EU Emissions Anatomy

Here is the JC’s latest Anatomy™: ISDA’s emissions annex. This Annex is a sort of add on 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, comprehensive, and rooted in some kind of logic, however perverse. This one — not so much.

EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions

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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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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 quasi -fundamentalist drafting weirdos, Carbon Squad™, with all their neo-First Method, “and then I woke up and it was all just a dream” nonsense. 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 [•]. EU Emissions Allowance Transactions
(a) Scope
(b) ISDA Definitions
(c) Multiple Delivery Dates
(d) Terms