Cost of Carry Amount - Emissions Annex Provision
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EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions
Section Cost of Carry Amount in a Nutshell™ Use at your own risk, campers!
Full text of Section Cost of Carry Amount
Comparison See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs
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Content and comparisons
The definition of Cost of Carry Amount is more or less the same in all three emissions trading documentation regimes. Compare:
ISDA: Cost of Carry Amount
IETA: Cost of Carry Amount
EFET: Cost of Carry Amount
Interestingly, the ISDA and the EFET have a “default” Cost of Carry Provisions too (the ISDAs’ being labelled Close-out Cost of Carry Amount and so on, the EFET’s Default Cost of Carry Amount, but the IETA does not.
Summary
What is going on here, then?
Should there be a Suspension Event, the person meaning to deliver the Allowances, and receive cash payment on date X cannot, and will therefore start to get anxious emails from her treasury department. Remember, at this point she wants cash, has (Q.E.D.) no interest in the Allowances, and through no fault of her own is out of pocket.
Therefore the Seller agrees to pay her a Cost of Carry Amount. This is essentially interest at an agreed rate on the Cash Payment that was due, for the duration of the the Suspension Event.
The funny thing is what happens if the Suspension Event has not lifted by the Long Stop Date. Here the transaction is deemed to be irretrievably broken — and, per the consensus of Carbon Squad, the Transaction should therefore be cancelled and just forotten about. Any amounts already paid must be refunded (except where Allowances were delivered against those payments), and everyone walks away and pretends it never happened. This is the “then I woke up and it was all a dream” method of disruption resolution.
This we find utterly extraordinary. Your Cost of Carry Amount accrues ... accrues ... accrues ... and then suddenly in a puff of illogic, on a completely arbitrary Long Stop Date, it just vanishes, along with, presumably, all the rest of the money you stumped up in good faith to finance some other so-and-so’s Allowance obligations. What on earth were they thinking?
General discussion
Template:M gen EUA Annex Cost of Carry Amount
See also
Template:M sa EUA Annex Cost of Carry Amount
References
- ↑ Since ISDA’s crack drafting squad™ elected to express a mathematical proposition on its own tortured prose, it is not entirely clear what is meant to be divided by 360: the stray comma suggests maybe it is meant to be a denominator for the whole sum, but we think it makes more sense to divide only the Cost of Carry Delay by 360, as that gets you an annualised day count fraction that the rest of the sum can be multiplied by. If you ignored the ambiguous comma, that is the most consistent with the paragraph layout.