In-kind insurance: Why it's the solution the carbon market needs

Money doesn’t make the climate better; only replacing a carbon removal credit with another carbon removal can do that. That is why CarbonPool insures carbon credits and pays claims in carbon credits  with replacement credits, not cash.

Carbon insurance in kind is a innovative model that addresses one of the biggest challenges in today’s carbon markets: how to ensure real, timely climate impact when projects underperform.

Paying claims in credits is better for the buyer, better for the climate, and better for the carbon markets. Here’s why.

1. What Buyers Really Need for Net Zero Success

For companies seeking to achieve net zero, for developers and intermediaries delivering carbon removals, and for investors financing carbon removal projects, it is carbon removals — not cash — that they ultimately need to meet their objectives and obligations.

All companies have a carbon footprint, and many have set targets to reduce and remove their emissions. With tightening regulations, rising stakeholder expectations, and accelerating climate risks, companies face mounting pressure to ensure that their removal efforts succeed. Underperformance or reversals threaten these goals and expose companies to reputational and financial risks.

The Inefficiency of Self-Insurance

Traditionally, carbon market participants have protected themselves by “self-insuring”: buyers overbuy credits, and developers or investors maintain internal buffers. However, this approach is inherently inefficient — much like buying two cars in case you crash one.

Insurance, by contrast, mutualizes risks across market participants, reducing the need for each participant to over-purchase or hold large buffers.

The Problem with Cash-Based Carbon Insurance

Cash payouts from traditional insurance eliminate underperformance risk but introduce new risks:

• Market price risk: The cash payout may not be enough to replace the credits needed if prices rise.

• Availability risk: The right type of credits may not be available when needed.

• Sourcing burden: Insured parties must invest time and resources to source new credits, often at short notice.

How Replacement Credit Insurance Solves These Issues

When claims are paid directly with replacement credits, customers immediately receive what they need: a one-for-one replacement of their lost removals.
This approach eliminates both performance risk and sourcing risk — ensuring continuity for corporate climate strategies without delays.

2. How Carbon Insurance with Replacement Credits Protects the Climate

Insurance payments in cash often face delays: companies may take months to reinvest cash payouts into new carbon removals. During this time, carbon dioxide continues accumulating in the atmosphere, undermining climate goals.

By contrast, providing replacement credits ensures that any re-emitted or missing carbon is counteracted immediately with newly sequestered carbon, maintaining the continuity of climate action.

3. Strengthening the Carbon Market through Replacement Credit Insurance

Bolstering Market Liquidity

By eliminating the need for participants to over-purchase or hedge excessively, carbon insurance with replacement credits frees up credits for the market. This unlocks capital that can be reinvested into new reduction and removal initiatives.

Stabilizing Market Dynamics

Cash-based payouts can trigger sudden, large purchases in the spot market, causing price surges and liquidity shortages. Replacement credit insurance avoids this by sourcing credits steadily in advance, buffering volatility and stabilizing prices.

Unlocking Project Financing

When developers can guarantee credit delivery through replacement insurance, they can access more risk-averse investors. Insurance can help projects meet underwriting standards by securing their output — unlocking financing and scaling climate impact faster.

Conclusion: Giving Buyers, the Climate, and the Market What They Need

Insurance has stabilized economies and industries for centuries, enabling growth, resilience, and long-term investments. In the carbon market, replacement credit insurance offers the same benefits:

• Companies can secure their climate commitments.

• Developers and intermediaries can deliver with confidence.

• Investors can support high-quality projects more securely.

• The entire carbon market becomes more stable, liquid, and effective.

In choosing to pay claims in replacement credits, CarbonPool strengthens the financial foundations of climate action — making it faster, more resilient, and more impactful.

Download the white paper here