Excess Emissions Penalty - IETA Provision
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IETA Emissions Trading Master Agreement A Jolly Contrarian owner’s manual™
Excess Emissions Penalty in all its glory Comparison See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs
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Overview
The definition of Excess Emissions Penalty is more or less the same in all three emissions trading documentation regimes. Compare:
ISDA: Excess Emissions Penalty
IETA: Excess Emissions Penalty
EFET: Excess Emissions Penalty
Seeing as it is quite a fundamental part of the economic risk of Allowance trading, we should not be surprised to find that all three versions have a concept of EEP or Excess Emissions Penalty, nor that, per their Myers-Briggs personality types, ISDA has gone for quite unnecessary optionality, IETA has sort of followed suit, and EFET has gone for none, but laborious drafting of alternatives anyway. Hey ho.
Summary
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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- The JC’s famous Nutshell™ summary of this clause
See also
Template:M sa IETA Excess Emissions Penalty