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 company (a "Section 110 company") involved in the holding and/or management of "qualifying assets" should be computed on the same basis as a trading company. Accordingly, the cost of funding and other related expenditure is generally tax deductible with the result that, with careful structuring, the net taxable profits of a Section 110 company should be maintained at negligible levels. This favourable regime minimises tax leakage and maximises returns for investors.

Extension of Ireland's securitisation regime

The Finance Act 2011 ("FA 11") has recently extended Section 110 and opened Ireland's securitisation regime up to new markets. Section 40 of FA 11 extends the definition of financial assets which are "qualifying assets" for securitisation purposes, to include carbon offsets specifically. The definition extends to voluntary carbon credits and replaces the previous concept of 'greenhouse gas emissions allowance'.

The extension of the definition of "qualifying assets" to include carbon offsets opens several possibilities for using Ireland's securitisation regime to support the growth and success of the domestic and global low-carbon economy. Section 110 companies can be utilised to raise finance in diverse transactions by issuing bonds or other financial instruments.

Using Section 110 companies offers a number of advantages for investors. Ireland has a network of 62 double taxation treaties and a domestic exemption from withholding tax allows Section 110 companies to pay interest gross to individuals and companies resident in any of these 62 countries. This exemption applies automatically without any application being required.

Practically, the securitisation structure can be utilised by green and non-green companies alike. However the capital intensive nature of, for example, the renewables and cleantech sectors will increasingly incentivise companies to look for ways in which inherent value in carbon can be realised. This extension of the securitisation legislation is relevant to a wide class of utilities, project developers, asset managers and investment banks..

International Carbon Standard & Registry

In response to widely-held concerns on the transparency of the carbon markets and the absence of an international carbon price, the GIFSC has identified areas where Ireland can take a lead in harmonising disparate forms of carbon credits that currently exist. The Irish Government, on 27 January 2011, announced formal support for a key proposal of the Green IFSC initiative. The Government has agreed in principle to provide seed funding of €6.8 million over three-years to develop an International Carbon Standard ("ICS") and associated Dublin International Voluntary Offset Registry ("DIVOR"). The ICS will serve as a crossover or bridging standard between compliance and voluntary markets thereby creating an entirely new form of fungibility and acceptance between different forms of credits and allowances.


As with any other revenue streams, carbon credits can be utilised within the Irish securitisation regime and other structured or project finance transactions to access the debt and equity investment. These structures are open to Irish and international companies, sovereign states, financial institutions, funds and investors. As a financing or refinancing tool, project sponsors and funders will be able to monetise newer wider portfolios of diverse carbon credits or project-specific allocations through issuing bonds, financial instruments and devising bespoke project financings. The creation of the ICS and DIVOR can bring greater acceptance and value opportunities for the carbon sector generally.

Repositioning Irish securitisation legislation and the creation of a new category of carbon credit in the form of the ICS are ambitious but deliverable statements of intent by Ireland to support and participate in global green finance and enterprise.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.