The International Emissions Trading Association (IETA) has recently published a new version of the "Emission Allowances Single Trade Agreement for the EU Scheme", primarily to allow it to be used for spot transactions of EU emission allowances (EUAs) and other emission allowances in Phase 2 of the EU Emissions Trading Scheme (EU ETS) that runs from 2008 to 2012.
This new version builds on recent changes to the Emissions Trading Master Agreement and follows in the footsteps of similar updates to the emission trading documentation from the International Swaps and Derivatives Association (ISDA). For operators subject to the EU ETS and other participants in the carbon market the new version provides a more up to date IETA platform for emissions transactions.
Dealing With "Suspension Events"
The main change has been to make the IETA Single Trade Agreement appropriate for spot transactions to be carried out in Phase 2 of the EU ETS.
In Phase 1 of the EU ETS (2005-2007) no connection was required between the EU's Community Independent Transaction Log (CITL) and the UN's International Transaction Log (ITL). As we recently reported, both registries are to be connected shortly:
- to enable the use of UN emission allowances such as
Certified Emission Reduction credits (CERs) and Emission
Reduction Units (ERUs) in Phase 2 of the EU ETS; and
- to enable EU Member States to receive their emission
allowance entitlements for the 2008 - 2012 compliance period
under the Kyoto Protocol (known as "Assigned Amount
Units") that they require prior to issuing EUAs to
operators of installations subject to the EU ETS.
As a result of this development, IETA have added new provisions to deal with the delay of allowance transfers due to so-called "Suspension Events". These are essentially events that result from the lack of a connection between the CITL and ITL or the breach by a Member State of a Kyoto Protocol requirement that prevents a delivery of allowances on the contracted delivery date. The Single Trade Master Agreement has also been updated with several consequential changes.
Other Changes
In addition, several other changes have been introduced by IETA, including:
- enabling parties to make several allowance transactions
under the same agreement
- enabling the use of several registry accounts from which
to trade and receive allowances
- expanding the failure to deliver and default
provisions
Going Forward
Emission allowance spot transactions to date have seen relatively sluggish activity due to the fact that several EU Member States have not yet issued EUAs for the first year of Phase 2 of the EU ETS. With increasing confidence from the EU that the connection difficulties between the CITL and ITL will be solved in time to avoid problems with the issuance of EUAs, we would expect to see the IETA Single Trade Agreement much more widely employed by traders for conducting spot transactions going forward.
To access version 4 of the IETA Single Trade Master Agreement, please click here.
To see our previous law-now on the connection issues between the CITL and ITL, please click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 19/08/2008.
