Our purpose

Why Carbon Insurance?

There are material risks associated with the delivery and permanence of carbon credits

Today, if a company commits to net zero and buys the carbon removal credits necessary to achieve this goal, it has little recourse should those removals fail to materialize or if the sequestered carbon is unintentionally re-released into the atmosphere – whether because a stand of newly planted pines didn’t grow as expected, a promising technology broke down, or a fire wiped out a mangrove forest. That risk is clearly real, as demonstrated by extreme temperatures and increased wildfire activity around the world.

Learn more about the permanence of carbon credits

Shortfall or reversal of carbon credits can happen due to:

Incorrect carbon sequestration approaches

  • Incorrect carbon modelling assumptions
  • Unrealistic planting schedule or use of inccorrect baselines

Natural hazards and climate impacts

  • Fire
  • Heatwaves & cold spells
  • Flood
  • Drought
  • Disease & pest
  • Wind

Technology or machinery breakdowns

  • Technology outage
  • Machinery breakdown

Human-induced risks

  • Political risk
  • Human activity (e.g. logging)

Mounting pressure from regulators and stakeholders

  • Regulatory authorities, including the European Union, the State of California, and the US Securities and Exchange Commission, are beginning to mandate detailed emissions and carbon reporting to show progress towards the Paris 2050 goals for small and large, publicly traded and private companies alike.
  • The failure arising out of a number of high profile projects due to unexpected losses (e.g. the carbon credits from the avoided deforestation Kariba project in Zimbabwe which turned out to be a fraud, the wildfires which decimated the State of California's own buffers) is causing a public outcry and lack of confidence in the carbon market.
  • Greenwashing charges have also taken the form of lawsuits against companies, municipalities, pension funds, and investors.
  • A 2022 study looking at consumer panel data found that consumer-facing companies hit by ESG scandals see sales drop by an average of 5-10% for at least six months afterward; the bigger the scandal, the greater the hit to sales.
  • Learn more about the regulatory and industry trends

Buffer mechanisms: not fit for purpose

Most carbon credit registries (including Verra, the Woodland Carbon Code, Gold Standard, and others) require project developers to allocate to their buffer pools a percentage of all credits issued in order to protect against reversal risk.

Learn more about buffer pools

Drawbacks to buffer pools:

  • The pool allocation is not determined quantitatively
  • They do not adequately account for differing risk profiles (often having high dependency risk on a small number of projects)
  • The buffer pools are an unregulated insurance mechanism without the regulatory capital to account for catastrophic events

The missing backstop behind carbon credits:
in-kind carbon credit insurance

  • Insurance is a well-understood and time-tested mechanism for protecting market players and the wider community from unexpected outcomes
  • When your car breaks down, you need a tow truck, not a check. In the same way, when your carbon balance sheet comes up short, you need replacement in high-quality credits quickly, and in the required quantities, not cash
  • Companies with insurance in place can reassure stakeholders that they are doing whatever they possibly can to secure their efforts to slow global warming
  • At the same time, it protects a company’s financial bottom line from reputational, regulatory, and direct financial implications of not hitting net zero targets
  • Insurance also helps build confidence in investments. This means that high quality carbon removal projects can get much needed funding upfront because there is certainty of outcomes thanks to the insurance covering for any shortfalls or reversals
  • CarbonPool replaces lost credits with the same or better quality credits, since we source the credits for our balance sheet only from projects that are additional, measurable, verifiable, and permanent
  • CarbonPool’s mission is to accelerate the transition to net zero by providing buyers of carbon credits the confidence to invest their capital in carbon credits because they have an insurance that ensures they meet their carbon goals
  • Learn more about the benefits of in-kind insurance