The insurance rationale for carbon removal solutions

Thereafter, there will still be much work to do to keep emissions net-negative through the second half of the century. To meet these targets requires a doubling-down of carbon reduction efforts. Even so, there will be residual carbon release into the atmosphere, calling for a timely ramp up of carbon removal services at large scale.

By 2050, society must have the capacity to remove up to 10 billion tonnes of CO₂ from the atmosphere every year: that’s a quarter of what is emitted each year today. The carbon removal industry, however, is still in its infancy and needs to develop quickly. This report explains how the re/insurance industry can be a key facilitator of the necessary continued development of the removal industry.

Carbon from the atmosphere can be captured and stored through different means. Least-cost options involve sequestering carbon in forests, wetlands, oceans and soil. This comes with co-benefits but also risk of storage reversal in the case of wildfires, floods, illegal deforestation etc.

There are also technological solutions for carbon removal. CO₂ can be filtered from the atmosphere and used as commercial goods in long-lived products like concrete. It can also be contained and mineralised in underground rock layers, for instance in depleted oil and gas reservoirs. The corresponding implementation costs  are higher than for nature-based solutions because the existing technological approaches are under-deployed and new ones are under-developed. Importantly, however, the risk of reversal is lower.

To date, the main barrier to deployment of carbon removal is lack of business case. In the absence of carbon pricing in many parts of the world, society disposes of carbon into the atmosphere at will. Re/insurers can help in three ways. They can improve the bankability of removal projects by providing standard engineering and P&C insurance. Certain ecosystems, like forests or coral reefs, can be insured against sudden extreme weather events, like storms. More challenging are long-term liability exposures arising from the risk of storage reversal.

Second, as institutional investors re/insurers can provide financing for removal projects and infrastructure. And third, re/insurers can be early buyers of carbon removal certificates to balance their own footprint. This may open doors for the underwriters and asset managers to access new risk pools and asset classes.

This report is the first appraisal of the carbon removal topic from an insurance perspective, and further cements Swiss Re's thought-leadership in the climate space. Download the report to find out more.