Buffer pools: Why the carbon market needs a new approach to permanence and how insurance can help

Permanence is a key concern for carbon credit buyers and developers today. Why? Because ensuring that removed carbon stays sequestered (permanence) is critical to slow the pace of global warming, achieve net zero, and protect the integrity of climate claims. In other words, we need to make sure that the carbon we remove stays that way—permanently.

But carbon sequestration is rarely permanent, despite the best of efforts.  Forests burn down. Insects infest and degrade biomass. And carbon storage facilities leak. To address these risks to credit permanence, buyers and developers today rely on ‘buffer pools’, where registries take a percentage of issued credits from each project and aggregate them into a central pool of credits to be used to compensate for a reversal, when a portion of the sequestered carbon is released back into the atmosphere. In other words, registries have created buffer pools to ‘guarantee permanence’.

But can buffer pools really do what they promise? Contrary to what they say, our analysis shows that:

• Buffer pools are in danger of collapse, as they are likely too small to account for possible losses since they do not effectively assess the relative risks of each project or sufficiently account for natural variability.
• Projects have likely suffered reversals that have gone undetected and uncompensated. Because monitoring for reversal events usually ends when a project finishes issuing credits, no one is watching for reversals for the remaining decades of promised ‘permanence’.
• Buffer pools are not operated transparently, making it difficult to tell what they actually do and whether they are effective—but transparency and auditability are key to making the voluntary carbon market (VCM) work effectively and efficiently.

Fortunately, a fix already exists. Insurance, a time-tested risk mitigation solution, and in-kind insurance in particular, does what buffer pools can’t: covers losses even in extreme scenarios, calculates premiums that reflect the real risk of a project, and ensures compensation in kind for 100 years, all in a transparent, auditable way.

In our new white paper, “Buffer pools: Why the carbon market needs a new approach to permanence and how insurance can help,” we shed light on how exactly buffer pools work—and how they don’t—as well as how in-kind insurance can solve the challenges of buffer pools. We describe how carbon credit registries can engage with insurance companies to implement a gradual transition from buffer pools to insurance, and thereby to actually secure the permanence that developers and buyers are seeking, and that the carbon market needs in order to mature.

Download the report here