Abandonment of Scheme - Emissions Annex Provision
EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions
A Jolly Contrarian owner’s manual™
Abandonment of Scheme in all its glory
See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs
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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.
- 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