Global specialty re/insurance group, Chaucer has announced its partnership with Kita, a carbon credit insurance specialist, to insure the delivery risk of carbon sequestration projects.
The group is not only investing in Kita, but will also be providing lead underwriting capacity; follow capacity will be provided by Munich Re Syndicate and RenaissanceRe.
Described as being the first of its kind, as well as Kita’s first product, the Carbon Purchase Protection Cover will insure the buyer of forward purchased carbon credits against delivery risk, removing a significant protection gap.
According to Chaucer, increased buyer trust in carbon delivery leads to greater flows of capital to help scale carbon sequestration projects at the rate necessary to fight the climate crisis.
Hayley Maynard, Head of Innovation at Chaucer, said: “Carbon sequestration projects will play a key role in the fight against climate change and Kita, alongside Chaucer, will be instrumental in enabling higher integrity in the carbon markets by safeguarding the quality and performance of carbon purchases.”
She added: “Chaucer is delighted to partner with Kita. Providing insurance for carbon credit projects will give businesses the confidence they need to invest at scale in high quality carbon sequestration projects and meet their net zero targets.
“We believe our partnership and investment in Kita will revolutionise the carbon credit industry and help Chaucer deliver our ESG commitments and be a genuine force for good in supporting the sustainable transition.”
Kita – approved as a Lloyd’s coverholder in December 2022 – protects carbon credit buyers against the risk of carbon sequestration projects failing to deliver expected volumes of high-quality carbon credits.
For example, a company with a high-integrity net zero strategy might forward purchase carbon removal credits in an afforestation carbon project, with the aim of enabling an environment in which young trees can grow, capturing carbon and generating biodiversity benefits.
In this case, the Carbon Purchase Protection Cover would protect against the risk that the afforestation project doesn’t generate verified high-quality carbon credits, due to: Avoidable loss – e.g., the forestry project developer making an error in the planting phase.
I would also cover unavoidable loss – e.g., natural catastrophe such as fire, wind, or other perils such as disease or pest; or fraud or negligence which invalidates the carbon credits prior to delivery.
Examples of a valid claim include: The forest developer contracted by the landowner mis-managed their financial commitments, resulting in the landowner forced to contract a new developer to take-over the forest management. This change of developer led to a lower-than-expected carbon yield in year six of the project resulting in a claim.
Other example is: Due to a shortage of forestry workers, an area of woodland surrounding a power transmission line was not cleared during the winter. The following summer, the forest suffered a higher intensity annual burn in the area leading to a biomass rather than just dead-wood loss. This resulting carbon shortfall could lead to a claim.
Natalia Dorfman, Kita’s CEO and co-founder, commented; “We are honoured to be working alongside a re/insurer of Chaucer’s stature, as well as Munich Re Syndicate and RenaissanceRe, to bring Carbon Purchase Protection Cover to the market.
“To prevent the worst impacts of climate change, we must remove gigatons of CO2 from the atmosphere annually. This is a mammoth task, and it requires de-risking and access to capital for carbon sequestration solutions. Insurance can act as a fundamental enabler – by removing risk and increasing trust in the market, insurance will help drive capital to help quality carbon projects scale.”
