UK Emissions Anatomy

EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions

Top Trumps^®Financial Weapons of Mass Destruction^®

Emissions Allowance
“Wanna stop frying the planet? Start here. Will it help? Who knows? The forward curve is in contango: who cares!”

Docs	Take your pick: IETA, ISDA or even EFET: none of them good. But at least you have flexibility in mediocrity	4
Amendability	Nope. The EU can amend them, but you can’t.	0
Collateral	They aren’t anyone’s obligations as such. In fact, they’re more like a sort of unofficial, made up, (hush) crypto. No credit risk!	DNA
Transferability	With an account at the Union Registry, sure!	7
Leverage	Not unless you do a CEmO, and we just made that up.	0
Fright-o-meter	Not directly scary as long as there is an EU with Greta Thundberg in it, but global warming is going to lead to Armageddon so, you know, indirectly.	5

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)

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Here is the JC’s latest Anatomy™: ISDA’s emissions annex, which comes in at least two flavours: the original EU Emissions Annex, and the new, copycat, we absolutely-are-not-going-through-separation-anxiety, UK Emissions Allowances Anatomy. These Annexes are sort of add-ons to the 2005 ISDA Commodity Definitions, which you access by adding a new Part with some elections to the Schedule to your ISDA Master Agreement. You sort of get the sense it is a bit more of a moving feast, and a bit more hesitant, than ISDA’s crack drafting squad™’s usual work, which may be bloody-minded and pedantic, but is at least thorough, fulsome and rooted in some kind of logic, however perverse. This one — not so much.

Now that may well be partly our fault: we read this cold, without the benefit of having seen its evolution, and without much knowledge of the competing products (the International Emissions Trading Association’s master agreement, for example). We’ll maybe get on to that.

The Emissions Annex is also special in that it is the creature of those permanently marginalised splinter group from ISDA’s crack drafting squad™, the Carbon Squad™. These quasi-fundamentalist drafting weirdos, with all their neo-First Method, “and then I woke up and it was all just a dream” nonsense don't often get a look in, but ISDA seems to have given them free rein here, and they have not wasted the opportunity. But working out which tracts of the annex are dangerous, extremist nonsense and which are practical allocations of risk in a new and sui generis asset class this is all part of the fun of it, frankly.

Part [•]. UK Emissions Allowance Transactions
(a) Scope
(b) ISDA Definitions
(c) Multiple Delivery Dates
(d) Terms