In 2030, almost half of the world’s top 2,000 companies are aiming to hit net zero. By 2050, the world is targeting to reach this goal as a whole thanks to the Paris Agreement.
Despite best efforts, emissions will never fall to zero – there are too many processes on which the world relies (e.g. food, steel and cement production) to feed and house its people – that cannot reduce emissions to zero with current technologies. There will always be a need for carbon dioxide removals in order to offset the emissions that are made.
The carbon market is set to quadruple by 2050, reaching $1-2 trillion. And massive investments in projects to remove or avoid carbon dioxide are needed to ensure the generation of enough removals to get to net zero. However, given the uncertainty and risks involved in investing in projects that remove carbon dioxide from the atmosphere or avoid further emissions, many buyers are hesitant to invest in carbon credits up front or at all. The key mechanism that regulates all other mature markets against risky investments has been missing from the carbon credit market, namely: insurance. Insurance can help to stabilize the carbon credit markets by encouraging investment, aiding in risk selection, and protecting carbon outcomes.
"The deployment of carbon dioxide removal (CDR) to counterbalance hard-to-abate residual emissions is unavoidable if net zero CO₂ or GHG emissions are to be achieved"
IPCC AR6 WGIII report ‘Mitigation of Climate Change 2022’
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.
Incorrect carbon sequestration approaches
Natural hazards and climate impacts
Technology or machinery breakdowns
Human-induced risks
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