Howden launches new carbon credit invalidation insurance solution

Howden has today (6 September 2022) launched a carbon credit invalidation insurance solution, with the aim of increasing confidence in the voluntary carbon market (VCM).

The broker developed the product – which will provide cover for third party negligence and fraud – in partnership with carbon finance business Respira International and reinsurance investment manager Nephila Capital.

The firms were advised by climate risk finance company Parhelion.

According to Trove Research’s quarterly update (January 2022), the primary VCM grew by 190% in 2021 to just under $1bn (£862.1m). The firm forecasts this will grow by a further volume of between 50% and 80% in 2022, reaching a total value of $1.5bn (£1.29bn) to $1.7bn (£1.46bn).

The voluntary carbon market is a decentralised market where private actors voluntarily buy and sell carbon credits that represent certified removals or reductions of greenhouse gases in the atmosphere.

McKinsey’s Taskforce on Scaling Voluntary Carbon Markets (TSVCM) has previously estimated (January 2021) that the market for carbon credits could be worth upwards of $50bn (£43.1bn) in 2030.

Despite the rise in trading turnover, Howden highlights that VCM remains complex – particularly for new buyers – and doesn’t deliver consistently for carbon reduction and removals projects on the ground.

To support future growth, the broker said that it was critical the VCM implements processes to improve credibility and transparency.

The team’s new product will therefore target “independent verification” of carbon credits, as well as cover for third-party negligence and fraud. 

With this action, Howden’s head of climate risk and resilience Charlie Langdale hoped the product will “help buyers to purchase with confidence” and “drive more buyers towards high-quality projects like those in Respira’s portfolio.”

“For the VCM to grow to $50bn by 2030, buyers need to be able to trust that the carbon credits they are buying are removing the promised volume of carbon from the atmosphere,” he added.

Respira’s portfolio flagship projects include the Gola Rainforest Conservation Project, Delta Blue Carbon and The Luangwa Community Forests Project, to name but a few.

Capacity for the product came from Lloyd’s, with Nephila’s Syndicate 2357 the lead provider.

It was created through the product innovation work stream on the Insurance Task Force of the Sustainable Markets Initiative, which was launched in January 2020 and is led by His Royal Highness The Prince of Wales.

Climate resilience

Respira co-founder and chief executive Ana Haurie commented: “The voluntary carbon market is an essential piece of the puzzle if we are to reach net zero”.

Maria Rapin, chief executive of Nephila Climate, added: “From first meeting the Howden and Respira teams at COP26, it’s been a really enjoyable, collaborative process getting this ground-breaking product live. We are proud to support the growth of a market that is so important for climate resilience.”

A carbon credit, as described by the Corporate Finance Insititute (CFI), is a tradable permit or certificate that enables the credit holder to emit one tonne of carbon dioxide or an equivalent of another greenhouse gas.

For some companies, the immediate reduction of greenhouse gas emissions is not economically viable. In this instance, for example, a carbon credit can be bought to comply with the government’s emission caps.

The VCM then allows businesses to offset their emissions by purchasing carbon credits emitted by projects with the aim of removing or reducing greenhouse gas from the atmosphere, according to the European Energy Exchange (EEX) Group.

• Insurance Times has converted dollar amounts into pounds using an exchange rate of £1 = $1.16, which was correct as of 1 September 2022.