Unauthorised Transfers - Emissions Annex Provision

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EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions

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Unauthorised Transfers in a Nutshell

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Unauthorised Transfers in all its glory

Affected Allowance: Means an Allowance which is or is alleged to have been the subject of an Unauthorised Transfer as confirmed by an Appropriate Source.

Appropriate Source: Means any “competent authority” (as defined in the Registries Regulation) and/or the Central Administrator, National Administrator or any other authority having power pursuant to the Directive and/or the Registries Regulation to block, suspend, refuse, reject, cancel or otherwise affect the transfer (whether in whole or in part) of Allowances, any recognised law enforcement or tax authorities of a Member State, the European Anti-fraud Office of the European Commission or Europol.
Encumbrance Loss Amount: An amount reasonably determined by Receiving Party in good faith to be its total losses and costs in connection with an EU Emissions Allowance Transaction including, but not limited to, any loss of bargain, cost of funding or, at the election of Receiving Party but without duplication, loss or costs incurred as a result of its terminating, liquidating, obtaining or re-establishing any hedge or related trading position. Such amount includes losses and costs in respect of any payment already made under an EU Emissions Allowance Transaction prior to the delivery of the written notice by Receiving Party and Receiving Party’s legal fees and out-of-pocket expenses but does not include Excess Emissions Penalty or any amount which Receiving Party must pay to a third party in respect of any such penalty payable to any other party (or Relevant Authority) by that third party. The parties agree that in circumstances where there was a breach of the No Encumbrances Obligation by Delivering Party caused by the transfer of an Affected Allowance, Receiving Party shall be entitled to include in such amount any losses arising out of or in connection with any claim, demand, action or proceeding brought against Receiving Party by a third party consequent upon the transfer by Receiving Party of an Affected Allowance transferred to it by Delivering Party under an EU Emissions Allowance Transaction.
Unauthorised Transfer: Means the transfer by debiting of any Allowance from an account holder’s Holding Account and the crediting of a Holding Account of another person, where such transfer is not initiated by the relevant authorised representative or additional authorised representative (as referred to in the Registries Regulation) of the first account holder.

Section (d)(vii)(4) of the Annex

(4) Where a breach of the No Encumbrances Obligation is caused by the transfer of an Affected Allowance, Delivering Party shall be liable for the Encumbrance Loss Amount if, at the date it first acquired, received or purchased such Affected Allowance, it was not acting in good faith; otherwise, Delivering Party shall only be liable for the Encumbrance Loss Amount (without prejudice to any other defences available to Delivering Party including, but not limited to, any defences of statutes of limitation or similar), if:
(A) Receiving Party, whether or not the holder of such Affected Allowance, who is subject to a claim of the Original Affected Party, has, in order to resist or avoid any Encumbrance Loss Amount from arising, used its best endeavours to defend such a claim in respect of that Affected Allowance (including, if available, by relying on Article 40 of the Registries Regulation or any equivalent legal principle under applicable national law) and was unsuccessful (other than for reasons of its own lack of good faith); or
(B) Receiving Party, whether or not the holder of such Affected Allowance, who acted in good faith in respect of its purchase of such Affected Allowance and who is subject to a claim of a third party (other than the Original Affected Party) in respect of that Affected Allowance, has used all reasonable endeavours to mitigate the Encumbrance Loss Amount.


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)



The definition of Unauthorised Transfers is more or less the same in all three emissions trading documentation regimes. Compare:
ISDA: Unauthorised Transfers
IETA: Unauthorised Transfers
EFET: Unauthorised Transfers
ISDA vs IETA: The ISDA and IETA terms relating to Unauthorised Transfers are strikingly similar as is evidenced by this comparison. The one difference is the lengths to which ISDA goes to carve out Excess Emissions Penalties from the Encumbrance Loss Amount.
ISDA v EFET: ISDA and EFET are, but for discrepancies in the labels for defined terms, more or less identical: see comparison



This is Carbon Squad’s round-about way of saying the Allowances you have been delivered, good sir, are hot. Nicked. Half-inched. Fell off the back of an electric truck. Stolen.

Once this regrettable state of affairs has been confirmed by an Appropriate Source, your Allowances become “Affected Allowances”, and the poor sap from whom they were stolen, becomes an Original Affected Party.

If they are nicked then the “No Encumbrances” representation that accompanied their delivery to you has turned out to be false, and there are unwind consequences.

It’s all so bloodless, isn’t it?

Well the bits that don’t resemble the ritualised murder of the English language, that is. We have tried in or premium content section to boil this down to what it is trying to say, but honestly, it is hard to know. It looks like one of those parlour games where you have to describe something really mundane without using any verbs or the letter “e”.

We think the Enbumbrance Loss Amount arises (a) if the Delivering Party acted in bad faith or (b) it didn’t, and the Receiving Party shipped a claim from an Original Affected Party or just anyone else (who? Search me) and despite using its best efforts to knock the claim back, it was unsuccessful. So it is passing on an actually incurred losses.

Premium content

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  • The JC’s famous Nutshell summary of this clause
  • Theft and Allowance financings
  • “Unauthorised”?

See also