Abandonment of Scheme - Emissions Annex Provision

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EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions

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Abandonment of Scheme in a Nutshell

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Abandonment of Scheme in all its glory

(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.


See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs

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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 AnatomyEU Wikitext EU Nutshell (premium) • UK AnatomyUK Wikitext (to be merged into EU Anatomy)
IETA: IETA Master AgreementIETA WikitextIETA Nutshell (premium)
EFET: EFET Allowances AppendixEFET Allowances WikitextEFET Nutshell (premium)



There is something elemental and even mystical about a contractual scheme that contemplates its own non-existence, but when an instrument is a product of the law, and has no continuing existence but for the continued onward existence of the law, this is the place you find yourself. The law prescribes what should happen should the law change. This is rather like sober me leaving messages for drunk me to pay attention to later.

The Abandonment of Scheme is a classic use of a rare, but among connoisseurs, prized close-out valuation technique: the “then I woke up and it was all a dream” method where, if things don’t work out, everyone just forgets the whole thing happened.

ISDA’s crack drafting squad™ was keen on this in the 1992 ISDA but, till the Emissions Annex came along, hadn’t really revisited it for the seemingly very good reason it is barking mad. But the Carbon Squad™ appears to have thought otherwise.



What happens if, in its infinite wisdom, the European Union decides that an Emissions Trading Scheme is a silly idea and we should just embrace a future as Venusians, or Scottish vintners or something similar. You may see people tinker around with this — our favourite is “... or there is a proposal to abandon the Scheme... ” which given its looseness (there’s always some wingnut from a minority in an some oil-burning pressure group proposing something like that) and the lack of consequences beyond the transaction should it happen or not happen — it isn’t like it is an illegality or something where you can go to prison if you blithely carry on — there really seems no sensible call for this.

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  • The JC’s famous Nutshell summary of this clause
  • Where is the “abandonment of scheme” language in the IETA or EFET Emissions docs? Is there any such language?
  • What practically happens if the EU ETS is abandoned, with some fun additions from Shakespeare’s Kind Edward Lear
  • How to play EU ETS abandonment if you are financing carbon allowances

See also