Green IFSC: Securitisation Of Carbon Offsets And Creation Of A New Crossover Credit

Author:Mr Garrett Monaghan and Alan Heuston
Profession:Arthur Cox

Originally published 11th February 2011

Green IFSC - Introduction

Ireland is an established centre of expertise in inter-related financial and industrial sectors active in the green energy and related areas including project finance, wind farm development, turbine manufacture, equipment leasing, insurance and securitisation. The magnitude of the capital investment required to support the realisation of the global low carbon economy will require the development of innovative financing products and techniques. It is in recognition of the scale of the investment challenge and the opportunity for existing Irish expertise and experience to place Ireland as a world-class centre and culture for green finance and enterprise that the "Green IFSC", a multi-sector initiative, has been formed. Arthur Cox has been a committed founding member of the Green IFSC since its inception.

Carbon - the asset class

Within structured and project finance, carbon is rapidly assuming increasing significance in multiple forms including as a revenue stream, cost item, asset class and particularly as a commodity (in the form of carbon credits) capable of being traded financially or physically. Carbon credits come in multiple diverse forms but are broadly distinguishable between the "compliance" and "voluntary" sectors. The compliance sector is well established and derived from the original 1997 Kyoto Protocol under the United Nations Framework Convention on Climate Change (UNFCCC). Within the voluntary sector, carbon credits or "offsets" describe the creation and trading of carbon credits that although, outside the parameters of the UN mechanisms, have varying degrees of international value and recognition.

In this respect the Green IFSC welcomes the support from the Irish Government for two key strands of the Green IFSC initiative:

the extension of Irish securitisation legislation to facilitate the securitisation of carbon credits that originate in both the compliance and the voluntary markets; and the development of a new form of carbon credit that bridges the compliance and voluntary markets. Ireland's securitisation regime

Ireland has firmly established itself as a jurisdiction of choice for the location of special purpose vehicles for securitisation and structured finance transactions. Section 110 of the Taxes Consolidation Act 1997 is the principal legislation governing Ireland's securitisation regime. In short, Section 110 provides that the taxable profits of a...

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