Adjustment Event - 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 Adjustment Event in a Nutshell™ Use at your own risk, campers! The varieties of Adjustment Event (d)(iv) Abandonment of Scheme (1) If before the Delivery Date the European Community officially discontinues the Scheme either party may terminate the Transaction by notice, there will be no further delivery or payment obligations (other than payments due for already-performed deliveries) and no payments will be due under Section 6(e). (2) Upon such a termination, together with interest from the payment date to termination date, at the prevailing overnight deposit rate in the interbank market: Forwards and Calls: Delivering Party must promptly refund any amount Receiving Party has paid under Forwards and Calls. Puts: Receiving Party must promptly refund any amounts Delivering Party paid under a Put. Administrator Event means the suspension of a Relevant Registry’s, the EUTL’s or an LSTL’s processes under the Registries Regulation by a National Administrator or the Central Administrator: (i) where that Relevant Registry is not operated and maintained in accordance applicable law, (ii) for scheduled or emergency maintenance, (iii) due to a breach of security threatening the integrity of the registries system or its back up facilities; or (iv) upon suspension of the mutual recognition of Allowances under a Linking Agreement. Settlement Disruption Event: Something beyond the affected party’s control that, having used all reasonable efforts, it cannot overcome and which makes it impossible to perform its obligations to deliver or to accept Allowances under an EU Emissions Allowance Transaction. The following will not count as Settlement Disruption Events if they cause an inability to deliver Allowances in the affected party’s Specified Holding Account: (a) the low or non-allocation of Allowances by any state; (b) a Member State or Central Administrator not replacing Third Compliance Period Allowances with Fourth Compliance Period Allowances; or (c) any party’s failure of a party to procure sufficient Allowances to meet its delivery obligations. Something which otherwise would be a Settlement Disruption Event and a Suspension Event, will count as a Suspension Event and not a Settlement Disruption Event. Suspension Event: any date a party cannot perform its delivery or acceptance obligations through a Relevant Registry as a result of: (i) there being no Registry Operation; or (ii) an Administrator Event. view template Full text of Section Adjustment Event The varieties of Adjustment Event (d)(iv) Abandonment of Scheme (1) If before the Delivery Date the Scheme is, as a result of official written public pronouncement by the European Community, no longer scheduled to proceed or is to be discontinued, either party may, by written notice to the other party, terminate the relevant EU Emissions Allowance Transaction, in which case neither party shall have any further delivery or payment obligations under or in respect of that EU Emissions Allowance Transaction (other than in respect of any payment due by one party in connection with delivery obligations already performed by the other party) and, for the avoidance of doubt, a payment shall not be due under Section 6(e) of the Agreement or otherwise in respect of such termination. (2) In the event of a termination in accordance with sub-clause (1) Delivering Party shall promptly refund to Receiving Party any amount that may have been paid by Receiving Party in respect of the EU Emissions Allowance Transaction that is an Allowance Forward Transaction or a Call and Receiving Party shall promptly refund to Delivering Party any amount that may have been paid by Delivering Party in respect of an EU Emissions Allowance Transaction which is a Put together with interest on that amount in the same currency as that amount for the period from (and including) the date that amount was paid to (but excluding) the date of termination of the EU Emissions Allowance Transaction in accordance with sub-clause (1), at the rate certified by the party required to refund the amount to be a rate offered to such party by a major bank in a relevant interbank market for overnight deposits in the applicable currency, such bank to be selected in good faith by that party for purposes of obtaining a representative rate that will reasonably reflect conditions prevailing at the time in the relevant market. Administrator Event: Means the suspension of some or all of the processes of a Relevant Registry, the EUTL or, if applicable, the LSTL in accordance with the Registries Regulation by the relevant National Administrator or the Central Administrator (as applicable) (i) where that Relevant Registry is not operated and maintained in accordance with the provisions of the Registries Regulation, or any other applicable law, or (ii) for the purpose of carrying out scheduled or emergency maintenance, or (iii) where there has been or following reasonable suspicion of, a breach of security which threatens the integrity of the registries system (including any back up facilities), or (iv) where the mutual recognition of Allowances under a relevant Linking Agreement has been suspended in accordance with the terms of such Linking Agreement. Settlement Disruption Event: Means an event or circumstance beyond the control of the party affected that cannot, after the use of all reasonable efforts, be overcome and which makes it impossible for that party to perform its obligations either to deliver or to accept Allowances in accordance with the terms of an EU Emissions Allowance Transaction. For the avoidance of doubt, the inability of a party to deliver Allowances as a result of insufficient Allowances in the relevant Specified Holding Account, whether caused by the low or non-allocation of Allowances by a Member State or any other state, the delay or failure of a Member State or Central Administrator to replace Allowances of the Third Compliance Period with Allowances for the Fourth Compliance Period, or the failure of a party to procure sufficient Allowances to meet its delivery obligations, shall not constitute a Settlement Disruption Event. This is not an exhaustive list of events which will not constitute a Settlement Disruption Event and is provided for the avoidance of doubt only. If an event or circumstance which would otherwise constitute or give rise to a Settlement Disruption Event also constitutes a Suspension Event, it will be treated as a Suspension Event and will not constitute a Settlement Disruption Event. Suspension Event: Means any date a party to the Agreement is unable to perform its delivery or acceptance obligations under and in accordance with an EU Emissions Allowance Transaction and the Scheme through a Relevant Registry as a result of the occurrence of any of the following events: (i) absence of Registry Operation; or (ii) the occurrence of an Administrator Event. 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. 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Content and comparisons

Trick question: there is no “Adjustment Event” concept under the ISDA Emissions Annex. But there should be. It would make life easier to list all the externalities that can upset your trade and compare their outcomes. This we have endeavoured to do. It does not make pretty reading.

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Summary

JC’s guide to Adjustment Events in various Allowance disruption scenarios

Event	What it is	Who does what	Who bears loss
Abandonment of Scheme	EU gives up on Emissions Trading	Either party terminates on notice. Repay any prepaid Forward Purchase consideration or Option premia.	Walk away (I know, I know, it makes no sense. Don’t @ me folks)
Settlement Disruption Event	External Force Majeure type event prevents settlement.	Settlement suspended. No Cost of Carry Amount payment. If continues for 9 Delivery Business Days or runs over a Reconciliation Deadline either party can designate Illegality, terminate the trade and either pay the Close-out Amount or cancel and walk away.	Unless you specified Payment on Termination for Settlement Disruption, just walk away. (Don’t @ me).
Suspension Event	Registry suspends operating or there is an Administrator Event.	Receiving Party pays Cost of Carry Amount.	Note: Suspension Events trump Settlement Disruption Events. Unless you specified Payment on Termination for Suspension, just walk away. (Don’t @ me).
Fungibility Event	Phase 3 Allowances not exchangeable for Phase 4 Allowances or no longer fungible.	Dunno but is isn’t a Settlement Disruption Event	You will have to agree this among yourselves.

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See also

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