Template:M summ EUA Annex Disruption

The Emissions clerical-industrial complex, for reasons best known to itself, differentiates entirely between obstacles to the settlement of a Transaction that arise through some kind of failure of the regulatory infrastructure — these are termed Suspension Events — and failures that arise for other, market-related dislocations the blame for which cannot reasonably be laid at the door or either counterparty. These are Force Majeure Events, in the EFET Allowances Appendix and IETA Master Agreement, but Settlement Disruption Events in the ISDA EU Emissions Annex.

Economically, they behave differently too. There are certain justifications for this — seeing as a Suspension Event is a failure of the actual regulatory architecture it is not really likely that a party can be penalised by that same architecture for not doing what it was supposed to be doing by the time it was supposed to be doing it, so there should be no question of EEPs, or closing out of Force Majeure Events before Reconciliation Deadlines and so on.

But there are other aspects which make less sense. Firstly, only the Suspension Event attracts a Cost of Carry Amount, though in either case the Receiving Party is, as a result, entitled to delay its payment for the allowances, and therefore benefits from a funding position, and secondly, should the Disruption in question not lift within a stipulated time (a short period in the case of a Force Majeure; a long one in the case of Suspension Event) the presumption is that the Transaction should be resolved by just drawing a line through it and pretending it never happened. This — we call it the “then I woke up and it was all a dream” style of logjam resolution — seems totally barmy.