Scope - Emissions Annex Provision
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EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions A Jolly Contrarian owner’s manual™ (a) in all its glory
Comparison See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs
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Overview
The Emissions Annex is crafted not as an Appendix to the 2005 ISDA Commodity Definitions — which is how it started — nor as a standalone definitions booklet, but rather as a “Part 7” to an ISDA Schedule. This explains its rather odd numbering system, and the uncomfortable fact that its main number, the 7 is square bracketed, since whether it is a 6, 7, 8 or 9 depends on whether you already have put something else as a Part 6 or 7 in your Schedule.
Seeing as the ISDA EU Emissions Annex is, in its current edition (v 7) some 38 pages long, and therefore longer than the ISDA Master Agreement in its entirety, not just the Schedule, we rather think it deserves its own booklet.
If it had its own booklet, you could integrate other similar “compliance” regimes UK Allowances, for obvious example, and perhaps Californian ones, and you might be able to make it “master-agreement agnostic”.
Just a thought.
Summary
The EU emissions trading scheme divides into a number of “Compliance Periods”. The first was three years January 2005 to December 2007, the second was four, from from January 2008 until December 2012, coinciding with the first commitment period of the Kyoto Protocol. The Third Compliance Period was eight years, from January 2013 to December 2020. The Fourth Compliance Period, also eight years started in January 2021 and will go until December 2030.
This is of some interest to those trading for physical settlement Allowances that might expire.
Scope
There is an interesting limitation penned into the Scope section of the Emissions Annex: despite talking about the Third Compliance Period, and defining it, and so on, and providing for the manifold contingencies that arise when having truck with Third Compliance Period Allowances, if you believe the Scope section to be any kind of limitation, you are only meant to deal with Fourth Compliance Period Allowances.
No doubt someone will have a compelling reason for that — do write in if it’s you — but we can’t think of one.
And what are you meant to do if the Specified Compliance Period is the Third Compliance Period? Answer came there none.
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- The JC’s famous Nutshell™ summary of this clause