Researchers at Swiss Re say scaling the deployment of carbon removal technologies and activities is central to keeping global warming at safe levels over the long term and that the insurance industry has a role to play in this.

Carbon removal and storage are essential if the world is to meet its target of net-zero greenhouse gas emissions by 2050 and the insurance industry can help overcome the challenges the sector faces, analysts at the Swiss Re Institute said in a report published Thursday.

Carbon Removal Key

The study said that in addition to doubling down on emissions reductions building a carbon removal industry capable of delivering negative emissions at the speed – within three decades – and scale 10 billion–20 billion tonnes a year – would be required.

Two Paths

There are two paths for carbon removal.

One is nature-based, capturing carbon in forests, wetlands, oceans and soil. The analysts described these solutions as susceptible to reversal through events like fires and floods, and/or man-made threats.

The other is technological. Carbon can be filtered from the atmosphere and used as commercial goods in long-lived products such as concrete or it can be contained and mineralized in underground rock layers, including depleted oil and gas reservoirs.

«The implementation costs of these solutions are higher than for nature-based approaches, and existing solutions are under-deployed and new ones under-developed. Importantly, however, the risk of reversal is lower,» the study said.

Economic Incentives

One of the main obstacles to the scaling up of the industry was the lack of an economic incentive to cut, collect and dispose of emissions. However, recently there had been initiatives to commoditize carbon removal outcomes, the Swiss Re analysts said.

Market Mechanisms

This includes the voluntary carbon offset market that Swiss Re participates in, whereby a company buys carbon removal services. Buyers require attestation that the service captures and stores a certain amount of carbon from the atmosphere.

Controversial

However, this market is controversial.

The Swiss Re analysts point to the risk of moral hazard because of the perception that supporting carbon removal may deter action to reduce emissions.

Others point to the lack of transparency in the market.

The CEO and founder of London-based carbon risk management and procurement company Redshaw Advisors, Louis Redshaw, said in a recent opinion piece for «Carbon Pulse»  that the voluntary carbon market was «more broken than breakthrough».

Redshaw said there was no single standard for measuring the prevention of putting a tonne of CO2 into the atmosphere, or its removal and the issuance of a carbon credit to prove it.

«In practical terms, this means that there isn’t a single, transparent price for what is essentially the same thing – a carbon credit,» he added.

Insurance Industry’s Role

The Swiss Re analysts said the insurance industry could help scale up the carbon removal industry in three ways.

Firstly, insurers could improve the bankability of carbon removal projects by providing compensation for losses in the case of adverse events.

Standard engineering policies could cover the construction, operation and deconstruction risks of carbon removal facilities. Standard property insurance, including for losses resulting from natural disasters, could cover technology infrastructure and natural assets like forests.

Potential long-term liability exposures arising from the risk of carbon storage reversal were more challenging.

Financing Projects

Secondly, as institutional investors insurers could provide financing for projects and infrastructure.

The report said carbon removal was a long-term investment opportunity through which re/insurers could balance their long-term liabilities and run a net-zero emissions asset portfolio strategy.

Thirdly, insurers could be early buyers of carbon removal certificates to balance their own operational footprint in pursuit of net-zero emissions.

By entering long-term offtake agreements and guaranteeing future revenues, insurers could be strong partners for the carbon removal industry, while also gaining access to its new risk pools and asset classes, the analysts said.