Irish finance bill ‘opens door to forest bonds’

Ireland has become the first country in the world to recognise forest carbon credits in its tax regime – paving the way for the issuance of forest bonds, according to a leading banker.

On Wednesday, Ireland’s government published a finance bill which extends the range of carbon offsets recognised in its tax code to explicitly include those generated by projects that reduce emissions from deforestation and forest degradation (REDD).

The inclusion of REDD credits in Section 110 of the tax code makes establishing a special purpose vehicle (SPV) to buy forest carbon credits and then issue forestry bonds “very tax efficient, very cost-effective,” said Paul Harris, head of natural resources risk management at the Bank of Ireland in Dublin. In recent years, the tax code has been amended to recognise mandatory and voluntary carbon credits.

An SPV can be used to securitize carbon credits, with the cashflow used to pay the bondholders’ interest and principal.

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