Counterparties involved in the European Union emissions trading scheme (EU ETS) have until now used contracts drafted by either the International Emissions Trading Association or the European Federation of Energy Traders, according to a statement released by the banks. They said they now expect non-financial EU ETS participants to use Isda contracts to enable them to transact with financial institutions involved in the market.
“The Isda contract will offer banks and their customers the protection and regulation that they need to confidently engage in the EU ETS market,” said Ingo Ramming, managing director of DrKW. He said Isda contracts were preferable as they typically underpin contracts for trading other asset classes and provide netting benefits.
“The financial sector will play an important role in the EU ETS in terms of adding liquidity to the market and serving the needs of corporate customers with compliance targets under the scheme,” added Seb Walhain, director of environmental products at Fortis Bank.