Emissions Annex Anatomy

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EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions
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Financial Weapons of Mass Destruction®

Emissions Allowance.png

Emissions Allowance

Wanna stop frying the planet? Start here. Will it help? Who knows? The forward curve is in contango: who cares!

Docs Take your pick: IETA, ISDA or even EFET: none of them good. But at least you have flexibility in mediocrity 4
Amendability Nope. The EU can amend them, but you can’t. 0
Collateral They aren’t anyone’s obligations as such. In fact, they’re more like a sort of unofficial, made up, (hush) crypto. No credit risk! DNA
Transferability With an account at the Union Registry, sure! 7
Leverage Not unless you do a CEmO, and we just made that up. 0
Fright-o-meter Not directly scary as long as there is an EU with Greta Thundberg in it, but global warming is going to lead to Armageddon so, you know, indirectly. 5

Index: Click to expand:

Pro tip: for tons of information about EU ETS and EU financial services regulation see Michał Głowacki’s magnificent emissions-euets.com

Big Picture: Emissions Annex AnatomyEmissions Annex WikitextEmissions Annex Nutshell Wikitext
Highlights: Physical SettlementSettlement Disruption EventSuspension EventFailure to DeliverFailure to ComplyEEP AmountPartial SettlementAbandonment of SchemeNo EncumbrancesValue Added TaxesFailure to Deliver (Alternative Method)Defined Terms and Interpretation

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Here is the JC’s latest Anatomy™: ISDA’s emissions annex. This Annex is 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. You sort of get the sense it is a bit more of a moving feast, and a bit more hesitant, than ISDA’s crack drafting squad™’s usual work, which may be bloody-minded and pedantic, but is at least thorough, comprehensive, and rooted in some kind of logic, however perverse. This one — not so much.

Now that may well be partly our fault: we read this cold, without the benefit of having seen its evolution, and without much knowledge of the competing products (the International Emissions Trading Association’s master agreement, for example). We’ll maybe get on to that. Part [•]. EU Emissions Allowance Transactions
(a) Scope
(b) ISDA Definitions
(c) Multiple Delivery Dates
(d) Terms

(d)(i) Physical Settlement
(d)(i)(1) Settlement
(d)(i)(2) Delivery
(d)(i)(3) Netting
(d)(i)(4) Settlement Disruption Event
(d)(i)(5) Suspension Event
(d)(ii) Failure to Deliver
(d)(ii)(1) Failure to Deliver by Delivering Party
(d)(ii)(2) Failure to Comply by Receiving Party
(d)(ii)(3) EEP Amount
(d)(iii) Partial Settlement
(d)(iv) Abandonment of Scheme
(d)(v) Invoicing
(d)(vi) Requirements under the Scheme
(d)(vii) No Encumbrances
(d)(viii) Value Added Taxes
(d)(ix) No Consequential Loss
(d)(x) Other Fees and Expenses
(d)(xi) Failure to Deliver (Alternative Method) - EEP Applicable
(d)(xii) Specified Holding Accounts and Modifications of Party’s Specified Holding Accounts

(e) Defined Terms and Interpretation
Administrator Event
AEUA Allowance or AEU Allowance
Affected Allowance
Aircraft Operator
Allowance Forward Transaction
Allowance Option Transaction
Allowances to be Delivered
Allowance Purchase Price
Allowance Shortfall
Allowance Strike Price
Allowance Type
Appropriate Source
Buy-In Period
Calculation Agent
Central Administrator
Central European Time
Close-out Cost of Carry Amount
Close-out Cost of Carry Delay
Close-out Cost of Carry Rate
Cost of Carry Amount
Cost of Carry Delay
Cost of Carry Rate
Deadline Shortfall
Delayed Delivery Date
Delayed Payment Date
Delivering Party
Delivering Party’s Delivery Business Day Location
Delivering Party’s Replacement Cost
Delivery Business Day
Delivery Date
DPRC Shortfall
EEP Amount
EEP Non-delivery
EEP Payment
EEP Risk Period
Encumbrance Loss Amount
End of Phase Reconciliation Deadline
EU Allowance
EUTL or European Transaction Log
Excess Emissions Penalty/EEP
Expiration Date
Final Compliance Date
Final Delivery Date
Fourth Compliance Period
Holding Account
Indemnifiable EEP
Long-Stop Date
Member State
Multiple Exercise
National Administrator
No Encumbrance Obligation
Notice of Exercise
Number of Allowances
Number of Options
Option Entitlement
Original Affected Party
Payment Date
Potential Exercise Date
Receiving Party
Receiving Party’s Delivery Business Day Location
Receiving Party’s Replacement Cost
Reconciliation Deadline
Registries Regulation
Registry Operation
Relevant Authority
Relevant Registry
RPRC Shortfall
Seller Business Day
Settlement Disruption Event
Specified Compliance Period
Specified Holding Account
Suspension Event
Trade Date
Third Compliance Period
Unauthorised Transfer
Undelivered Allowances
Union Registry
VAT Amount
VAT Invoice
VAT Jurisdiction
Written Confirmation