Contrarian owner’s manual™ Resources and navigation Index: Click ᐅ to expand: ISDA Emissions TOC EUA Annex - Premium Emissions Pro tip: for tons of information about EU ETS and EU financial services regulation see Michał Głowacki’s magnificent emissions-euets.com website. Emissions trading documentation ISDA: EU Anatomy • EU Wikitext • EU Nutshell (premium) • UK Anatomy • UK Wikitext (to be merged into EU Anatomy) IETA: IETA Master Agreement • IETA Wikitext • IETA Nutshell (premium) EFET: EFET Allowances Appendix • EFET Allowances Wikitext • EFET Nutshell (premium) Section Transactions in a Nutshell™ Use at your own risk, campers! Allowance Forward Transaction means a Transaction specified as such in the related Confirmation. Allowance Option Transaction means a Transaction identified as such in the Confirmation, which will also count as an “Option Transaction” under the 2006 ISDA Definitions. view template Full text of Section Transactions Allowance Forward Transaction means an EU Emissions Allowance Transaction identified as an Allowance Forward Transaction in the related Confirmation. Allowance Option Transaction: Means an EU Emissions Allowance Transaction identified as an Allowance Option Transaction in the related Confirmation. An Allowance Option Transaction shall be an Option Transaction for purposes of the 2006 ISDA Definitions. view template Comparison See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Content and comparisons

Compare with Transaction in the ISDA Master Agreement, Transaction in the 2002 ISDA Equity Derivatives Definitions, Transaction in the 2014 ISDA Credit Derivatives Definitions

Template

Summary

The two major types of transaction in EUAs are Allowance Forward Transactions: an agreement now to buy (and sell) later of some Allowances at a price agreed now that is expected to reflect their price later, as that price is agreed now — and Allowance Option Transactions, at which one has the right to buy (or sell) later some emissions at a price agreed now that is expected to reflect their price later, as that price is agreed now.

Why none of the other weird and wonderful derivatives flows we see in other asset classes? mainly because allowances themelves, are rather boring instruments. They just sit there, then you give them to the government. They don’t pay interest, they can’t merge or demerge, they don’t declare a Record Date, they don’t suddenly blow up. The only interesting thing that can happen to them is political vicissitude: the political winds can change, decarbonisation could become a lower priority (hard to imagine, but another populist lurch to the right and who knows?). If the EU decided to abandon the EU ETS — and look,. if the Ukraine situation deteriorates such that energy supplies are further prejudiced, maybe, short term, they would. Though there is a solid argument that had Europe already made the energy transition such that it were not reliant on Eurasian gas, the Ukraine invasion might never have happened.

Almost unusually, there is no credit component intrinsic to a Carbon Allowance. Emissions are like financial instruments in most ways: they are dematerialised, they trade, they don’t have a physical presence, they can’t go off or rust — but they are like commodities, currencies and metals in one peculiar sense: they can’t go bust.

Template

See also

Template