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The ISDA EU ETS Annex and its use with Article 25 linked ETS systems

25 May 2023

The International Swaps and Derivatives Association (“ISDA”) has amended its template form of Part 7 to the ISDA Master Agreement Schedule, relating to EU emissions allowance transactions for Phase 4 delivery (the “ISDA Part 7”) in 2021, to take into account the EU Emissions Trading Systems (“EU ETS”) linkages with other non-member state emission trading systems via Article 25 of the EU ETS Directive (“Linking Agreements”). Although there is potential for a future Linking Agreement between the EU and the United Kingdom, at present, the only Linking Agreement in force is the agreement between the emissions trading systems of Switzerland (“Swiss ETS”) and the EU ETS (the “Swiss-EU Linking Agreement”) which came into force on 1 January 2020.

In this paper we highlight some of the challenges of adopting the ISDA EU emissions trading documentation in its current template form, when dealing with emissions trading systems that have been linked to the EU ETS under Article 25 of the EU ETS Directive. We outline the key amendments for market participants to consider making to the template form.

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