Swiss Re, carbon credit marketplace launch 'in-kind' insurance
Quantum Commodity Intelligence – An arm of insurance company Swiss Re and a German start-up have launched a product aimed at de-risking carbon credit purchases, the latest in a flurry of announcements in the financial sector to provide greater confidence to the market amid concerns about supply disruption.
Swiss Re Corporate Solutions and Berlin-based Goodcarbon said the product is a first-of-its-kind in providing insurance for long-term, forward carbon credit purchases that offers 'in-kind' replacements of insured credits.
"Beyond providing access to a high-quality carbon credit supply, the insurance also eases the flow of capital into nature-based projects benefiting critical ecosystems and vulnerable communities," the companies said in a joint statement.
Every project covered by the insurance product is required to place a small percentage of credits into a buffer pool, which is effectively a reserve of credit set aside and can release credits in the event of non-delivery.
In the instance that credits sold forward don't actually materialise, companies receive the in-kind replacement credits from a central buffer pool.
If the buffer pool doesn't hold sufficient credits, Swiss Re Corporate Solutions said it will compensate the price paid for the credits.
The insurance aims to transfer risk and increase trust in forward credits, and pave the way to channelling capital to projects through the sale of insured carbon forwards.
The product is initially aimed at the nature-based solutions (NbS) sector, where delivery of future credits can often be subject to uncertainties because of risks to trees such as fire, drought and disease, as well as illegal logging and political risks.
In recent months insurance several insurance products have been launched or co-launched by carbon market specialists Kita, Oka, and Howden.
Most of these schemes work by paying out in cash for replacement of non-delivered credits, although some tie-ups with registries involving Kita are focussed on buffer pools.
Typically, buffer pools are managed by registries and can either contain buffer credits from all projects within the registry program in a single combined pool, often divided by project type, or can be individually linked to specific projects.
Goodcarbon is a digital marketplace focussed mainly on NbS credits.
