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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 Anatomy, and the new, copycat, we absolutely-are-not-going-through-separation-anxiety, UK Emissions Anatomy.

Each functions as 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. This is also some cross-grading into the 2006 ISDA Definitions, and you may find yourself harking wistfully towards the dear old 2002 ISDA Equity Derivatives Definitions too, if hedging disruption is something that keeps you awake at night.

Now. In our humble opinion, the level of rigour, diligence and just plain old common sense you usually expect — however pedantically articulated and tediously applied —when beholding a new piece of work from the great ISDA foundries just feels lacking in these Emissions Annexes. Oh, fear not: pedantry and tedium abounds at a micro level: ISDA’s crack drafting squad™ knows no boundaries when it comes to labouring what ought to be obvious. But when it comes to things are not so obvious — matters of substance, not form — Carbon Squad™ has taken some positions which strike us as being eccentric, to put it kindly, and utterly barking mad if we were to be speaking candidly among friends.

and seeing as ISDA has now duped the original EU version — the UK version is in formal respects a very close lift — there seems to be little chance of anyone having another look at this.

For one thing, we don’t quite understand why ISDA didn’t combine them into a single, generic annex. The amount of divergence needed to cover both regimes is very little, and perhaps it was the opportunity to re-visit the original approach and come up with something that sits a little more comfortably with the usual ISDA approach to valuing and terminating derivative transactions.

Now the blame for some of this miscomprehension may well be laid at the JC’s door: we read this cold, without the benefit of having seen its evolution, and without much knowledge of the market, much less competing products (the International Emissions Trading Association’s master agreement, for example). We’ll maybe get on to that. So he may be missing some subtlety.

But we don’t think so: those experts to whom we have spoken are all abut shoulder-shruggy about this document, and sort of mumble that we're struck with it, since a couple of key market participants are now quite attached to it.

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.