Template:M summ EUA Annex EEP

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This is all about the consequences should an EU Polluter not surrender the necessary Emissions Allowances to atone for its pollution by the annual deadline of 30 April prescribed in the EU ETS. If your transaction does not hinge on the purchaser having EUAs in its hands by that date, then you can switch all this EEP business off.


Note: the 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 EUAs themselves, and not offsetting real-world carbon emissions they are designed to control, then EEPs 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 fail to deliver to operators in time so operators can surrender to the authorities by the 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 Failure to Deliver language in the Annex dealing with that contingency.

“Specified as applicable”

And herein lies the folly of over-labouring your drafting. We know what to do it EEP is specified as applicable, and we know what to do if EEP is specified as inapplicable — but what to do if the parties neglect to specify anything at all? On this, the agreement, for all its wretched over-articulation, is quite mute. We would like to think, the onus of proof generally being on she who makes an existential claim and all, it would default to EEP not applying — but the JC has been surprised at conclusions English Courts have reached on matters less contentious than that, so we would not like to say.

And if you forget to specify whether EEP applies, you are hardly likely to remember to designate an EEP Risk Period, are you? The EEP Risk Period is relevant to the consequences of a Failure to Deliver when Excess Emissions Penalty applies. In that regard see:

(i) Paragraph (d)(ii)(1)(B)(Y) (yes, seriously) which might have been entitled “Failure to Deliver by Delivering Party where Failure to Deliver is not Rememedied and Excess Emissions Penalty applies”.
(ii) Paragraph (d)(xi), which is entitled Failure to Deliver (Alternative Method) - EEP Applicable.