The Global Green Interchange
The Global Green Interchange (the “Interchange”) is a multi-sector initiative aimed at developing and implementing a cohesive strategy to position Ireland as a world-class centre and supportive culture for green finance and enterprise.
Arthur Cox has been a committed founding member of the Interchange since it emerged from a workshop on the future of Ireland's International Financial Services Centre (IFSC), which led to its inclusion in the Irish Government’s High Level Action Group on Green Enterprise Report in late 2009.
Ireland has an established body of world class experience and expertise in inter-related financial sectors including project finance, treasury, funds, equipment leasing, insurance and securitisation. The Interchange aims to combine these existing strengths with the wider expertise in Irish industry and education within renewables, research and green enterprise.
It is important to set the global context:
- The greenhouse gas and related targets allocated to Ireland and other Member States under the EU Climate Change Package(1) have precipitated massive investment in energy and related infrastructure.
- The magnitude of the capital investment required to support new technologies, renewable energy generation, energy efficiency and ultimately to constrain carbon emissions has arguably masked the true potential size of the international Green Economy.
- Global expenditure on low-carbon energy has been estimated as having exceeded $243 billion in 2010, a 30% increase on 2009(2); moreover “green bonds” are forecast as being the only viable option to fill most of a €2.9 trillion ($3.9 trillion) capital hole required to build low-carbon infrastructure in Europe from 2011-2020(3).
Ireland - a centre for Green Finance and Enterprise
The Interchange will build on the established body of multi-disciplinary experience and expertise
including: project finance, treasury, funds, equipment leasing, insurance and securitisation in addition to creating new concepts centred around green finance and carbon management.
Ireland has produced several companies that have won international recognition as pioneers in the development, construction and operation of renewable energy projects. The initiative believes that Ireland’s financial services sector can replicate the success of indigenous green enterprises and be part of a vibrant indigenous green enterprise sector.
Some key aspects of the initiative are set out below.
1. Carbon: In response to widely-held concerns on the transparency of the carbon markets and the absence of an international carbon price, the Interchange has identified areas where Ireland can take a lead in harmonising disparate forms of carbon credits that currently exist. A key objective of these mechanisms is to improve “fungibility” between the voluntary and compliant carbon credits and allowances.
2. Project Finance: Ireland has an experienced project finance community with exceptional credentials in the financing of international and domestic projects. Broadly, the (long established) project finance and the emerging “carbon” finance models are increasingly influencing and merging with each other. Ireland has the necessary expertise, experience and legislative framework to take a central role in developing innovative project financing structures that can be applied domestically and internationally.
3. Bonds: As emphasised by the European Investment Bank’s “Europe 2020 Project Bond Initiative”(4), the scale of the investment required to reach European renewable energy targets alone is driving the emergence of “climate bonds” and other new financial and insurance products. Such products need to cater for the specific (and evolving) characteristics and complexities of green projects. Ireland is an established centre in international capital markets with proven financial, legal and tax expertise and infrastructure; Ireland can play a central role in devising and issuing robust and innovative “green” financial products.
4. Funds / Private Equity: Key strengths of the Irish funds sector include expertise in fund domicile, servicing and administration; the availability of the UCITS (Undertakings for Collective Investment in Transferable Securities) framework for investment funds; a highly skilled and experienced workforce (12,000+ skilled employees); and critical mass, with over 10,000 funds under management. Ireland is an leading international funds centre and the Interchange offers an opportunity to create the optimal conditions to combine an existing proven industry with new challenges presented by the transition to a low carbon economy.
5. Securitisation: Carbon credits are a recognised commodity capable of being securitised on a tax efficient basis under existing Irish legislation. Section 110 of the Taxes Consolidation Act 1997 affords favourable tax treatment to special purpose vehicles established in Ireland for use in securitisation transactions. In the Finance Act 2011, a new definition of “carbon offsets” replaces “greenhouse gas emissions allowance”. This expands the class of assets that can be held by a Section 110 Company to include carbon offsets issued under voluntary schemes as well as those issued under compulsory schemes.
Garrett Monaghan is a partner in the Arthur Cox Energy & Projects Group. He advises on all aspects of project development and finance and has extensive international experience across multiple sectors including conventional and renewable energy generation, corporate banking, PPP, infrastructure, emissions and energy trading. Garrett is a member of the Steering Group of the Interchange (mentioned above) Mr. Monaghan can be contacted on +353 (0) 1 618 1103 or by email at Garrett.Monaghan@arthurcox.com.
1 The Climate Change Package targets, at a European level, a 20% reduction in greenhouse gases by 2020 compared to 1990 levels, 20% reduction in energy consumption through improved energy efficiency and 20% of energy consumed in 2020 to come from renewable sources.
2 Bloomberg New Energy Finance
3 Barclays Capital / Accenture “Carbon Capital” 2010