Transfer or Acceptance Failure - IETA Provision

IETA Emissions Trading Master Agreement A Jolly Contrarian owner’s manual™ 12 in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. 12 in all its glory 12 Transfer or Acceptance Failure 12.1 Failure to Transfer. 12.1(a) Where in accordance with Schedule 2 (‘‘Elections’’), the Excess Emissions Penalty does not apply. Except to the extent: (i) caused by the Receiving Party’s non-performance under this Agreement; or (ii) that the Delivering Party is relieved from complying with a relevant obligation under Clause 13.1 (Force Majeure); (iii) that the Delivering Party is relieved from complying with a relevant obligation under Clause 13.4 (Suspension Event); or (iv) that the Delivering Party is relieved from complying with a relevant obligation under Clause 14.7 (Illegality), if the Delivering Party fails to make a Transfer of a PTA Quantity (whether in whole or in part) to the relevant Receiving Party’s Holding Account on or before a Delivery Date for any reason or makes a Transfer Request in respect of a Holding Account other than the relevant Receiving Party’s Holding Account (in either case in breach of Clauses 5 (Allowance Transfers) or 6 (Effecting Transfers) or both of them), then the Receiving Party may, by notice to the Delivering Party, require the Delivering Party to remedy such failure and: (i) if such failure is remedied by the Delivering Party on or before the Final Delivery Date, then (i) the Receiving Party shall pay to the Delivering Party the Contract Amount and (ii) the Delivering Party shall pay to the Receiving Party interest on an amount equal to the Allowance Price multiplied by the number of Period Traded Allowances not Transferred to such Receiving Party’s Holding Account by the Delivery Date for the period from (and including) the Delivery Date to (but excluding) the actual date of Transfer to the Receiving Party at the rate specified in Clause 9.5(a) (Interest); but (ii) if such failure is not remedied by the Delivering Party on or before the Final Delivery Date, the Receiving Party may, by written notice to the Delivering Party, terminate that Transaction. In such a case, the Delivering Party shall pay to the Receiving Party the Receiving Party’s Replacement Cost on or before the third (3rd) Banking Day following receipt of such written notice of termination from the Receiving Party, in either case adjusted to take into account any amount previously paid by the Receiving Party to the Delivering Party in respect of that Transaction. 12.1(b) Where in accordance with Schedule 2 (‘‘Elections’’), the Excess Emissions Penalty does apply. Except to the extent: (i) caused by the Receiving Party’s non-performance under this Agreement; or (ii) that the Delivering Party is relieved from complying with a relevant obligation under Clause 13.1 (Force Majeure); (iii) that the Delivering Party is relieved from complying with a relevant obligation under Clause 13.4 (Suspension Event); or (iv) that the Delivering Party is relieved from complying with a relevant obligation under Clause 14.7 (Illegality), if the Delivering Party fails to make a Transfer of a PTA Quantity (whether in whole or in part) to the relevant Receiving Party’s Holding Account on or before a Delivery Date for any reason or makes a Transfer Request in respect of a Holding Account other than the relevant Receiving Party’s Holding Account (in either case in breach of Clause 5 (Allowance Transfers) or 6 (Effecting Transfers) or both of them), then the Receiving Party may, by notice to the Delivering Party, require the Delivering Party to remedy such failure and: (i) if such failure is remedied on or before the Final Delivery Date, then (i) the Receiving Party shall pay to the Delivering Party the Contract Amount and (ii) the Delivering Party shall pay to the Receiving Party interest on an amount equal to the Allowance Price multiplied by the number of Period Traded Allowances not Transferred to such Receiving Party’s Holding Account by the Delivery Date for the period from (and including) the Delivery Date to (but excluding) the actual date of Transfer to the Receiving Party at the rate specified in Clause 9.5 (Interest); but (ii) if such failure is not remedied by the Delivering Party on or before the Final Delivery Date, the Receiving Party may, by written notice to the Delivering Party, terminate that Transaction. In such a case, the Delivering Party shall pay to the Receiving Party the Receiving Party’s Replacement Cost on or before the third (3rd) Banking Day following the day on which the Receiving Party is able to effect a Buy-In (which may be a Buy-In, on any such date, of less than the entire number of Undelivered Allowances) if and to the extent that paragraph (A)(i) or A(ii)(1) of the Receiving Party’s Replacement Cost applies, or on the third (3rd) Banking Day following the day on which the Receiving Party is or would be able to effect a purchase of Allowances in accordance with paragraph A(ii)(2) of Receiving Party’s Replacement Cost, if and to the extent that paragraph applies, in either case adjusted to take into account any amount previously paid by the Receiving Party to the Delivering Party in respect of that Transaction. 12.1(c) Subject to Clause 12.1(d) (Failure to Transfer), if as a result of the Delivering Party’s failure to make a Transfer (in whole or in part) the Receiving Party becomes liable to pay any EEP Amount, then the Receiving Party shall provide to the Delivering Party, upon its reasonable request, evidence to the reasonable satisfaction of the Delivering Party: (i) that the Receiving Party has incurred an EEP Amount consequent on the Delivering Party’s failure to make a Transfer (in whole or in part); (ii) the extent to which the requirement for the Receiving Party to pay any EEP Amount results from the Delivering Party’s failure to make such Transfer; and (iii) that the Receiving Party could not have used Allowances to which it had legal and beneficial interest in any Holding Account(s) in any Registry in order to avoid or reduce its liability to pay any EEP Amount which it claims from the Delivering Party as part of the Receiving Party’s Replacement Cost. 12.1(d) The Delivering Party’s obligation to pay any EEP Amount under this Clause 12.1 (Failure to Transfer) is subject always to the Receiving Party’s overriding obligation to use its reasonable endeavors to avoid becoming liable for such EEP Amount or, when liable, to mitigate the payment obligation in relation to such EEP Amount and to allocate any such EEP Amount pro rata between all counterparties of the Receiving Party that have failed to make any Transfer; provided, however, that where the Receiving Party confirms that it has been unable to avoid becoming liable for any EEP Amount, it shall be for the Delivering Party to show that this liability has arisen as a result of the Receiving Party failing to use its reasonable endeavors to do so. 12.1(e) The Delivering Party shall pay such determined EEP Amount to the Receiving Party within two (2) Banking Days against the Receiving Party’s VAT invoice in respect thereof. 12.2 Failure to Accept. Except to the extent: (i) caused by the Delivering Party’s non-performance under this Master Agreement; or (ii) that the Receiving Party is relieved from complying with a relevant obligation under Clause 13.1 (Force Majeure); (iii) that the Delivering Party is relieved from complying with a relevant obligation under Clause 13.4 (Suspension Event); or (iv) that the Receiving Party is relieved from complying with a relevant obligation under Clause 14.7 (Illegality), if the Receiving Party fails to accept a Transfer of a PTA Quantity (whether tendered in whole or in part) to the relevant Receiving Party’s Holding Account by the Delivery Date for any reason or specifies an incorrect Holding Account other than the relevant Receiving Party’s Holding Account (in either case in breach of Clauses 5 (Allowance Transfers) or 6 (Effecting Transfers) or both of them), then the Delivering Party may, by notice to the Receiving Party, require the Receiving Party to remedy such failure and: (i) if such failure is remedied by the Receiving Party on or before the Final Delivery Date, the Receiving Party shall pay to the Delivering Party interest on an amount equal to the Allowance Price multiplied by the number of Period Traded Allowances not Transferred to such Receiving Party’s Holding Account by the Delivery Date for the period from (and including) the Delivery Date to (but excluding) the actual date of Transfer to the Receiving Party at the rate specified in Clause 9.5(a) (Interest); but (ii) if such failure is not remedied by the Receiving Party on or before the Final Delivery Date, the Delivering Party may, by written notice to the Receiving Party, terminate that Transaction. In such a case, the Receiving Party shall pay to the Delivering Party the Delivering Party’s Replacement Cost on or before the third (3rd) Banking Day following receipt of such written notice of termination from the Delivering Party, in either case adjusted to take into account any amount previously paid by the Receiving Party to the Delivering Party in respect of that Transaction. edit Comparison See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs Resources and Navigation Emissions trading documentation ISDA: EU Anatomy • EU Wikitext • EU Nutshell (premium) • UK Anatomy • UK Wikitext (to be merged into EU Anatomy) IETA: IETA Master Agreement • IETA Wikitext • IETA Nutshell (premium) EFET: EFET Allowances Appendix • EFET Allowances Wikitext • EFET Nutshell (premium) Index: Click ᐅ to expand: ISDA Emissions TOC EUA Annex - Premium Emissions Pro tip: for tons of information about EU ETS and EU financial services regulation see Michał Głowacki’s magnificent emissions-euets.com website. 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Overview

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Just what happens if, without excuse, a Delivering Party fails to deliver, or a Receiving Party fails to accept delivery of, Allowances is a key part of any self-respecting emission allowances trading document. Though each Carbon Squad approaches it in its own charmingly idiosyncratic way, the good ninjas of ISDA, EFET and IETA broadly get to the same place. Broadly.

The provisions are these:
ISDA: Sections (d)(ii) (Failure to Deliver)
EFET: Clause 8.5 (Remedies for Failure to Transfer or Accept after Cessation of Suspension Event)
IETA: Clause 12 (Transfer or Acceptance Failure)

Summary

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When your Transaction gets to its end game, there are — absent unforeseen external events beyond the parties’ reasonable control, like Force Majeure, Suspension Events and Illegality — if the Delivering Party, or for that matter, the Receiving Party, just hasn’t come up with the required “goods” by the required time, how do things play out?

Each of the Master Agreements does things its own way, and as you might expect, the respective literature plays like a Myers Briggs assessment of the organisation’s personality.

How the Trading Agreements deal with Failure to Transfer or Accept

Component	ISDA	EFET	IETA
Cure Period to remedy	Yes: Final Delivery Date (2 days hence)	yes, through 2 day grace period	Yes: to Final Delivery Date (2 days hence)
EEP/No EEP alternatives	Yes	Yes	Yes
Replacement Costs	Delivering Party’s Replacement Cost/Receiving Party’s Replacement Cost	Buyer’s Cover Costs/Seller’s Cover Costs	Delivering Party’s Replacement Cost/Receiving Party’s Replacement Costs
No EPP Replacement Cost calculation	Example	Min [0, Price Increase on Failed Allowances + Transaction Costs + Accrued Interest]	Example
EPP Replacement Cost calculation	Example	Example	Example
Interest accrual basis	Example	Confusing. There are different accrual rates for the grace period and the default period, and interest seems to accrue during the grace period on the whole value of the undelivered Allowances, not just any price differential against the Traded Price.	Example
Example	Example	Example	Example
Example	Example	Example	Example
Example	Example	Example	Example
Example	Example	Example	Example

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• The JC’s famous Nutshell™ summary of this clause

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See also

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