July 2021 The insurance rationale for carbon removal solutions
Transcript of July 2021 The insurance rationale for carbon removal solutions
01 Executivesummary02 Thecaseforcarbon
removal08 Theremovalindustry
landscape22 Theroleofinsurance39 Conclusion
July2021
The insurance rationale for carbon removal solutions
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 1
Executivesummary
Carbonremovalisthecaptureandpermanentstorageofcarbondioxide(CO2)fromtheatmosphere.Tolimitglobalwarmingto2015ParisAccordlevels,theworld’snetemissionsofgreenhousegasesneedtodroptozeroby2050.Thereafter,therewillstillbeworktodotosustainnet-negativeemissionsthroughthesecondhalfofthecentury.Zeroemissionsisfarfromreality.Evenwithactionstotransitiontoalow-carboneconomy,globalemissionsarestillrising,anditmaytakemanydecadestofullydecarbonisesomesectors.Thereforebalancingresidualandreversinghistoricalemissionswillrequirebillionsoftonnesofnegativeemissionsuptoandafter2050.
Inthiscontext,scalingthedeploymentofcarbonremovaltechnologiesandactivitieswillbecentraltokeepingglobalwarmingatsafelevelsoverthelongterm.“Net-zeroemissions”hasbecomecommonparlanceinthepublicandprivatesectors,anacknowledgmentoftheneedto:1)double-downonemissionreductionefforts;and2)buildacarbonremovalindustrycapableofdeliveringnegativeemissionsatthespeed(withinthreedecades)andscale(10–20billiontonnesperyear)thatclimatesciencesayswillberequiredtoenablesustainablelivingforfuturegenerations.
Themainbarriertodeploymentofcarbonremovalislackofbusinesscase.Intheabsenceofcarbonpricinginmanypartsoftheworld,societydisposesofcarbonintotheatmosphereatwill.Asufficientlyhighfeeonemissionswouldinternaliseexpectednegativeexternalities,andfosterlow-carbondecisionmakinginproductionandconsumption.Intheabsenceofafeeandpolicymandates,thereislittleincentivetocut,letalonecollectandstoreemissions.Thatsaid,recentyearshaveseentheemergenceoffirstcommercialprovidersofcarbonremovalservicesandalsomarketplaceinitiativestocommoditisecarbonremovaloutcomes.
Carbonintheatmospherecanbecapturedandstoredthroughdifferentmeans.Theleastcost-intensiveinvolvessequesteringcarboninforests,wetlands,oceansandsoil.Whenexecutedproperly,theseso-callednature-basedsolutionsaddressmultiplesustainabilitygoals,includingadaptationtoclimatechangeandpreservingtheintegrityofecosystemsandbiodiversity.Buttherecanbeopportunitycosts,suchasafforestationprojectscompetingwithagricultureforlandresources.Moreover,nature-basedsolutionsaresusceptibletoreversalthroughcatastropheeventslikefiresandfloods,and/orman-madethreats(eg,deforestation).
Therearealsotechnologicalsolutionsforremoval.Carboncanbefilteredfromtheatmosphereandusedascommercialgoodsinlong-livedproductslikeconcrete.CO2canalsobecontainedandmineralisedinundergroundrocklayers,forinstanceindepletedoilandgasreservoirs.Theimplementationcostsofthesesolutionsarehigherthanfornature-basedapproaches,andexistingsolutionsareunder-deployedandnewonesunder-developed.Importantly,however,theriskofreversalislower.
There/insuranceindustrycanassistwithscaling-upofthecarbonremovalindustryinthreeways.First,re/insurerscanimprovethebankabilityofcarbonremovalprojectsbyprovidingcompensationforlossesinthecaseofadverseevents.Standardengineeringpolicies(eg,contractorsallriskpolicies)cancovertheconstruction,operationanddeconstructionrisksofcarbonremovalfacilities(forairfilters,CO2pipelines,orinjectionrigsamongothers).Andstandardpropertyinsurance,includingforlossesresultingfromnaturaldisasters,cancovertechnologyinfrastructureandnaturalassetslikeforests.Morechallengingarepotentiallong-termliabilityexposuresarisingfromtheriskofcarbonstoragereversal.
Second,asinstitutionalinvestorsre/insurerscanprovidefinancingforremovalprojectsandinfrastructure.Carbonremovalisalong-terminvestmentopportunitythroughwhichre/insurerscanbalancetheirlong-termliabilities,andrunanet-zeroemissionsassetportfoliostrategy.Andthird,re/insurerscanbeearlybuyersofcarbonremovalcertificatestobalancetheirownoperationalfootprintinpursuitofnet-zeroemissions.Thatfootprintissmallrelativetoothersectors,makingfirst-moverremovalprojectsmoreaffordable.Byenteringlong-termofftakeagreementsandguaranteeingfuturerevenues,re/insurerscanbestrongpartnersforthecarbonremovalindustry,whilealsogainingaccesstoitsnewriskpoolsandassetclasses.
Fornet-zero,emissionsneedtobereducedandresidualsremoved.
Withoutcarbonpricingorpolicymandates,carbonremovalhaslackedabusinesscase.Nevertheless,theindustryisnowgainingafoothold.
Nature-basedsolutionsmakeuseofscarcelandresources,butcomewithmanyco-benefits.
Technicalsolutionsforcarbonremovalcarryhighercosts,buttheriskofstoragereversalislower.
Re/insurerscansupportthecarbonremovalindustrydevelopmentsbytakingonsomeoftheassociatedrisks,…
…bymakinglong-terminvestmentsinremovalprojectsandinfrastructure,andbybuyingcarbonremovalservices
Carbonremovalisrequiredtoachievenet-zeroemissionsby2050andnet-negativeemissionslongthereafter.
2 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
Thecaseforcarbonremoval
Awarmingworld
Risingtemperaturesarecausingclimatechangeeffectsofincreasingvisibility,frequencyandseverity.Theincreaseinglobaltemperaturesisduetoanthropogenic(man-made)greenhousegas(GHG)emissions.AccordingtotheIntergovernmentalPanelonClimateChange(IPCC),humanactivityhascausedapproximately1.0°Cofglobalwarmingfrompre-industriallevels.1Sincethebeginningoftheindustrialrevolution,humanshavereleased2200billiontonnesofcarbondioxide(CO2)intotheatmosphere,2halfofitduringthelastthreedecadesalone.3Currently,theworldemitsaround40billiontonnesofCO2annually.Unabated,thisemissionratewouldseethe+1.5°CwarminglimitoftheParistargetreachedin10years,andthe+2°Climitin30years.4Bytheendofthecentury,temperatureswouldrisebybetween3.7°Cand4.8°C.5Evenifallemissionsarehaltedimmediately,GHGswillremainintheatmosphereformanycenturies,exacerbatingtheimpactsofclimatechange.6
Climatechangeisasystemicthreat,withfar-reachingconsequencesfortheworldandlifeasweknowit.Increasingtemperaturesaremeltingtheplanet’sicereservoirsandwarmingtheoceans.Togethertheseareleadingtorisingsealevels,andanincreaseinthefrequencyandseverityofextremeweathereventssuchasdroughts,hurricanesortorrentialrains.Beyondlastingimplicationsonnaturalecosystems–withclimatechangeseenasoneofthemostimportantdriversforfuturebiodiversitylossandecosystemdegradation–thesephysicalchangeswilllikelycauseincreasedmortalityanddamagetohumanhealth,foodandwaterscarcity,diseasespreadandmoredamagetoanddevaluationofpropertyassets.7Fromabroadeconomicperspective,arecentSwissReInstitutereportestimatesthatunabatedfromtoday,thephysicaleffectsofwarmingtemperaturescouldresultinan18%losstoglobalgrossdomesticproductbymid-century,relativetoaworldofnoclimatechange.8
Acallbyclimatescience
TheglobaltargetoftheParisAgreementof2015istolimitglobalwarmingtowellbelow2°C,andpreferablyto1.5°C.Thisisthecapthatscientistssaycanstillpreventtheworstimpactsofclimatechange.TheIPCCsaysthatlimitingglobalwarmingto1.5°CwillrequireGHGemissioncutsof50%by2030,andnet-zeroemissionsby2050.9Fornet-zero,anyresidualemissionswouldhavetobebalancedbythesameamountofnegativeemissions,inotherwords,permanentremovalandstorageofcarbonfromtheatmosphere.ThisprocessisknownasCarbonDioxideRemoval(CDR),orcarbonremoval.TheIPCCfurtherpredictsthatglobalemissionlevelswouldberequiredtostaynet-negative(negativeemissions>residualgrossemissions)throughoutthesecondhalfofthecurrentcentury.Bytheyear2100,dependingonhowfastwestartreducingemissions,thecarbonremovalindustrywillhavetodelivercumulativelyupto1000billiontonnesofnegativeemissions.Forcontextofscale,thatisalmosthalfofallthatalreadyhasbeenemittedsincepre-industrialtimes.10Figure1showsfouremissionscenariosmodelledbytheIPCCthatwouldallowlimitingglobalwarmingto1.5°C.Three
1 Global Warming of 1.5°C,IPCC,2018.2 Ibid.3 More than half of all CO2 emissions since 1751 emitted in the last 30 years, Institute for European
Environmental Policy, 29 April 2020.4 J.Rockström,etal.,“Theworld’sbiggestgamble”,Earth’s Future,vol4,2016.5 See“ContributionofWorkingGroupsI,IIandIIItotheFifthAssessmentReportoftheIntergovernmental
PanelonClimateChange”,inClimate Change 2014: Synthesis Report,IPCC,2014.6 CO2emissionsstayintheatmospherefordecadestocenturies.Itisestimatedthatevenafter1000
years,15–40%oftheanthropogenicCO2emissionsremainintheatmosphere.OtherGHGhaveshorterresidencetimesintheatmosphere(eg,methane12years;NOx~100years)butexhibitastrongergreenhouseeffect(eg,methane25timesstrongerradiativeforcingthanCO2;NOx~300timesstronger).SeeDie Treibhausgase,GermanEnvironmentAgency,2020.
7 E.S.Brondizio,J.Settele,S.Díaz,andH.T.Ngo(editors),Global assessment report on biodiversity and ecosystem services of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services,IPBES,2019.
8 The economics of climate change: no action not an option,SwissReInstitute,April20219 IPCC,2018,op.cit.10 1750–2017:2200billiontonnesCO2.SeeIbid.
Carbonemissionshavecausedglobaltemperaturestoriseby1.0°Calready.
Theeffectsofclimatechangearefarreachingandwillimpactnature,humans,andtheglobaleconomy.
Limitingglobalwarmingto1.5°Crequiresemissioncutsof50%by2030,net-zeroemissionsby2050,andnet-negativeemissionsthereafter.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 3
scenariosassumemoreorlessstringentemissioncutsstartingimmediately.Anotherassumesaninitialhigh-emissionslifestyle(essentiallycurrentbusiness-as-usual)thatwould,inturn,requireevenlargeramountsofnegativeemissionslater.
Source:SwissRe,basedonGlobal Warming of 1.5°C,IPCC,2018(overlapofthescenariosP1-4).
Thescenarioillustratesthreeimportantfindings.First,itwillrequiredeepemissioncutstofollowthe1.5°Cnet-emissionpathway,andthelongerwewait,thesteeperthereductionpathwillneedtobe.Second,evenwithbesteffortstoreduceemissions,therewillberesidualcarbonrelease,meaningthatemissionswillnotreachabsolutezerothiscentury.
Third,thechallengeishuge.In2050,societymusthavethecapacitytoremoveupto10billiontonnesofCO2fromtheatmosphereeveryyear:that’saquarterofwhatisemittedeachyeartoday.Itwilltaketimetobuildthatcapacity,andworkneedstostarttoday,parallelto(notinsteadof)stringentemissionreductionefforts.Laterthiscentury,itwilltakeupto20billiontonnesofnegativeemissionseachyeartostayontrackwiththe1.5°Cglobalwarmingtarget.Asananalogy,20billiontonnescorrespondstotoday’semissionsgeneratedbyhumanconsumptionofalloilandgasproductsinoneyear:ifittakesatrillion-dollarindustrytoprovideforalltheoilandgasthatcauses20billiontonnesofemissionstoday,11itwilltakethenexttrillion-dollarindustrytoremovethatsameamountfromtheatmospherein2050+.12
Certainhard-to-abateindustriesaremoredifficultandmoreexpensivetodecarbonise.Table1outlineshoweachsectorcontributestoGHGemissions.Itshowscurrentabsoluteandrelativeemissionsalongsidesector-specificreductionmeasuresandkeymitigationchallenges.Thesehelpexplainandreaffirmwhynegativeemissionsareanecessityiftheworldistolimittemperatureriseto1.5°C.13
11 Thetop20globaloilandgascompaniestogetherhadcumulativerevenuesofUSD3.4trillionin2020.SeeGlobal 500,Fortune,accessedon8February2021.
12 Ananalogysharedinotherpublications.Forexample,An investor guide to negative emission technologies and the importance of land use,VividEconomics,2020;Global Climate Restoration for People, Prosperity and Planet,ArizonaStateUniversity,2020;“OccidentaltoStripCarbonFromtheAirandUseIttoPumpCrude”,Bloomberg Businessweek,accessed13January2021.
13 Forfurtherreading,see“Specialfeature:Movingtoalow-carbonfuture,”SONAR,SwissRe,2020.
Figure 1 Net-emissionpathwaystolimitglobalwarmingto1.5°C
20202010 2030 2040 2050 2060 2070 2080 2090 2100
–20
–10
0
10
20
30
40
Global CO2 emissionsbillion tonnes per year
Net-zero
Residual emissions that cannot be reduced yet
Negative emissions requiredto balance the residual emissions
Massive emission reductions
Business as usual emissions
Net-emission pathways
to limit warming to 1.5°C
Emissions from oil & gas today...
EvenwithbesteffortstoreduceGHGemissions,therewillberesidualcarbonreleaseintotheatmosphere.
SomuchsothattohitParisAgreementtargets,carbonremovalwillneedtoreachadouble-digitbilliontonnescale.
Notallemissionscanbereadilyreduced.Hencetheneedfornegativeemissions.
4 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The case for carbon removal
Table 1 Emissions,reductionmeasuresandmitigationchallenges,bysector1415
Sector Absolute (relative) emissions inbilliontonnesCO2eqperyear
Key reduction measures15 (excludinggeneral,cross-sectorialpolicymeasureslikecarbonpricing,carbon-intensitymandates,etc)
Key sector specific mitigation challenges16 (excludinggeneral,morebroadlyapplicablechallengeslikelackofregulation,consumerpreferences,economical/structuralimpediments,etc)
Energy 17GtCO2(34.6%)
– makeglobalelectricityproductionwhollyrenewable– reappraiseenergyinfrastructure:addelectricitystoragecapacity;buildrobustandfasttransmission/distributionlines,andsmart,localgrids.
– fuelswitch(green/blueH2andsynthetic-/bio-methane)andfuelefficiencyforback-upplants
– fossilfuelsubsidiesofUSD333billionperyear(USD5.3trillionperyearifthevalueofcombustion-relatedexternalitiesisincluded),creatinganegativecarbonpriceatproductionandconsumptionside17
– lackofseasonalstorageoptions/capacity– newrenewableenergyinfrastructurecompetesforotherland-usepurposes,andmaycompromisehabitatandbiodiversityprotection.– energysecurity:increaseddemandforelectricityoutweighsadditionofnewrenewablecapacity,andoldfossilpowerplantsremainoperational
– longinvestmentcyclesinenergyinfrastructure,causingalock-inofemissions– lackofde-riskingforrenewableenergyinvestmentsindevelopingcountries(reducingthecostofcapitalthatweighsheavyonrenewableassets)18
Agriculture,forestryandotherlanduse
11.8GtCO2(24%)
– decreasenumberofmethane-producinglivestock:changetoplant-richdiets,anddiversifyproteinconsumptionawayfrommeat
– reducewaste/lossofcropandfood– optimisefertiliseruse(precisionfarming,nitrificationinhibitors,biochar)– conserveexistingandrestorecarbonpools(soils,forests)throughimprovedlandmanagement,agriculturalpracticesandfireprevention
– populationgrowth(foodsecurity)– subsidiesforunsustainablefarmingpractices,withlessthan5%ofUSD600billioninglobalagriculturesubsidiesgoingtoconservationefforts19
– increasingshareofmeatinaveragediet– higherlanduseperyield– technical,economic,educational,culturalimpedimentstonew(lessintensive)agriculturalorforestrypractices– lackofvaluationofpositiveexternalitiesfromclimate/biodiversityfriendlyagricultureandforestry(improvedlocalair,soil,andwaterquality)– unmitigateddeforestation,includingdrivenbylandgrab/speculation20
– increasedfrequencyandseverityofnaturalhazards(wildfire,droughts,storms)– counter-productivesubsidiesthatdonotreducetheglobalwarmingfootprintofagriculture,northenegativeimpactsonbiodiversity21
– foodwasteduetoinefficientharvesting,transportandstoragecapacities
Industry 10.3GtCO2(21%)
– increaseenergyandmaterialsefficiencyinmanufacturingandconstruction– improveproductdesigntolowerembodiedcarbonandincreasecircularity(facilitatedismantling,sorting,re-using,re-cycling,productlongevity)
– substituterawmaterialswithlowcarbonalternatives(eg,masstimber,carbon-fixingconcrete)
– electrifyproductionprocesses– switchtorenewableheat/processfuelsandreactants(blue/greenhydrogen)– carboncapture(utilisation)andstoragetodecarboniseheavyindustry,inparticularcementandchemicalsworks
– comparedtoconsumer-facingindustries,hard-to-abatematerialproducersectors(cement,mining,textiles,chemicals,steel,aluminium)havethehigheremissionintensity(CO2/product)butsmallermargins(income/product),makingaffordabilityofemissionreductionmeasureschallenging22
– longinvestmentcyclesforheavymachinery/processingplants– performanceandconcernsaboutcost/willingnesstopaybyclients/consumers– intransparencyofsupplychains
Transport 6.9GtCO2(14%)
– electrifylight-dutyroadtransport,mostlythroughbatteryelectricvehicles– modalshifts(increasepublictransport,moreefficientmodesforlogistics)– fuelswitch(biofuels,hydrogen/ammonia,syntheticfuels)inheavy-dutyroadtransport,shippingandaviation
– improvefuelefficiency– substituteandoptimisetravel(remotecollaboration,longer/lesstrips,etc.)
– increaseddemandformobility– increaseinglobaltrade– airplanes,trainsandshipswithincreasedlongevityseetotallife-cycleadjustedusagecostdecline,anargumenttokeepoperatinginefficienttransportmeans/infrastructure
– lackofinfrastructurepreventsadoptionatscale(eg,fewsuperchargingstationsforelectricvehicles)– transportinfrastructureinvestmentsarelongtermandtiedowncapital.
Buildings(operationsonly)
3.1GtCO2(6.4%)
– improvebuildings’energyefficiencytechnology(appliances,heatingetc)– advancebuildingautomationandcontrolsystems/meters(smartbuilding)– buildingconstruction:replacefossil-fuelledbuildingtechnologywithlow-carbonalternatives(rooftopsolar,heatpumps,biofuels,districtheating/cooling)
– slowrenovation/renewalcycleforbuildings(andenergyintensiveappliances)– concernsoverhigherinvestmentoutweighsbenefitsfromlowerrunningcost23
– lackofaccesstofinancing
Source:SwissReInstitute
14 TableisbuiltontheFifthAssessmentReportbytheIPCC(2014)andamendedbasedonauthors’judgementandfurtherliteratureasindicatedseparately:Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change,IPCC,2014.Forfurtherreference,othersourcesusedwereClimateEngineering:Risks,Challenges,Opportunities?GermanResearchFoundation,January2019;andCO2-neutralbis2035:EckpunkteeinesdeutschenBeitragszurEinhaltungder1,5-°C-Grenze,WuppertalInstitute,2020.
15 SeealsoSONAR2020,SwissRe,op.cit.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 5
Table 1 Emissions,reductionmeasuresandmitigationchallenges,bysector1415
Sector Absolute (relative) emissions inbilliontonnesCO2eqperyear
Key reduction measures15 (excludinggeneral,cross-sectorialpolicymeasureslikecarbonpricing,carbon-intensitymandates,etc)
Key sector specific mitigation challenges16 (excludinggeneral,morebroadlyapplicablechallengeslikelackofregulation,consumerpreferences,economical/structuralimpediments,etc)
Energy 17GtCO2(34.6%)
– makeglobalelectricityproductionwhollyrenewable– reappraiseenergyinfrastructure:addelectricitystoragecapacity;buildrobustandfasttransmission/distributionlines,andsmart,localgrids.
– fuelswitch(green/blueH2andsynthetic-/bio-methane)andfuelefficiencyforback-upplants
– fossilfuelsubsidiesofUSD333billionperyear(USD5.3trillionperyearifthevalueofcombustion-relatedexternalitiesisincluded),creatinganegativecarbonpriceatproductionandconsumptionside17
– lackofseasonalstorageoptions/capacity– newrenewableenergyinfrastructurecompetesforotherland-usepurposes,andmaycompromisehabitatandbiodiversityprotection.– energysecurity:increaseddemandforelectricityoutweighsadditionofnewrenewablecapacity,andoldfossilpowerplantsremainoperational
– longinvestmentcyclesinenergyinfrastructure,causingalock-inofemissions– lackofde-riskingforrenewableenergyinvestmentsindevelopingcountries(reducingthecostofcapitalthatweighsheavyonrenewableassets)18
Agriculture,forestryandotherlanduse
11.8GtCO2(24%)
– decreasenumberofmethane-producinglivestock:changetoplant-richdiets,anddiversifyproteinconsumptionawayfrommeat
– reducewaste/lossofcropandfood– optimisefertiliseruse(precisionfarming,nitrificationinhibitors,biochar)– conserveexistingandrestorecarbonpools(soils,forests)throughimprovedlandmanagement,agriculturalpracticesandfireprevention
– populationgrowth(foodsecurity)– subsidiesforunsustainablefarmingpractices,withlessthan5%ofUSD600billioninglobalagriculturesubsidiesgoingtoconservationefforts19
– increasingshareofmeatinaveragediet– higherlanduseperyield– technical,economic,educational,culturalimpedimentstonew(lessintensive)agriculturalorforestrypractices– lackofvaluationofpositiveexternalitiesfromclimate/biodiversityfriendlyagricultureandforestry(improvedlocalair,soil,andwaterquality)– unmitigateddeforestation,includingdrivenbylandgrab/speculation20
– increasedfrequencyandseverityofnaturalhazards(wildfire,droughts,storms)– counter-productivesubsidiesthatdonotreducetheglobalwarmingfootprintofagriculture,northenegativeimpactsonbiodiversity21
– foodwasteduetoinefficientharvesting,transportandstoragecapacities
Industry 10.3GtCO2(21%)
– increaseenergyandmaterialsefficiencyinmanufacturingandconstruction– improveproductdesigntolowerembodiedcarbonandincreasecircularity(facilitatedismantling,sorting,re-using,re-cycling,productlongevity)
– substituterawmaterialswithlowcarbonalternatives(eg,masstimber,carbon-fixingconcrete)
– electrifyproductionprocesses– switchtorenewableheat/processfuelsandreactants(blue/greenhydrogen)– carboncapture(utilisation)andstoragetodecarboniseheavyindustry,inparticularcementandchemicalsworks
– comparedtoconsumer-facingindustries,hard-to-abatematerialproducersectors(cement,mining,textiles,chemicals,steel,aluminium)havethehigheremissionintensity(CO2/product)butsmallermargins(income/product),makingaffordabilityofemissionreductionmeasureschallenging22
– longinvestmentcyclesforheavymachinery/processingplants– performanceandconcernsaboutcost/willingnesstopaybyclients/consumers– intransparencyofsupplychains
Transport 6.9GtCO2(14%)
– electrifylight-dutyroadtransport,mostlythroughbatteryelectricvehicles– modalshifts(increasepublictransport,moreefficientmodesforlogistics)– fuelswitch(biofuels,hydrogen/ammonia,syntheticfuels)inheavy-dutyroadtransport,shippingandaviation
– improvefuelefficiency– substituteandoptimisetravel(remotecollaboration,longer/lesstrips,etc.)
– increaseddemandformobility– increaseinglobaltrade– airplanes,trainsandshipswithincreasedlongevityseetotallife-cycleadjustedusagecostdecline,anargumenttokeepoperatinginefficienttransportmeans/infrastructure
– lackofinfrastructurepreventsadoptionatscale(eg,fewsuperchargingstationsforelectricvehicles)– transportinfrastructureinvestmentsarelongtermandtiedowncapital.
Buildings(operationsonly)
3.1GtCO2(6.4%)
– improvebuildings’energyefficiencytechnology(appliances,heatingetc)– advancebuildingautomationandcontrolsystems/meters(smartbuilding)– buildingconstruction:replacefossil-fuelledbuildingtechnologywithlow-carbonalternatives(rooftopsolar,heatpumps,biofuels,districtheating/cooling)
– slowrenovation/renewalcycleforbuildings(andenergyintensiveappliances)– concernsoverhigherinvestmentoutweighsbenefitsfromlowerrunningcost23
– lackofaccesstofinancing
Source:SwissReInstitute
14 TableisbuiltontheFifthAssessmentReportbytheIPCC(2014)andamendedbasedonauthors’judgementandfurtherliteratureasindicatedseparately:Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change,IPCC,2014.Forfurtherreference,othersourcesusedwereClimateEngineering:Risks,Challenges,Opportunities?GermanResearchFoundation,January2019;andCO2-neutralbis2035:EckpunkteeinesdeutschenBeitragszurEinhaltungder1,5-°C-Grenze,WuppertalInstitute,2020.
15 SeealsoSONAR2020,SwissRe,op.cit.
1617181920212223
16 Engströmetal.,“Carbonpricingandplanetaryboundaries”,NatureCommunicationsvol.11,202017 Measuring Fossil Fuel Subsidies in the Context of the Sustainable Development Goals.UNEP,OECDandIISD,2019.18 Derisking renewable energy investment. A Framework to Support Policymakers in Selecting Public Instruments to Promote Renewable Energy Investment in
Developing Countries.UNDP,2013.19 Redirecting Agricultural Subsidies for a Sustainable Food Future,WorldResourcesGroup,21July2020.20 “CurblandgabbingtosavetheAmazon”,NatureEcology&Evolution,vol3,2019.21 L.Gubler,S.A.Ismail,I.Seidl, Biodiversity damaging subsidies in Switzerland, Swiss Academies Factsheet 15, 2020; and The Economics of Biodiversity:
The Dasgupta Review,UKTreasury,202122 Net-Zero Challenge: The supply chain opportunity WorldEconomicForumandBostonConsultingGroup,2021.23 Energysavingscanrelativelyquicklycoverinvestmentcosts.SeeGlobalEnergyAssessment.CambridgeUniversityPress,2012.Thereportestimatesa
USD24billiontotalinvestmentneedtorealizeambitiousclimategoalsforbuildings,incontrasttocumulatedUSD65billionenergysavingsby2050,inducedbytheseinvestments.
6 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The case for carbon removal
Anewindustrytakingshape
TolimitglobalwarmingtotheParisAgreementtarget,thecaseforcarbonremovalisclear,butthecommercialrationaleisstillunfolding.Somecarbonremovalsolutionsarewellestablishedbuthavenotyetbeenwidelydeployed.Othershavenotyetmovedbeyondearlyresearchstage.Intheabsenceofuniversalcarbonpricingpoliciesandassociatedfees(polluter-pays-principlecomparabletoamunicipalwastecollectionfee),pollutershavelittleeconomicincentivetocut,collectanddisposeofemissions.Inotherwords,carbonremovalstilllacksabusinesscase.
Thissituationhasbeenchangingsince2019,aftertheIPCC(attherequestofthepartiestotheParisAgreement)publisheditsspecialreportassessingwhatitwilltaketolimitglobalwarmingto1.5°C.24Thenumberofagents/companiesdevelopingcarbonremovaltechnologies,practicesandserviceshasincreasednotablysincethen.25Thescale-upplansreachfromafew10000tonnesremovaltodaytohundredsofmillionsoftonnesbytheendofthedecade.Thefrontrunnersareattractinginvestorinterest,includingthosedevelopingtheleastmatureandmostexpensivesolutions.26
Theprivatesectoristhemaindriverofcurrentmomentum.Sinceearly2020,increasingnumbersofcompanieshavepledgedtoachievenet-zeroemissionsfromtheirownoperations,attimesincorporatingtheirsupplyand/orentirevaluechains.Somehavepledgedtoreversehistoricemissionsaltogether.27Many(butnotall)ofthecommitmentsacknowledgetheneedtobalanceunavoidedemissionsviacarbonremovalandsomefirms,includingSwissRe,havealreadyboughtfirstremovalservices.28,29Buyersrequireattestationthattheservicecapturesandstoresacertainamountofcarbonfromtheatmosphere.Theattestationisusuallyintheformofacarboncertificatepertonneremoved.Thepriceofthecertificateisthepriceabuyeriswillingtopayvoluntarilytocompensateforunavoidableemissions.Thusthefirstbusinesscasesforcarbonremovalservicesarebeingbuiltonthesalesofcarbonremovalcertificates,and2019sawthefirstmarkettradingofsuchcertificates.30
24 IPCC,2018,op.cit.25 See,forexample“Removecarbon.RestoreForests”,pachama.com;“EnableremovalofCO2fromthe
air”,climeworks.com,bothaccessedon8February2021.26 See,forexample,“PledgebyAmazon:TheRightNowClimateFund”, us.1t.org;“SwissCarbonCapture
StartupRaisesUSD76minFundingRound”, bloomberg.com,2June2020;“BlamedforClimateChange,OilCompaniesInvestinCarbonRemoval”,The New York Times,7April2019.
27 See,forexample, Carbon Removal Coprorate Action Tracker,InstituteofCarbonRemovalLaw&Policy,7May2020;Net-zero emissions: do our best, remove the rest,SwissRe,12April2020.
28 “Swiss-Rebackedcarbonremovalmarkettargetsgigatonscale-up”,theenergyst.com,June2020.29 See,forexample,R.Orbuch,“Stripe’sfirstcarbonremovalpurchases”,stripe.com,18May2020;
“FightingfortheFuture:ShopifyInvests$5MinBreakthroughSustainabilityTechnologies”,shopify.com,15September2020;Microsoft Carbon Removal – Lessons from an early corporate purchase,Microsoft,2021.
30 Forexample,“Carbonremovalstartshere:Theworld’sfirstB2Bmarketplace,standardandregistryfocusedsolelyoncarbonremovals”,puro.earth;“TheNoriCarbonRemovalMarketplace”,nori.com,bothaccessedon8February2021.
Theneedforcarbonremovalisclearbutthebusinesscaseisstillunfolding.
Theindustryisgainingafoothold...
...andtheprivatesectoristhemaindriver.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 7
Alltold,thecarbonremovalindustryisstillinearlystagesofdevelopment.Thereisalongwaytogoandlittletimetoreachthebillion-tonnesscaleofremovals.Barrierstodeploymentexistalongtheentirevaluechain.Keyconstraintsonthesupplysideincludehighcostandresourcerequirements,lackofeconomicincentives,lackofknowhow,resistancetochange,aswellascompetitionforland-useanduncertaintiesregardingthepermanenceofstorage.Onthedemandside,firstmoversareinclinedtowaitandseeinviewofhighinitialprices(free-riderproblem).Otherdemand-sideconstraintsincludelackofmarketaccess,lackofregulatoryrequirements,andtheperceptionthatsupportingcarbonremovalmaydeteractiontoreduceemissionsinthefirstplace(moralhazard).Supplyanddemandequilibriumisbeinghamperedbythelackofstandardisationofcarbonremovalservices,smalltransactionvolumes,limitedfungibilityandlackofregulationofinternationaltransfersofremovaloutcomes.
Allconstraintsaside,toanswerthecallofscienceandpreventtheworstimpactsofawarmingworld,thecarbonremovalindustrywillhavetoscalefromsome10000tonnesofnegativeemissionstodaytoaround10billiontonnesby2050.That’safactorincreaseof1millionoveraperiodofthreedecades,oracompoundannualgrowthrate(CAGR)ofcloseto60%.31Toreiterate,thetaskismassive.Oncetheindustryhastakenshape,furtherscalingwillrequirede-riskingandfinance.Thisiswherere/insurerswithappetiteforthejourneycanplaytotheirstrengths.
31 SwissReestimatesaCAGRof58%tomovefromafew10kilotonnesofnegativeemissionsservicesin2020to10gigatonnesby2050.Ifonsetofscalingupcarbonremovalservicesisdelayedto2025,theCAGRrisesto74%.Delayto2030=CAGRof100%.
Thebarrierstodevelopmentofcarbonremovalspansupply,marketplaceanddemand.
Thecarbonremovalindustryhastoscaleatanunprecedentedspeed.Thisrequiresde-riskingandaccesstocapital.
8 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
Theremovalindustrylandscape
CarbonremovalsolutionsdifferinhowatmosphericCO2iscaptured,processed,transportedandstored.TheyareoftenreferredtoasNegativeEmissionsTechnologies(NETs),butnotallrelyonthedeploymentoftechnologicalmeans.Therearethreemaincategoriesofcarbonremovalsolution(seeFigure2).
Nature-based solutionsthat use biological processes to capture CO2 from the atmosphere and store it in the form of organic matter. Examples: afforestation; soil carbon sequestration
Hybrid solutionswhich combine nature-based and technological processes. Example: bioenergy and carbon capture and storage (BECCS)
Technological solutions that use engineering tools to filter CO2 from air and store/process it in concentrated form. Example: direct air capture and storage (DACS)
Source:SwissRe
Scientistsagreethatnosingleapproachorsolutionhasthescalepotentialtoremoveenoughcarbontolimitglobalwarmingtowellbelow2°C.32Aswithotherclimatechangemitigationstrategies,aportfolioapproachthatexploitsnichesandsynergies,alignstothevariedneedsofcommunities,landscapesandeconomicpriorities,andfollowsriskdiversification,isrequired.Thepurposeofthischapteristoprovideabetterunderstandingofthecarbonremovallandscape,illustratedinFigure3.Thevaluechainofeachsolution—fromCO2capturefromair,toprocessing,transportandpermanentstorage—isdescribed.Thereafter,Table2providesanassessmentofthesolutionsfeaturingkeyparameterssuchascost,co-benefitsandpossibleadverseeffects.
32 IPCC,2018,op.cit.
Nature-based,technologicalandhybridsolutionsarethethreemaincategoriesofcarbonremoval.
Figure 2 Threemaincategoriesofcarbonremovalsolutions
Tomeetthecapacityrequired,carbonremovalsolutionsneedtodevelopedinparallel.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 9
Nature-based solutions include 1) Afforestation – planting forests on previously woodless land, 2) Soil carbon sequestration – increasing soil organic matter through changes in land manage-ment, 3) Blue carbon – fostering carbon uptake by wetlands; Technological solutions include: 4) Direct air capture and storage (DACS) – filtering CO2 directly from air and storing it permanently, 5) Enhanced weathering – fostering the fixation of CO2 through natural minerals, 6) Ocean alkalinisation – providing chemicals to ocean waters to foster the uptake of dissolved CO2;
Hybrid solutions include: 7) Bioenergy with carbon capture
& storage (BECCS) – extracting heat and power from biomass
then capturing the resulting CO2 from the flue gas and storing it, 8) Biochar –
producing charcoal from biomass and using it eg, as soil amendment, 9) Ocean fertilisation –
providing nutrients to foster algal growth;Storage options for concentrated CO2 from BECCS
and DACS are 10) geological reservoirs similar to an oil filed (porous rock in great depth, sealed by impermeable caprock) or 11) long-lived products such as aggregates, carbon fibres, etc.
9-Ocean fertilization
2-Soil carbon sequestration
4-DACS
8-Biochar1-Afforestation
7-BECCS
3-Blue carbon
6-Oceanalkalinisation
5-Enhanced weathering
11-Long-lived products
10-Geological storage 10-Geological storage
Figure 3 Carbonremovallandscape
Source:SwissRe
10 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The removal industry landscape
Nature-basedsolutions
PlantsremoveCO2fromtheatmospherethroughphotosynthesisanduseitasbuildingblockstoproducetheirbiomass(leaves,wood,roots),inwhichthecarbonremainsstoredaslongastheplantlives.Deadbiomassdecomposesandreleasessomecarbonbacktotheatmosphere,andsomeisconvertedtohumusorpeat.Mostnature-basedsolutions–likeafforestationandpracticestoimprovesoilcarbonsequestrationarewell-establishedandrelativelyinexpensive.33,34Otherareasofnature-basedcarbonremovalactivitylikebluecarbonremainlessexplored.35Ifundertakencorrectly,nature-basedsolutionscanyieldco-benefitsbeyondcarbonsequestration,includingfloodprotection,droughtresilienceandotherbenefitslikebiodiversityconservationandthemaintenanceofessentialecosystemservices.
Onthedownside,nature-basedsolutionsrequirelandandwaterresources.Theycompeteforlandwithfoodandfodderproduction,andotherhumanactivities,whichsetsalimittotheireconomicfeasibilityandscalability.36Moreover,theydonotproducenegativeemissionsinstantaneously:ittakesdecadestogrowaforestoraccumulatehumus.37Anotherriskisthedurabilityofstorageduetoenvironmentalandhumanimpacts.Globalwarmingandchangingprecipitationaltertheabilityoftreesandvegetationtosequestercarbon,andwildfiresorchangesinlandmanagementmayquicklyreleasetheCO2backintotheatmosphere.Thethreemainnature-basedsolutiontypescurrentlyareafforestationandimprovedforestmanagement,soilcarbonsequestrationandbluecarbon.
Afforestation and improved forest managementAfforestationistheplantingoftreesonpreviouslywoodlessland.Improvedforestmanagementseekstoincreasethecarbonstockofanexistingforest.38
Capture:treesandundergrowthcapturecarbonfromtheatmosphereviaphotosynthesis.
Processing: none. Transport: movingseedlingsorsaplingstofinalplantingsite. Storage: intheformofmaturingandmatureforests,includingthelivingbiomass
andthecarbonstoredinforestsoils.Notethatthewoodybiomassmayalsobeharvestedandmanufacturedintolong-livedconstructionmaterialslikemasstimber,whichcanremain(storecarbon)inbuildingsforseveraldecades.
33 S.Fussetal.“Negativeemissions—Part2:Costs,potentialsandsideeffects”,Environmental Research Letters,vol.13,2018.
34 C.Beuttler,S.Keel,J.Leifeld,TheRoleofAtmosphericCarbon Dioxide Removal in Swiss Climate Policy,FederalOfficefortheEnvironment,October2019.
35 Coastal Blue Carbon – methods for assessing carbon stocks and emissions factors in mangroves, tidal salt marshes, and seagrass meadows, ConservationInternational,IOC-UNESCOandIUCN,2014.
36 P.Smith,etal.,“BiophysicalandeconomiclimitstonegativeCO2emissions”,Nature Publishing Group, Nature Climate Change,vol.6,2016.
37 Dependingonspeciesandgeography,onaverage,agrown-uptreecanabsorbroughly22kgCO2peryear.See Forests, health and climate change, EuropeanEnvironmentAgency,2011.Asasapling,itwillabsorbmuchless.IttakesaUKbroadleaftreeitsfulllifetimeof~100yearstocapture1tonneofCO2.SeeHow much CO2 can trees take up?TheGranthamInstitute,2015.
38 Notethatinthecontextofclimateprotection,forestmanagementstrategiescanleadto:1)emissionavoidance:upholdingtheexistingforestcarbonstock,alsoknownasavoideddeforestation;2)emissionreversal:restoringtheforestcarbonstockofarecentlydegradedforest,alsoknownasreforestation;or3)negativeemissionsthroughafforestationorimprovedforestmanagement.Allthreeareimportantmeasurestomitigateclimatechange,butonlyafforestationandimprovedforestmanagementshouldbecountedascarbonremoval.Inpractice,af-andreforestationareoftenusedinterchangeably,asthereisnoconsensusonthetimescaletobeappliedfordefining“recentlydegraded”for“previouslywoodless”.The Economist Intelligence Unit (2020)suggeststhatplantingonlandthathasbeenwoodlessforatleast50yearsqualifiesasafforestation,andlessthanthatasreforestation.
Nature-basedsolutionsuseplantstocaptureCO2fromair.Theycanharnessmanyco-benefits…
..butfacelimitsofscalability.Resultsalsotakealongtimetorealise.
Afforestationistheplantingofnewtreestoincreasethecarbonstockofforests.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 11
Soil carbon sequestrationThroughregenerativeagriculturalpractices,soilsaccumulateorganicmatterintheformofsub-surfacebiomassandhumus.Theaimofsoilcarbonsequestrationistodeploylandmanagementpracticesthateitherincreasethecarboninputtosoils(throughcovercrops,croprotations,manure/compost/residueaddition,improvedgrazingmanagement)ordecreasethecarbonlossfromsoils(no-/low-tillage,switchfromannualtoperennialcropsandgrasses).39
Capture:viaplantbiomassgrowthanddecomposition,atmosphericCO2endsupinsoils.
Storage:intheformofsoilorganicmatter.
Blue carbonThisistheconservationandrestorationofcoastalwetlands(mangroves,seagrassmeadows,saltmarshes,macroalgae)andfreshwaterpeatlands,whichcansequestermorecarbonfasterthananyotherecosystem.40,41However,therearegapsintheunderstandingofsequestrationratesandhowhumanscanoptimally(ornegatively)influencethem.42
Capture:viaplantbiomassgrowthanddecomposition,atmosphericCO2endsupinwetlandecosystems.
Transport: movingseedsandsaplingstoplantingsites. Storage: intheformofthelivingbiomass,soilcarbon,peatandsedimentsthat
accumulateinwetlands.
39 K.Paustian,E.Larson,J.Kent,E.Marx,A.Swan,Soil carbon sequestration as a biological negative emission strategy.FrontiersinClimate,16October2019.
40 D.Herretal., Coastal “blue” carbon.InternationalUnionforConservationofNatureandNaturalResources,2015.
41 D.Gordon,B.C.Murray,LPendletonandB.Victor,Financing Options for Blue Carbon: Opportunities and Lessons from the REDD+ Experience.NicholasInstituteforEnvironmentalPolicySolutions,DukeUniversity,2011.
42 ConservationInternational,IOC-UNESCO,andIUCN,2014,op.cit.Thesebodiesclassifyfiveareasinwhichfurtherresearchisstillneeded:geography,sequestrationandstorage,emissionsandremovals,humandriversofecosystemdegradation,andcoastalerosion.
Regenerativeagriculturalpracticesincreasethecarbonstockinsoils.
Restorationandconservationofcoastalzonesandwetlandsincreasethecarbonstockintheseecosystems.
12 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The removal industry landscape
Technologicalsolutions
TechnologicalsolutionsuseindustrialprocessestoremoveatmosphericCO2forcapturing,storageorboth.Theyrelyonmachinery,processingorstorageinfrastructure,aswellaslogisticstotransportthecapturedconcentratedCO2products.Thestepsareenergyintensive.TheenergyusedshouldbefromrenewablesourcestopreventputtingnewCO2intotheatmospherewhileremovingwhatisalreadythere.Forexample,tocaptureonetonneofCO2directlyfromtheairusingcurrentfiltertechnologiesrequires2300kWhofenergy,equivalenttotheenergycontentin0.2tonnesofoil.43Producing,transportingandburning0.2tonnesofoilreleasesroughly0.6tonnesofCO2.Iftheenergytocapture1tonneofCO2fromaircamefromoil,thenetbenefitwouldbejust0.4tonnesofCO2capture.44
Technologicalsolutionsaremorecapital-andoperating-expenditureintensivethannature-basedalternatives.Also,theco-benefitsinvolvedarefewerandlessobvious(eg,jobcreation,re-purposingofstrandedinfrastructure,45innovationspill-over).46
Thishelpsexplainwhytechnologicalsolutionsarestillatanearlystageofdevelopmentanddeployment.Intheabsenceofstringentcarbonpricing,mandatesorvoluntarybuyers,therehasbeenlittlebusinessjustificationtodevelopexpensiveequipmenttocleantheairofCO2.Ontheupside,landrequirementsaresmallandthestorageinchemicalorgeologicalsystemsismoredurablethanthestoragepotentialofbiologicalsystems.Thetwomaintechnologicalsolutionsarecurrentlydirectaircaptureandstorage,andenhancedweathering.
Direct air capture and storage (DACS)CO2isfiltereddirectlyfromambientair,compressedandtheninjectedintogeologicalformationsdeepundergroundforpermanentstorage.
Capture:throughchemicalfiltersinairprocessingunits,CO2isbroughtfromonly0.04%concentrationintheairtocloseto100%concentrationintheresultinggasproduct.Thisseparationtaskrequireselectricitytodrivesufficientamountsofairthroughtheunit(10–20%oftotalenergy),andheattoregeneratethefilters(80–90%oftotalenergy).47
Processing:aftercapture,theconcentratedCO2streamisliquifiedincompressors(>65baratambienttemperature).
Transport:aircaptureunitsareideallyco-locatedatarenewableenergysourceorastoragesiteorboth,sothataircapturecantakeplaceanywhere(independentfromaCO2pointsource).Therefore,onlylimitedornoCO2transportinfrastructure–suchaslong-distancepipelines–isrequired.
Storage:thecompressed,liquifiedCO2ispumpedthroughaninjectionwellintogeologicalstructures,usuallyat800(minimum)to2500(maximum)metresdepth.Likeoilorgasfields,thesestructuresconsistofporousrocktoppedbyalayerofdensecaprock.Onceinjectedatapressureslightlyabovethereservoirpressure(minimum80bar,wellbelowfracturingpressure),physicalandchemicalprocessesstabilisetheCO2overtime.48AbenefitofstoringCO2geologicallyisthatexistingdepletedoilandgasfieldscanbere-filledusingoldinfrastructure.
43 Energyconsumptionofdirectaircapturetechnologyis~200tonnesoilequivalent(toe)pertonneCO2captured.Burningatonneofoilroughlyemits~3tonnesofCO2.SeeDirect Air Capture – more efforts needed,InternationalEnergyAgency(IEA),June2020,
44 Ibid.45 “Strandedinfrastructure”areinfrastructureassetsthatseenprematurewrite-downduetoeconomicor
unexpectedregulatoryreasons.Forexample,fossilenergyinfrastructurelikeanoilpipelinemaybere-purposedtoserveforCO2transport.
46 J.Minxetal“Negativeemissions–Part1:Researchlandscapeandsynthesis”, Environmental Research Letters,vol13,2018.
47 IEA,June2020,op.cit.48 Withinthestoragereservoir,theCO2:1)istrappedphysicallybeneaththecaprock(structuraltrapping,
immediatelyeffective):2)getsimmobilizedintheformoftrillionsoftinybubblesbehindporenecks(residualtrapping,immediatelyeffective);then3)startsdissolvingintheporefluidandsinkstothebottom(dissolutiontrapping,takesyearstocenturies);andlater4)reactswiththerocktoformstablemineralcarbonates(mineraltrapping,takesdecadestomillennia).Overtime,thesefoursequentialtrappingmechanismstransformCO2intoevermoredurableformsofstorage.SeeSpecialReportonCarbonCaptureandStorage,IPCC,2005.
Technologicalsolutionsuseengineeringtoolstoremovecarbon,andrequirelotsofrenewableenergy.
Technologicalsolutionsarestillatanearlystageofdevelopment.
DACSdeploysfiltermachinestocaptureCO2directlyfromair.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 13
InNorthAmerica,CO2injectionintomaturingoilfieldsthroughonewellispracticedtoproducemoreoilinanotherwellnearby.ThisisknownasEnhancedOilRecovery(EOR).Intheory,moreCO2canbeinjectedandsequesteredthanthatemittedthroughdownstreamoilusage.AnotherspecialcaseforgeologicalCO2storagehasbeendemonstratedinIceland,wherecapturedCO2ispre-dissolvedinwaterandtheninjectedintobasalts,atypeofrockthatreactwiththeCO2toformstableminerals.49
AircapturedCO2canbeprocessedintolong-livedproductslikecarbonfibre,aggregatesandotherbuildingblocksforconcreteandprecipitatedcalciumcarbonate.Thisisreferredtoas‘carbontech’,orcarboncapture,utilisationandstorage(CCUS).Currently,carbontechmakesuseofjustsome200MtCO2perannum,includingCO2usedforEORandshort-livedproductssuchassyntheticfuelsorplastics(=carboncaptureandutilisation,CCU),meaningitplays/willlikelyplayjustasmallroleintheglobalquesttodelivergigatonsofnegativeemissions(seealsoCarbon removal vs. carbon capture and storage: what are the differences? onp15).
Enhanced weatheringChemicalweatheringisthenaturalprocessbywhichrocksurfacegetsattackedwhenexposedtoatmosphericCO2dissolvedinwater.Thisprocesscanbeenhancedbyenlargingthesurfaceareaofsuitablerocksandoptimallyexposingthemtorain-oroceanwater.50
Capture:alkalinerocksuchasolivineisminedandfinelygroundtoincreasesurfaceareabeforebeingspreadevenlyoversoilorbeaches.CO2inwaterformscarbonicacidthatattacksanddissolvestherockgrains,therebyformingastablemineral/bicarbonatesolution.Enhancedweatheringcanalsobecarriedoutinanengineeredreactorwheretemperature,pressureandpHconditionscanbevariedtoincreasethespeedofreactions(mineralcarbonation,ormineralisation).51
Processing:miningandgrindingrock. Transport:fromthemine/grindertotheweatheringsitesusingtrucks,trainsand
ships. Storage: chemicallyfixedasbicarbonatesolution(pore-,surface-,oceanwater)
andeventuallyprecipitatedascarbonateminerals.
49 See,forexample,theCarbfixprojectinIceland.
50 R.DSchuiling,P.Krijgsman,“EnhancedWeathering:AnEffectiveandCheapTooltoSequesterCO2”,Climatic change,vol74,2006.SeealsoD.J.Beerling,E.P.Kantzas,etal.,“Potentialforlarge-scaleCO2removalviaenhancedrockweatheringwithcroplands.Nature,vol583,2020.
51 K.Lackneretal.,“Carbondioxidedisposalincarbonateminerals”,Energy,vol20,1995.
Inconcentratedform,theCO2canbestoredingeologicalformations...
...andalsoinlong-livedproducts.
EnhancedweatheringacceleratesthenaturalprocessbywhichmineralscanbindCO2dissolvedinwater.
14 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
Hybridsolutions
Hybridsolutionsseektocombineandreapthebenefitsofdifferentfeaturesofnature-basedandtechnologicalapproaches.Whatnaturedoesbestissun-poweredaircapturethroughphotosynthesis.Technology,ontheotherhand,isbetteratconvertingCO2intodurableformsofstorage.
Bioenergy with carbon capture and storage (BECCS)Biomassisconvertedtoheatandpowerinapowerplantortoenergycarrierslikeethanol,methanolorbiogasinanindustrialfacility.TheconversionresultsinbiogenicCO2thatisseparatedfromtheoff-gasthroughconventionalpointsourcecarboncapturemethods.TheconcentratedCO2canbesentforgeologicalstorageorprocessedintolong-livedproducts.The“CCS”partofBECCSisthesameastheconventionalcarboncaptureandstoragevaluechaintodecarboniselargepointsourcesofCO2suchascoalfiredpowerplants(seealsoCarbon removal vs. carbon capture and storage: what are the differences? below)52
Capture:thefirststepofcapturingofCO2fromtheairisthroughphotosynthesisinplants.
Processing: plantbiomassisharvestedandburned,orconvertedtobiofuelsandotherchemicals.TheresultingbiogenicCO2canbethenstrippedrelativelyeasilyfromthefluegas/processgasusingconventionalCO2capturemethods(eg,aminescrubbing).53ThisisthesecondcapturestepinBECCS.TheconcentratedCO2isthencompressedandsentforstorage.
Transport: twomainsteps:1)movingbiomassfromthefield/foresttotheprocessingplants:and2)fromthere,movingcompressedorliquifiedCO2inpipelines(typicallyat100barpressure,ambienttemperature)orusingtrucks/trains(~20bar,–20°C)orships(at7bar,–50°C)toastoragesite.Ideallybiomasssourceandstoragesitesareincloseproximitytokeeptransportcoststoaminimum.54
Storage: thestorageoptionsarethesameasforDACS.
BiocharBiocharresultsfromheatingbiomassunderlackofoxygen(pyrolysis).Itconsistsofcarbonblackwhichdecomposesveryslowlyundernaturalconditions,renderingbiocharamoredurablecarbonstorageformthantheoriginalbiomass.Itisusuallyaddedtodegradedtopsoiltoimprovesoilfertility.
Capture: plantgrowthcapturescarbonfromtheatmospherethroughphotosynthesis.
Processing: theplantbiomassisconvertedintobiocharinapyrolysisplant.Pyrolysisproducesamethaneandhydrogenrichoff-gas(syngas)thatcanbeusedtopowerthepyrolysisprocessorbeupgradedtosyntheticbiofuels.
Transport: biomassismovedfromthefield/foresttothepyrolysisplant,andthebiocharfromthatplanttoitsplaceofuse.55
Storage: intheformofcarbonblack,whichisstableoverdecadeswhenusedasbuildingblocksintheconstructionorchemicalindustries,56andcanalsobeusedforsoilamelioration.57
52 IPCC,2005,op.cit.53 NotethatconventionalCO2capturefromafluegascontaining4–25%CO2requiresmuchlessenergy
thandirectcapturefromaircontainingonly0.04%CO2.Asaruleofthumb,costofcapturescaleslinearlywithdilution(Sherwood’sRule).
54 IPCC,2005,op.cit.55 Mobilepyrolysisunitscouldbeusedtoprocessthebiomassandreturnthebiocharonfieldsite.See
“Useofmobilefastpyrolysisplantstodensifybiomassandreducebiomasshandlingcosts–apreliminaryassessment,”Biomass and Bioenergy,vol30,2006.
56 “Applicationofthebiochar-basedtechnologiesasthewayofrealizationofthesustainabledevelopmentstrategy”,Economic and Environmental Studies,OpoleUniversity,vol.17,2017
57 J.Lehmann,S.Joseph,Biochar for environmental management, first edition.Earthscan,2009.
Hybridsolutionscombinenature-basedandtechnologicalsolutions.
BECCSconvertsbiomasstoenergy,andcapturesandstorestheresultingbiogenicCO2fromthefluegas.
Heatingbiomassunderlackofoxygenproducesbiocharthatismoredurablethantheoriginalbiomass.
The removal industry landscape
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 15
Othersolutions
Otherless-developedcarbonremovalsolutionsincludeoceanfertilisationandalkalinisation.TheseacceleratethenaturalcarboncyclebymodifyingoceanchemistrytowardsahigherCO2uptakerate.
Ocean fertilisation providesthemissingnutrient–mostlyiron–thatcontrolsalgalgrowthdirectlyinthesurfacewaterathighsea.Algae(phytoplankton)growsandabsorbsCO2throughphotosynthesis.Itthendiesandsinks,creatingacarbonfluxtotheoceanfloor.
Ocean alkalinisationprovidesalkalinebrinesdirectlytooceanstoraisethepHofthewaterandallowmoreuptakeofatmosphericCO2.Thealkalinityisderivedfromminerals(silicates,limestone)orindustrialby-products(ashes,desalinationbrines).
Thereisstillmuchuncertaintywithrespecttotheeffectivenessandadverseimpactsonoceanecologyofthesesolutions,whichmeritsfurtherresearchbeforeconsideringlarge-scaledeployment.58
58 Uncharted Waters: Expanding the Options for Carbon Dioxide Removal in Coastal and Ocean Environments,EnergyFuturesInitiative,2020.
Otherapproachestocarbonremovalarelessdeveloped...
...andentailmanyunknowns.
16 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The removal industry landscape
Carbon removal vs. carbon capture and storage: what are the differences?Thetermscarbonremovalandcarboncaptureandstorage(CCS,orsimplycarboncapture)areoftenusedinterchangeably,butthereareimportantdifferences.CarbonremovalisthecaptureandstorageofCO2fromtheatmosphereforthesakeofproducingnegativeemissions.CCSisthecaptureandstorageofCO2fromthefluegasoflargeindustrialpointsourcesforthesakeofreducingemissionsfromfossilfueluse.59ThereareoverlapsintheCCSvaluechain,andthatofBECCSandDACS,whichallprovideconcentratedatmosphericCO2postcapture.ThethreeprocessescansharethesameCO2transportandstorageinfrastructure.InthecaseofBECCSandCCS,thepointsourcecapturetechnologyisthesame.
AnotherareaofconfusionisthefateoftheCO2oncecaptured,inparticularwhenitcomestocarbonbalance.CO2canbestoredgeologicallyasintheoriginalCCSvaluechain.Itcanbeconvertedtoshort-livedproductsthatwillreleasethecapturedCO2uponconsumption,knownascarboncaptureandutilisation(CCU),oritcanbeconvertedtolong-livedproductsthatholdCO2foralongtime,calledcarboncapture,utilisationandstorage(CCUS).DependingontheoriginoftheCO2(fossilderivedorbiogenic/directlyfromair),thethreeroutesleadtoacarbonbalancethatispositive(moreemissions),neutral(emissionsareavoided)ornegative(carbonisremoved).
TheCCUSrouteispreferableovergeologicalstorage,becauseitgivesvaluetoratherthandisposingofCO2emissionsasawasteproduct.However,thebulkmarketcurrentlyopentoreceiveCO2fromanexternalsourceisjustsome40milliontonnes/year,60andmostofthattakestheCCUratherthanCCUSroute.Thisiswellshortoftheneedformanybilliontonnesofemissionstobesequesteredtobalanceresidualandlegacyemissionsinlinewiththe1.5°Cwarminglimit.ThatiswhymostoftheconcentratedCO2comingfromBECCSandDACSplantswilleventuallyhavetotakethegeologicalstorageroute.
59 Twentyyearsago,CCSemergedasameanstodecarbonisecoal-andgas-firedpowerplantsatatimewhennewrenewableswerestillprohibitivelyexpensive.Today,utility-scalewindandsolararethecheapestenergysourceinmanypartsoftheworld,thustheroleofCCSinthepowersectorwilllikelybelimited.CCSremains,however,asolutiontodecarbonisehard-to-abateindustrialsectorslikecement.
60 TotalbulkCO2marketis230MtCO2/year(PuttingCO2touse,IEA,2019).Ofthis130Mt/yrareforureaproductionandstemmostlyfromtheprocessitself(CO2frommethanereformingtoproduceammonia),and70–80Mt/yrareusedforEOR,wheretodateonly~20%stemfromanthropogenicsources,therestbeingdeliberatelyproducedfromnaturalCO2reservoirsindeepgeologicalformations.SeeClimate Intervention: Carbon Dioxide Removal and Reliable Sequestration,NationalAcademyofScience,2015.
ThevaluechainsofBECCS,DACSandCCSoverlap.
CCUSproduceslong-livedproductsthateffectivelystoreCO2.CCUproducesshort-livedproductsthatdon’tstoreCO2.
CCUSislimitedinstoragecapacity.ThebulkoftheconcentratedCO2hastogotogeologicalstorage.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 17
Figure 4 OverlapbetweencarbonremovalandCCSvaluechains
CO2 from atmosphere
Photo-synthesis
Biomass
Geologicalprocesses
Millions of yearsCoal, oil, gas
Combustion(point-source)
CO2 into atmosphere
CO2
capture
concentratedCO2
Geologicalstorage
Utilization &storage
Long-lived products(eg, concrete)
Utilization
CO2 intoatmosphere
Short-lived products(eg, synfuels)
Air capture
Biomassprocessing
Bio-diesel,wood, etc.
Today
Main input Fossil fuels
Output Heat/power,industrialproducts
Heat/power,industrialproducts
Heat/power,industrialproducts
CO2 balance Positive
CCS
more fuel
Neutral
BECCS
Biomass (land, water, fertilizer)
Negative
DACS
Heat/powerfrom renewables
–
Negative Neutral for fossil CO2Negative for bio/air CO2
CCUS
Heat/power(from renewables)
Long-lived products
Positive for fossil CO2Neutral for bio/air CO2
CCU
Heat/power(from renewables)
Short-lived products
CCS
CCUS
CCUBECCS
DACS
Source:SwissRe
18 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The removal industry landscape
Table 2 Carbonremovalsolutions:literature-basedassessment61
Method Readiness62 Cost todayUSD/tCO263
Energy requirementGJ/tC02
Land requirement ha/tCO2/yr
Scalability64 Permanence of storage74 Possible co-benefits75 Possible adverse effects76
Nature-based solutions
Afforestation (AF), improved forest management (IMF)
MatureAvailableatlargescale
1–100 –65 0.03–0.766
LowBarrierstoupscaling:
– landrequirementcreatescompetitionwithcropandfodderproduction,andconservationalgoals
– fullremovalpotentialunfoldsoverseveraldecades,foraslongasaforestgrows.Afully-grownforestcannotremovemorecarbon
– concernsaboutpermanence– lackofincentives/valuationofecosystem/climateservices
– lackofdemandforwoodinmostmarkets
Low77
Riskofreversalfrom:– illegalandlegaldeforestation(policychanges)
– slowdegradation(globalwarming,pests)
– naturalhazards(wildfires,storms)
– protectionandcreationofhabitatsthatconserveandenhancebiodiversity
– preventionofsoilerosion– improvedwaterquality/retention,localairqualityand(micro-)climaticconditions
– reversalofdesertification– jobcreationinforestryandeco-tourism– revenuefromsustainabletimber
– ill-managedafforestationefforts(monoculturetreeplantations,plantinginspecies-richecosystemslikesavanna)canharmbiodiversityandlivelihoodoflocalcommunities(displacement)
– foodsecuritycompromised– largewaterneedsforprojectsindryzones– treecoveragemayreducealbedo(reflectionofsunlightbackintospace),particularlyinsnow-richregions,whichmayexacerbateglobalwarming78
Soil carbon sequestration (SCS)
Early adoption – mature
– mostlyavailableatlargescale(afewpracticessuchasperennialisationarestillpre-mature)
0–4067 –68 –69 LowBarrierstoupscaling:
– lackofincentivesforwidespreadadoption,includingchallengesforfarmerswhensubsidysystemsaretiedtohighyieldofmonoculturalcommoditycrops
– resistancetochangeofestablishedpractices– risksassociatedwithtransitioningofpractices,suchasimpactonyieldandlabourinthefarmingpracticetransitionphase
– competinglanduses– timetakenforsoilcarbontobuildup– difficulties/uncertaintiesinmeasuringsoilcarbon– concernsaboutpermanence
LowRiskofreversalfrom:
– goingbacktooriginalpractices(eg,changeofownershipoftheland,policychanges,ceaseofincentives)
– environmentalchangesandhazards(floods,droughts)
– improvedcropyieldsaftertransitiontimewithpossibleloweryieldsforafewyears
– lowerexpensesforfertiliser,irrigationandcropprotectionchemicals,whichalsoreduceenvironmentalimpactsonsoil,water,air,faunaandhumanhealth
– increasedsoilresilienceandmicrobialbiodiversity
– improvedwaterretention(floodprotection)– improvedwaterqualityduetolowerfertiliserinputsandrunoff,andlesssoilwashingintowaterways
– significantreductionsinotherGHGemissions(eg,methane,N₂O)
– possibleincreaseofotherGHGemissions(N2O)
.
Blue carbon (BC)
Prototype – maturefromprototypes(eg,marinepermaculture)toavailableatlargescale(eg,mangroverestoration)
10–10070 –71 0.272 Low73
Barrierstoupscaling:– conflictsofuseincoastalzones– lackofincentivesforconservationandrestoration– waterpollution– concernsaboutpermanence– negativepublicperceptionofmangrovesandwetlands
Low79
Riskofreversalfrom:– land-usechange/ceaseofconservationpolicies
– coastalwetlandsvulnerabletosealevelriseandincreasedstormfrequency/intensity
– intactcoastalwetlandsprotectthecoastandinlandagainststormsurgeandotherstorm-relatedimpacts
– increasedbiodiversity/restoringfishstock– improvedwaterquality/foodsecurityforlocalcommunities
– jobcreation/protection(food,fishery,tourism)
– increasedtraceGHGemissions(CH4,N2O)
61 Theeditorialdeadlinetocompilethistablewas28February2021.62 Innovation needs in the Sustainable Development Scenario – Clean Energy Innovation Flagship Report:IEA,2020.Prototype=TRL4–6,Demonstration=
TRL7–8,Earlyadoption=TRL9–10(TRL10definedbyIEAas“Solutioniscommercialandcompetitivebutneedsfurtherintegrationefforts”),Mature=TRL11,definedbyIEAas“Proofofstabilityreached,withpredictablegrowth”.CommentsonthedevelopmentstatusadaptedfromG.F.Nemet,etal.“NegativeEmissions-Part3:Innovationandupscaling”,Environmental research letters,vol13,2018.
63 AdaptedfromFussetal.2018,op.cit.64 CategoriesdefinedbasedonaveragecumulativepotentialinGtCO2bytheyear2100,compliedfromliteraturebyMinxetal.2018,op.cit.,Table2:Low=0–150
Gt,medium=151–300Gt,high=>301GtCO2.Notethatthepotentialoftheindividualcarbonremovalsolutionsarenotnecessarilyadditiveassolutionscompeteforlimitedland,biomassfeedstock,andsuitablegeologicalstoragecapacity.CommentsonthelimitationsstatusadaptedfromNemetetal.,2018op.cit.
65 Af-andReforestation,andImprovedForestManagementhavebeenfoundtorequirenoadditionalenergyinputcomparedtoconventionalforestmanagement.Numbersdifficulttopinpoint
66 Land Use, Land-Use Change and Forestry,IPCC,2000.67 InformedbyP.Smith,“Soilcarbonsequestrationandbiocharasnegativeemissionstechnologies”, Global Change Biology,vol22,2016,andcurrentmarket
intelligence.68 SCShasbeenfoundtorequirenoadditionalenergyinputcomparedtoconventionallandmanagement.Numbersdifficulttopinpoint.69 SCSrequiresnoadditionallandbeyondwhatisalreadyusedforagriculture.70 NotassessedbyFussetal.2018,op.cit.Costbasedonauthors’judgementandWhat is Blue Carbon?AmericanUniversity71 Noreliablecalculationsorestimationsavailable72 Numberrefersonlytospecificmangroveplantations,otherwetlandecosystemsmaybedifferent.D.M.Alongi2012,“Carbonsequestrationinmangrove
forests”, Carbon Management,vol3,2012;O.J.Eeon,“Mangroves–acarbonsourceandsink”,Chemospherevol27,1993.73 NotassessedbyMinxetal.,2018,op.cit.AccordingtoGriscometal.in“Naturalclimatesolutions”,PNAS,2017.Afforestationandimprovedforest
managementtogetherhaveayearlypotentialof3.9GtCO2/yearin2030,whereascoastalwetlandandpeatlandrestorationtogetherhave0.6GtCO2/year.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 19
Table 2 Carbonremovalsolutions:literature-basedassessment61
Method Readiness62 Cost todayUSD/tCO263
Energy requirementGJ/tC02
Land requirement ha/tCO2/yr
Scalability64 Permanence of storage74 Possible co-benefits75 Possible adverse effects76
Nature-based solutions
Afforestation (AF), improved forest management (IMF)
MatureAvailableatlargescale
1–100 –65 0.03–0.766
LowBarrierstoupscaling:
– landrequirementcreatescompetitionwithcropandfodderproduction,andconservationalgoals
– fullremovalpotentialunfoldsoverseveraldecades,foraslongasaforestgrows.Afully-grownforestcannotremovemorecarbon
– concernsaboutpermanence– lackofincentives/valuationofecosystem/climateservices
– lackofdemandforwoodinmostmarkets
Low77
Riskofreversalfrom:– illegalandlegaldeforestation(policychanges)
– slowdegradation(globalwarming,pests)
– naturalhazards(wildfires,storms)
– protectionandcreationofhabitatsthatconserveandenhancebiodiversity
– preventionofsoilerosion– improvedwaterquality/retention,localairqualityand(micro-)climaticconditions
– reversalofdesertification– jobcreationinforestryandeco-tourism– revenuefromsustainabletimber
– ill-managedafforestationefforts(monoculturetreeplantations,plantinginspecies-richecosystemslikesavanna)canharmbiodiversityandlivelihoodoflocalcommunities(displacement)
– foodsecuritycompromised– largewaterneedsforprojectsindryzones– treecoveragemayreducealbedo(reflectionofsunlightbackintospace),particularlyinsnow-richregions,whichmayexacerbateglobalwarming78
Soil carbon sequestration (SCS)
Early adoption – mature
– mostlyavailableatlargescale(afewpracticessuchasperennialisationarestillpre-mature)
0–4067 –68 –69 LowBarrierstoupscaling:
– lackofincentivesforwidespreadadoption,includingchallengesforfarmerswhensubsidysystemsaretiedtohighyieldofmonoculturalcommoditycrops
– resistancetochangeofestablishedpractices– risksassociatedwithtransitioningofpractices,suchasimpactonyieldandlabourinthefarmingpracticetransitionphase
– competinglanduses– timetakenforsoilcarbontobuildup– difficulties/uncertaintiesinmeasuringsoilcarbon– concernsaboutpermanence
LowRiskofreversalfrom:
– goingbacktooriginalpractices(eg,changeofownershipoftheland,policychanges,ceaseofincentives)
– environmentalchangesandhazards(floods,droughts)
– improvedcropyieldsaftertransitiontimewithpossibleloweryieldsforafewyears
– lowerexpensesforfertiliser,irrigationandcropprotectionchemicals,whichalsoreduceenvironmentalimpactsonsoil,water,air,faunaandhumanhealth
– increasedsoilresilienceandmicrobialbiodiversity
– improvedwaterretention(floodprotection)– improvedwaterqualityduetolowerfertiliserinputsandrunoff,andlesssoilwashingintowaterways
– significantreductionsinotherGHGemissions(eg,methane,N₂O)
– possibleincreaseofotherGHGemissions(N2O)
.
Blue carbon (BC)
Prototype – maturefromprototypes(eg,marinepermaculture)toavailableatlargescale(eg,mangroverestoration)
10–10070 –71 0.272 Low73
Barrierstoupscaling:– conflictsofuseincoastalzones– lackofincentivesforconservationandrestoration– waterpollution– concernsaboutpermanence– negativepublicperceptionofmangrovesandwetlands
Low79
Riskofreversalfrom:– land-usechange/ceaseofconservationpolicies
– coastalwetlandsvulnerabletosealevelriseandincreasedstormfrequency/intensity
– intactcoastalwetlandsprotectthecoastandinlandagainststormsurgeandotherstorm-relatedimpacts
– increasedbiodiversity/restoringfishstock– improvedwaterquality/foodsecurityforlocalcommunities
– jobcreation/protection(food,fishery,tourism)
– increasedtraceGHGemissions(CH4,N2O)
61 Theeditorialdeadlinetocompilethistablewas28February2021.62 Innovation needs in the Sustainable Development Scenario – Clean Energy Innovation Flagship Report:IEA,2020.Prototype=TRL4–6,Demonstration=
TRL7–8,Earlyadoption=TRL9–10(TRL10definedbyIEAas“Solutioniscommercialandcompetitivebutneedsfurtherintegrationefforts”),Mature=TRL11,definedbyIEAas“Proofofstabilityreached,withpredictablegrowth”.CommentsonthedevelopmentstatusadaptedfromG.F.Nemet,etal.“NegativeEmissions-Part3:Innovationandupscaling”,Environmental research letters,vol13,2018.
63 AdaptedfromFussetal.2018,op.cit.64 CategoriesdefinedbasedonaveragecumulativepotentialinGtCO2bytheyear2100,compliedfromliteraturebyMinxetal.2018,op.cit.,Table2:Low=0–150
Gt,medium=151–300Gt,high=>301GtCO2.Notethatthepotentialoftheindividualcarbonremovalsolutionsarenotnecessarilyadditiveassolutionscompeteforlimitedland,biomassfeedstock,andsuitablegeologicalstoragecapacity.CommentsonthelimitationsstatusadaptedfromNemetetal.,2018op.cit.
65 Af-andReforestation,andImprovedForestManagementhavebeenfoundtorequirenoadditionalenergyinputcomparedtoconventionalforestmanagement.Numbersdifficulttopinpoint
66 Land Use, Land-Use Change and Forestry,IPCC,2000.67 InformedbyP.Smith,“Soilcarbonsequestrationandbiocharasnegativeemissionstechnologies”, Global Change Biology,vol22,2016,andcurrentmarket
intelligence.68 SCShasbeenfoundtorequirenoadditionalenergyinputcomparedtoconventionallandmanagement.Numbersdifficulttopinpoint.69 SCSrequiresnoadditionallandbeyondwhatisalreadyusedforagriculture.70 NotassessedbyFussetal.2018,op.cit.Costbasedonauthors’judgementandWhat is Blue Carbon?AmericanUniversity71 Noreliablecalculationsorestimationsavailable72 Numberrefersonlytospecificmangroveplantations,otherwetlandecosystemsmaybedifferent.D.M.Alongi2012,“Carbonsequestrationinmangrove
forests”, Carbon Management,vol3,2012;O.J.Eeon,“Mangroves–acarbonsourceandsink”,Chemospherevol27,1993.73 NotassessedbyMinxetal.,2018,op.cit.AccordingtoGriscometal.in“Naturalclimatesolutions”,PNAS,2017.Afforestationandimprovedforest
managementtogetherhaveayearlypotentialof3.9GtCO2/yearin2030,whereascoastalwetlandandpeatlandrestorationtogetherhave0.6GtCO2/year.
74 Authors’judgment:low=decades,medium=centuries,high=millennia.IndicationofriskofstoragereversaladaptedfromFussetal.,2018op.cit.75 AdaptedfromFussetal.,2018,op.cit.76 Ibid.77 C.f.10–100yearscontracteddurabilityforforestprojects,Microsoft,2021op.cit.78 C.A.Williams,etal.,“ClimateimpactsofUSforestlossspannetwarmingtonetcooling,“Science Advances, vol7,2021.79 NotassessedbyFussetal.2018,op.cit..Thepermanenceconstraintswithunderlyingrisksofstoragereversalare,however,notdissimilarfromafforestation
(eg,mangroves)andsoilcarbonsequestration(eg,saltmarshes).
20 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The removal industry landscape
Method Readiness62 Cost todayUSD/tCO263
Energy requirementGJ/tCO2
Land requirement ha/tCO2/yr
Scalability64 Permanence of storage74 Possible co-benefits75 Possible adverse effects76
Technological solutions
Direct air capture and storage (DACS)
PrototypeThreefront-runningcompanies(Climeworks(CH),CarbonEngineering(CA),GlobalThermostat(US))runprototypes.Laterin2021,Climeworkswillopentheworld’sfirstpre-commercialdemonstration80
600–100081 6.7-12.382 <0.00183 HighBarrierstoupscaling:
– highcost(asaconsequenceoflowtechnologyreadinessandresource/energyintensityduetophysical/thermodynamicconstraints)
– highdemandof(clean)energy– slowdevelopmentofgeologicalstorageinfrastructure,alsoduetolackofpublicacceptance(fearofleakage)
– lackofconsistentregulationandstandards
HighRiskofreversalfrom:
– leakagealongfaulty/abandonedwells
– undiscoveredcaprockdeficiencies
– slowmigrationoutofthestoragereservoirtogetherwithformationfluids
– jobcreation/preservation(foroil&gasindustrytransitioningtonewbusinessmodel;CO2-as-a-service,“reversethepump”)94
– repurposingofidleinfrastructure– scientificinsightsandinnovationspill-overbenefits
– parasiticenvironmentalimpactsfromDACsupplychain(metals,chemicals,othermaterials)andcleanenergysources(andtheirsupplychains)
– inducedseismicityduringgeologicalstorageoperation
– incaseofleakage:contaminationofgroundwaterwithdisplacedreservoirfluids,ifCO2makesitswaytosurface(eg,alongwellcasing),humanhealthriskthroughasphyxiation(CO2isheavierthanairandmayaccumulateinditches,pits,etc.)
Enhanced weathering (EC)
PrototypeEarlyapplicationsonly84
50–20085 12.586 <0.0187 MediumBarrierstoupscaling:
– fundamentalunderstandingofimpacts/effectiveness
– veryslowsequestrationrates– costoftransportofminerals
Low – highRiskofreversalfrom:
– changesinwaterchemistry(eg,drainagefromsoils,externaldisturbances,includingacidrain)
– addingcertainmineralstoleachedsoilimprovessoilfertility(nutrients,higherpH,nutrientretentioncapacity,moistureretention)andthuscropyields
– jobcreation/preservationinmining– repurposingofidleinfrastructure
– potentialheavymetalrelease– negativeecological/socialimpactofmineralextractionandtransport
– healthrisksrelatedtofine-grainmatter
Hybrid solutions
Bioenergy with carbon capture and storage (BECCS)
DemonstrationLimitednumberoffull-scaledemonstrationplants88
15–400 Energyproduction0.8-10.989
0.03–0.590 HighBarrierstoupscaling:
– costofindustrialcaptureandstorage– availability/accessibilityofbiomass(competitionwithotheruses,eg,biofuels)
– competitionforagriculturallandifbiomassstemsfromdedicatedenergycrops(ifbiomassstemsfromforests,moretonnesofCO2canbestoredperlandareawithBECCScomparedtoAF/IMF,becausetheforestbiomasscanbeharvestedseveraltimes)
– lackofconsistentregulationandstandards
HighRiskofreversalsameasforDACS(seeabove)
– biomasscansubstitutefossilfuelstoproducebaseloadenergy(coveringproduction/seasonalgapsofintermittentrenewables)
– energyindependenceiflocalbiomassresourcescanreplaceimportedfossilfuels
– preservationofassets(retro-fittingoffossilfuelpowerplants)
– undergrowthremovedfromforestsandusedforBECCSreducestheriskofseverewildfires
– jobcreation(agro/forestry)andpreservation(power)– CCSretrofittedtowaste-to-energyplantsispartiallyBECCS,dependingonthebiogenicwastefraction
– similarpotentialadverseimpactsasfornature-basedsolutions,inparticularafforestation.Eg,negativeecologicalandsocialimpactfromlandusechange/monoculturetreeplantations
– growingdedicatedenergycropscompromisesfood/foddersecurityandbearsriskofdeforestation
– samegeologicalstorage-relatedrisksasforDACS(seeabove)
– undergrowthremovedfromforestscandiminishforestecosystemintegrity
Biochar Demonstration – early adoptionAvailable,butappliedtodayonlyatsmallscale
20–12091 Energyproduction0.1–5.192
0–0.0193 MediumBarrierstoupscaling:
– costofpyrolysis– constraintsonresourceavailabilityaswithBECCS– uncertaintiesinassessingthecumulativeclimateeffects(includingadverse)ofbiocharsoilamendments
MediumRiskofreversalfrom:
– slowdecay(mostlythroughmicrobialmetabolism)dependingonsoiltype,soilmanagementandenvironmentalconditions
– improvedsoilfertility(nutrientandmoistureretentioncapacity)andthuscropyields95
– reducednon-CO2GHGemissionsfromsoils– renewablepowerfrompyrolysisoffgases– wildfirepreventionlikeforBECCS– canalsobeappliedtomunicipalwaste(wastechar)toreducewastevolumeandpreventlandfillgasemissionsthathavehighglobalwarmingpotential
– growingdedicatedbiocharcropscompromisesfood/foddersecurityandrisksdeforestation
– biocharamendmentmakesthesoildarker(c.f.“terrapreta”;“blacksoil”),whichreducesalbedoandleadstofasterwarminginspring
– benefitstosoilarenotuniversal;sometimesbiocharadditionhasledtodecreasedcropyields96
80 Climeworks’Orcaplant,attheCarbfixstoragesite,Iceland(seehttps://www.carbfix.com/direct-air-capture)81 Estimateincludespubliclyavailablepricepoint(USD775/tCO2,purchasedbyStripeinMay2020)forClimeworksCDRservicesinIceland.82 LowerboundestimatebasedonInternationalEnergyAgency(IEA),2020,op.cit.UpperboundbasedonP.Smith,S.Davis,F.Creutzig,etal.,“Biophysicaland
economiclimitstonegativeCO2emissions,” Nature Climate Change, vol6,2015.83 Ibid.84 Forexample,Project VestaandGreensand.85 AdaptedfromFussetal.2018,op.cit.,andauthors’judgment86 P.Smith,S.Davis,F.Creutzigetal.2015,op.cit.87 Ibid.88 Forexample, DRAX, DPecatur, Illinois Industrial CCS facility89 P.Smith,S.Davis,F.Creutzig,etal.2015,op.cit.90 Ibid.91 AdaptedfromFussetal.2018,op.cit.andauthors’judgment;Greenhouse Gas Removal (GGR) policy options – Final Report, VividEconomics,2019.92 Between13%and47%oftheenergyinthesourcebiomassisconvertedintoausefulformsuchassyngasorbio-oil(K.CrombieandO.Mašek.“Pyrolysis
biocharsystems,balancebetweenbioenergyandcarbonsequestration.”Gcb Bioenergy,2015).ThesefactorshavebeenappliedtotheenergyproductionfromBECCSinreference89.
93 Biocharcanrequirenoadditionallandbeyondthatusedforagriculture/forestryifwastefeedstocksareused.Ifdedicatedcropsaregrown,therecanbealandfootprint.UpperboundfromP.Smith,2016,op.cit.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 21
Method Readiness62 Cost todayUSD/tCO263
Energy requirementGJ/tCO2
Land requirement ha/tCO2/yr
Scalability64 Permanence of storage74 Possible co-benefits75 Possible adverse effects76
Technological solutions
Direct air capture and storage (DACS)
PrototypeThreefront-runningcompanies(Climeworks(CH),CarbonEngineering(CA),GlobalThermostat(US))runprototypes.Laterin2021,Climeworkswillopentheworld’sfirstpre-commercialdemonstration80
600–100081 6.7-12.382 <0.00183 HighBarrierstoupscaling:
– highcost(asaconsequenceoflowtechnologyreadinessandresource/energyintensityduetophysical/thermodynamicconstraints)
– highdemandof(clean)energy– slowdevelopmentofgeologicalstorageinfrastructure,alsoduetolackofpublicacceptance(fearofleakage)
– lackofconsistentregulationandstandards
HighRiskofreversalfrom:
– leakagealongfaulty/abandonedwells
– undiscoveredcaprockdeficiencies
– slowmigrationoutofthestoragereservoirtogetherwithformationfluids
– jobcreation/preservation(foroil&gasindustrytransitioningtonewbusinessmodel;CO2-as-a-service,“reversethepump”)94
– repurposingofidleinfrastructure– scientificinsightsandinnovationspill-overbenefits
– parasiticenvironmentalimpactsfromDACsupplychain(metals,chemicals,othermaterials)andcleanenergysources(andtheirsupplychains)
– inducedseismicityduringgeologicalstorageoperation
– incaseofleakage:contaminationofgroundwaterwithdisplacedreservoirfluids,ifCO2makesitswaytosurface(eg,alongwellcasing),humanhealthriskthroughasphyxiation(CO2isheavierthanairandmayaccumulateinditches,pits,etc.)
Enhanced weathering (EC)
PrototypeEarlyapplicationsonly84
50–20085 12.586 <0.0187 MediumBarrierstoupscaling:
– fundamentalunderstandingofimpacts/effectiveness
– veryslowsequestrationrates– costoftransportofminerals
Low – highRiskofreversalfrom:
– changesinwaterchemistry(eg,drainagefromsoils,externaldisturbances,includingacidrain)
– addingcertainmineralstoleachedsoilimprovessoilfertility(nutrients,higherpH,nutrientretentioncapacity,moistureretention)andthuscropyields
– jobcreation/preservationinmining– repurposingofidleinfrastructure
– potentialheavymetalrelease– negativeecological/socialimpactofmineralextractionandtransport
– healthrisksrelatedtofine-grainmatter
Hybrid solutions
Bioenergy with carbon capture and storage (BECCS)
DemonstrationLimitednumberoffull-scaledemonstrationplants88
15–400 Energyproduction0.8-10.989
0.03–0.590 HighBarrierstoupscaling:
– costofindustrialcaptureandstorage– availability/accessibilityofbiomass(competitionwithotheruses,eg,biofuels)
– competitionforagriculturallandifbiomassstemsfromdedicatedenergycrops(ifbiomassstemsfromforests,moretonnesofCO2canbestoredperlandareawithBECCScomparedtoAF/IMF,becausetheforestbiomasscanbeharvestedseveraltimes)
– lackofconsistentregulationandstandards
HighRiskofreversalsameasforDACS(seeabove)
– biomasscansubstitutefossilfuelstoproducebaseloadenergy(coveringproduction/seasonalgapsofintermittentrenewables)
– energyindependenceiflocalbiomassresourcescanreplaceimportedfossilfuels
– preservationofassets(retro-fittingoffossilfuelpowerplants)
– undergrowthremovedfromforestsandusedforBECCSreducestheriskofseverewildfires
– jobcreation(agro/forestry)andpreservation(power)– CCSretrofittedtowaste-to-energyplantsispartiallyBECCS,dependingonthebiogenicwastefraction
– similarpotentialadverseimpactsasfornature-basedsolutions,inparticularafforestation.Eg,negativeecologicalandsocialimpactfromlandusechange/monoculturetreeplantations
– growingdedicatedenergycropscompromisesfood/foddersecurityandbearsriskofdeforestation
– samegeologicalstorage-relatedrisksasforDACS(seeabove)
– undergrowthremovedfromforestscandiminishforestecosystemintegrity
Biochar Demonstration – early adoptionAvailable,butappliedtodayonlyatsmallscale
20–12091 Energyproduction0.1–5.192
0–0.0193 MediumBarrierstoupscaling:
– costofpyrolysis– constraintsonresourceavailabilityaswithBECCS– uncertaintiesinassessingthecumulativeclimateeffects(includingadverse)ofbiocharsoilamendments
MediumRiskofreversalfrom:
– slowdecay(mostlythroughmicrobialmetabolism)dependingonsoiltype,soilmanagementandenvironmentalconditions
– improvedsoilfertility(nutrientandmoistureretentioncapacity)andthuscropyields95
– reducednon-CO2GHGemissionsfromsoils– renewablepowerfrompyrolysisoffgases– wildfirepreventionlikeforBECCS– canalsobeappliedtomunicipalwaste(wastechar)toreducewastevolumeandpreventlandfillgasemissionsthathavehighglobalwarmingpotential
– growingdedicatedbiocharcropscompromisesfood/foddersecurityandrisksdeforestation
– biocharamendmentmakesthesoildarker(c.f.“terrapreta”;“blacksoil”),whichreducesalbedoandleadstofasterwarminginspring
– benefitstosoilarenotuniversal;sometimesbiocharadditionhasledtodecreasedcropyields96
80 Climeworks’Orcaplant,attheCarbfixstoragesite,Iceland(seehttps://www.carbfix.com/direct-air-capture)81 Estimateincludespubliclyavailablepricepoint(USD775/tCO2,purchasedbyStripeinMay2020)forClimeworksCDRservicesinIceland.82 LowerboundestimatebasedonInternationalEnergyAgency(IEA),2020,op.cit.UpperboundbasedonP.Smith,S.Davis,F.Creutzig,etal.,“Biophysicaland
economiclimitstonegativeCO2emissions,” Nature Climate Change, vol6,2015.83 Ibid.84 Forexample,Project VestaandGreensand.85 AdaptedfromFussetal.2018,op.cit.,andauthors’judgment86 P.Smith,S.Davis,F.Creutzigetal.2015,op.cit.87 Ibid.88 Forexample, DRAX, DPecatur, Illinois Industrial CCS facility89 P.Smith,S.Davis,F.Creutzig,etal.2015,op.cit.90 Ibid.91 AdaptedfromFussetal.2018,op.cit.andauthors’judgment;Greenhouse Gas Removal (GGR) policy options – Final Report, VividEconomics,2019.92 Between13%and47%oftheenergyinthesourcebiomassisconvertedintoausefulformsuchassyngasorbio-oil(K.CrombieandO.Mašek.“Pyrolysis
biocharsystems,balancebetweenbioenergyandcarbonsequestration.”Gcb Bioenergy,2015).ThesefactorshavebeenappliedtotheenergyproductionfromBECCSinreference89.
93 Biocharcanrequirenoadditionallandbeyondthatusedforagriculture/forestryifwastefeedstocksareused.Ifdedicatedcropsaregrown,therecanbealandfootprint.UpperboundfromP.Smith,2016,op.cit.
94 TheRhodiumGroup(estimatesthatDACatfullscaleintheUScouldgenerate30000mostlyhigh-wagejobs:See,Capturing new jobs and new business: Growth opportunities from direct air capture scale-up,RhondiumGroup,2020.
95 Applyingbiochartoamelioratesoilsiswell-establishedbyindigenouscommunitiesintheAmazonregion(terrapreta)andinregenerativeagriculture.See“Thebrightprospectofbiochar”,Nature Climate Change vol 1,2009.
96 Biochar: is there a dark side?,ETHZürich,April2014.
22 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
Theroleofinsurance
Thetransitiontonet-zeroemissionspresentsrisksandopportunitiesforallsectorsoftheeconomy.Movingawayfromfossilfuelsandpollutingpracticesrequiresde-risking,financingandcreationofamarketforcleanalternatives.Theinsurancesectorisuniquelypositionedtooffersupportonthreefronts,by:
providingriskmanagementknowledgeandtransfersolutions,andinsurancecapacityforevolvingriskpools;
providingcapitalasaninstitutional,long-terminvestor;and stimulatingthemarketasabuyerofgreenproductsandservicestorunown
operations.
Togiveapracticalexample,aninsurancecompanycandriveenergytransitionbyprovidingrisktransfersolutionssuchasperformanceguaranteestosolarPVplants,byinvestingingreenbonds,theproceedsofwhichareusedtofinancewindfarms,andbysourcing100%ofitsownpowerconsumptionfromrenewablesources.97Inaddition,insurerscandemonstrateleadershipinmitigatingclimatechangewithtransparencyinreportingonallemissionsources(own-operationandindirectemissionsfrominsuranceofferingsandinvestments);bycommittingtonet-zeroemissionstrategieswithseparatetargetsforcarbonreductionsandremoval;andbyadvocatingforclimateactionandsharingofbestpractices.AnexampleforsuchactionistheUN-convenedNet-ZeroInsuranceAllianceannouncedinApril2021,committingfounding(includingSwissRe)andfuturesignatoriestoachieveanet-zerounderwritingportfolioby2050.98Thefollowingexploreshowthere/insuranceindustrycanengageincarbonremovalalongthethreemaintransitionlevers:asrisktakerandinvestorin,andasbuyerofgreenproductsandservices.
Understandingandinsuringcarbonremovalrisks
Re/insurersconductassessmenttoselectinsurablerisks,proposesuitablepricingthereof,andprovideriskmanagementadvicetoinsureds.99Theyalsodiversifyselectedrisksbasedonlinesofbusiness,geographyandtime.Thesesameriskmanagementactivitiesapplytounderstandingandinsuringofcarbonremovalrisks.
Already insurable risks:Manyelementsofthecarbonremovalvaluechainarefamiliartoinsurersthroughexistingactivities,technologiesandproductsinothersectorvaluechains.TheprivateinsurancemarkethaslongbeenunderwritingasuiteofassociatedrisksthroughProperty&Casualtylinesofbusiness,including:
Propertytraditional(includespropertyvalueandbusinessinterruptioninsurance).Themaincoversareforfire,explosion,maliciousdamage,strike,civilcommotionandnaturalperil(eg,flood,windstorm,hailandearthquake)risks.
Casualtytraditionallines – Generalthird-partyandproductliability – Employer’sliability – Motor – Professionalliability – Environmentalliability
97 AllthreeexamplesarerealengagementspursuedbySwissRe.SeeSustainability Report 2019.98 UN-convened Net-Zero Insurance Alliance,21April2021.99 Therearefourgeneralcriteriathatinsuranceproductsneedtoconformto:1)randomnessoftheperil
(ie,no-oneshouldbeabletoforeseetheexacttimeofoccurrenceofanadverseeventthathastobeaccidentalandindependentofthewilloftheinsured);2)quantificationofthefrequencyandseverityoftheperil(insurerscanmodelfortheprobabilityofoccurrenceandestimatetheimpacttothevalueatriskincaseofoccurrenceofanadverseevent);3)affordability(theinsurancepremiummustbeaffordablefortheinsuredandadequatelycoverthefinancialriskcarriedbytheinsurer);and4)reciprocityormutuality(insuranceportfoliosmustbesufficientlydiversetoavoidsystemicrisk).SeeG.Heal,H.Kunreuther,Environmental Assets & Liabilities: Dealing with catastrophic risks,TheWhartonSchool,November2008,andP.Brahinetal.,The essential guide to reinsurance.SwissRe,2015.
Theinsurancesectorcansupportscalingupofthecarbonremovalindustry.
…asarisktaker,investorandbuyer,andwithtransparentreportingandplanningofandadvocatingforclimateaction.
Carbonremovalcanprofitfromre/insurersriskassessmentandmanagementcapabilities.
Manyelementsofthecarbonremovalvaluechainarealreadyinsurable.Someopportunitiesarenovelornon-existing.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 23
Specialtylines(traditionalandnon-traditional) – Marine – Engineering – Agriculture(forestry,crop) – Politicalrisk – Cyber – Credit&Surety
Takerenewableenergyasanexampleofinsurablerisksthatcantransfertothecarbonremovalvaluechain.Adeveloperofanoffshorewindfarm,forinstance,wouldgotothetraditionalinsurancemarketandseekmulti-linecoversacrossprojectphases:planningliabilityduringthedevelopmentphase;cargoall-risksanddelayinstart-upduringthetransportphase;erectionall-risk,advancelossofprofitandprojectliabilityproductsduringtheconstructionphase;andoperationalall-risk,businessinterruptionandpublic-andproduct-liabilitycovers,aswellasenvironmentalliabilityduringtheoperationalphase.ThroughCredit&Suretyinsurance,thedeveloperandlendersmayseektoprotecttheircontractedservicesandfinancialinterests.
Figure4showsthecarbonremovalvaluechain,withasimplifiedlinkageofthefourmainstages:CO2capturefromair,processing,transport,andstorage.Asindicated,eachstagepresentskeyinsuranceopportunities,accompaniedbyanon-exhaustivelistofrelatedindustrieswithriskpoolsthatunderwritersarealreadyfamiliarwith.Thepre-existingunderstandingcanspurfurtherdevelopmentofinsuranceofferingsforspecificstagesofthecarbonremovalvaluechain.
Multi-lineinsuranceofferingsforrenewablesisanexamplefortheinsurabilityoftechnology.
Theinsuranceopportunitiesalongthecarbonremovalvaluechainaremanifold.
Key:
Marine and cargo
Currently non-existing, uninsurable, or new risks
Political risk insurance
Property business interruption Credit & surety
Property damage Casualty (incl. short-term environmental liability)
Agriculture (incl. forestry)
Engineering Long-term storage liability • storage reversal risk• loss of carbon certificates/price risk
Adapted or novel covers
Mature insurance covers
Flux
Main insurance opportunities
• Examples of industries related to that activity, and industries within the activitie’s value chain
Activity
Nature-based
Technological
Long-lived products
Biomass
Timber, biochar, etc.• Agriculture• Forestry
• Marine• Road & rail • Construction
• Agriculture
• Agriculture, forestry• Natural assets
CO₂
CO₂
CO₂
• Mining & quarrying• CCS for point sources• Oil & gas (off- & onshore, EOR)
• Construction • Chemicals• Concrete aggregates/curing• Plastics, synfuels and other short-lived products (CCU) • Chemicals
• Point source capture (CCS)• Oil & gas (refining)• Blue hydrogen• Cement, steel, aluminum• Renewables
• Marine• Road & rail
• Pipeline• Marine
Planting, land management
Harvesting,burning, conversion
In buildings, soils,materials
In forests, soils, wetlands
Direct air capture
Conversion In buildings,materials
Utilization & storage
Utilization & storage
Conservation
In saline aquifers,mineralisation Geological storage
Capture Processing Transport Storage
• Pulp & Paper• Power & heat• Point source capture (CCS)
Figure 5 Insuranceopportunitiesandrelatedindustriesalongthecarbonremovalvaluechain
Source:SwissRe
24 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The role of insurance
Amulti-lineofferingforadirectaircaptureprojectwouldlooklargelysimilartotheexposurescoveredintheoffshorewindfarmexample.Therisksduringplanning,transport,constructionandoperationareknownandalsoinsurable.ZurichInsurance,forinstance,iscurrently“spear-headingataskforcetoconceptualiseaninsuranceproducttocoverthephysicalandlegalrisksassociatedwithCCS.”100ThefirststepistopackageexistingP&CproductsforCCSpilotanddemonstrationprojectsintheUK.101Thiswillyieldlearningsforthecarbonremovalinsurancemorebroadly,givensignificantoverlapbetweentheCCSandcarbonremovalvaluechains(eg,BECCS,andDACS).
Still present challenges to insurability: Alltold,withcarbonremovalprocessesstillinearlystagesofdevelopment,thestructuringandpricingofinsuranceofferingsfortheindustrywillremainchallengingforsometime.Moreprojects,performancedataandlosshistoryareneededforinsurerstobuildcrediblelossexpectations.TheSleipnerVestfieldinNorwayisanexampleofhowtogenerateandunderstandperformancedataforakeyelementofcarbonremoval,namelygeologicalCO2storage.Since1996,some19milliontonnesofCO2havebeeninjectedintotheSleipnerreservoir,atarateof0.85milliontonnesperyear.Inameta-analysisofmorethan150scientificpapers,Furreetal.examinedtheextensivemonitoringprogrammecarriedoutattheSleipnerstoragesite,concludingthattheCO2injectedattheSleipnersitehasremainedcontainedsincethestartofoperations.102Thestudyalsostressedtheimportanceofcase-specific,risk-basedmonitoringdesign(noone-size-fits-all)103andhow,overtime,thedatafeedbackenabledimprovementofreservoirmodelstorenderbetter,long-termpredictionsandthusriskknowledge.
Otherthanlackoflosshistory,anotherchallengetotheinsurabilityofcarbonremovalisthecomplexityandinterdependencyofthevaluechainsinvolved,especiallyforhybridandtechnologicalsolutions.Underperformanceorfailureofoneofthechainlinks(eg,afaultycompressorunit,ashortageintransportcapacity,asafetyshutdownofaninjectionpump,etc)willcauseinterruptionsup-anddownstream.Thesemayleadtogeneralunderperformanceand,intheworstcase,tostrandedassets.104Suchchainintegrationriskshintatliabilityissuesduringtheoperationalphase,whichwillrequirespecialattention.Furthermore,theliabilityquestiondoesnotstopwiththeendof“operations”,forexampleonceaforestisfullygrown,orCO2injectionintoageologicalreservoiriscomplete.Unlikeawindfarmthatcanbedecommissionedanddismantledatitsendoflife,aproperlyregulatedcarbonremovalprojecthaslongtailobligations:oncetheCO2iscapturedfromtheatmosphereandthestoreiscreated,itmustbekeptsafelyandpermanentlystored.Regulatorsusuallyputinplacefinancialsecurityobligationstoensurethatoperatorssetasidethemeanstoobservestorageintegrityforaslongasrequiredasdeemednecessaryinagivenjurisdiction.
Still uninsurable risks: Carbonremovalsolutionscomewithvaryingdegreesofriskofstoragereversal.Awildfiredestroyinganafforestationproject,thenewownerofafarmabandoningcarbonsequesteringland-usepractices,andageologicalstoragereservoirleakingthroughanold,insufficientlypluggedwell,arejustsomeexamples.Fortheclimatesystemtostabilise,temporarystorageisnotanoption.Norisitforefficientfunctioningofamarketincarbonremovalcertificates,thecurrentmeansofmonetisingcarbonremoval.Atsomepoint,lawmakersmayalsomandatecarbonremovalforprovidersorconsumersofcarbon-intensivegoodsandservices.Thus,intheeventofstoragereversal,contingencyplansandfinancialsecuritiesthatallowforthetimelydeploymentofremedialmeasurestostopandundoanyemissionfromthestoremustbeinplace.Insurancecouldbeoneinstrumentofsuchfinancialsecurity.
100F.Streidl,K.Sheppard,Sustainability in Energy Insurance,Zurich,December2020.101 PersonalcommunicationwithK.SheppardofZurichUKEnergyteam,March2021.102A.Furreetal.,“20yearsofmonitoringCO2-injectionatSleipner”, Energy Procedia, vol114,2017.103Monitoringencompassesacombinationofvariousgeophysicalmethodsanddownholesensorsto
followandpredictthemovementoftheCO2plume(conformancemonitoring),toconfirmthattheCO2stayswithinthestoragereservoir(containmentmonitoring),and–shouldleakageoccur–toassesstheeffectofremedialmeasures(contingencymonitoring).
104W.Goldthorpe,L.Avignon,M.Repmann,J.Schwieger,Enabling a Low-Carbon Economy via Hydrogen and CCS,Elegancy,2018.
Insurersaredesigningmulti-lineofferingsforCCS.Thesewillyieldlearningsforcarbonremoval.
Morecarbonremovalprojectsareneededtosolidifytheriskknowledgeandprovidefeasibleinsuranceofferings.
Alsochallengingtheinsurabilityofcarbonremovalarethemanyprocessinterdependenciesandlongtimeframes.
Storagereversalisthemainnewriskinherenttocarbonremoval.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 25
Theinsuranceindustryisstrugglingwithlong-termliabilitiesrelatedtocarbonstorage.Privateinsurersarenotwillingtotakeverylongdurationtailrisksduetouncertaintiesinlossprediction.ThishasbeenclearfromtheearlydaysofcarbonstorageinthecontextofCCS,originallyconceivedinthe2000sasameanstodecarbonisefossilfuel-firedpowerplants.The“un-insurabilityofsomeliabilities”relatedtogeologicalCO2storagehasalwaysbeenconsidereda“materialbarrier”tothedeploymentofCCStechnologies.105In2008/2009,ZurichInsurancewasthefirstandtodateonlyinsurertoofferaliabilitycoverforCCS,tailoredtotheUSmarket.Thereisverylittlepublicinformationaboutthatproduct.106Fiveyearslaterin2014,long-termliabilitiesrelatedtoCO2storagewereagainidentifiedas“notinsurable”,accordingtotheinsuranceplanforthePeterheadCCSprojectproposalundertheUKCCSCommercialisationProgramme,summarizedinTable3.107
105Managing Liabilities of European Carbon Capture and Storage,ClimateWise,2012.106PersonalcommunicationwithK.SheppardofZurichUKEnergyteam,March2021.107 Peterhead CCS Project: Insurance plan,Shell,2014;basedonStage 1 Design Phase Risk and
Insurance Report,March2014.SeealsoI.Havercroftetal.,Lessonsandperceptions.Adopting a commercial approach to CCS liability,GlobalCCSInstitute,2019.
Todate,theinsuranceindustryhasshownlittleappetitetocoverstoragereversalrisk.
Table 3 InsuranceplanforthePeterheadCCSprojectproposal
Source:Peterhead CCS Project: Insurance plan,Shell,2014;basedonStage 1 Design Phase Risk and Insurance Report,Marsh,2014.
Risk Design and construction
Operations Closure and de-commissioning
Post-closure
Liability
3rd party liability Y Y Y Y
Seepage & pollution from reservoir N N N N
Automobile liability Y Y Y Y
Employer’s liability Y Y Y Y
Professional liability (N) (N) (N) (N)
Sub-surface liabilities N N N N
Physical damage
Damage to the works (construction all risk) Y n/a Y n/a
Damage to existing assets Y Y Y Y
Loss of well control Y Y Y Y
Automobile physical damage (N) (N) (N) (N)
Transit/cargo Y Y Y n/a
Other
Loss of carbon credits N N N N
Business interruption due to physical damage n/a Y n/a n/a
26 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The role of insurance
The role of carbon certificatesAlsolistedasuninsurableinTable3arecarboncertificates(“lossofcarboncredits”).Asaforementioned,inthecontextofcarbonremoval,acarboncertificateistheattestationthat1tonneofCO2hasbeenremovedfromtheatmosphereandstoredpermanently.Voluntarybuyersofcarbonremovalcertificatesusethemtobalancetheirresidualemissionsinlinewithanet-zeroclaim(net-zeroflight,personalfootprint,ownoperations,city,etc).Inthecaseofstoragereversal,thecarbonremovalcertificates–andwiththemtheclimateclaimstheyhadsupported–areannulled.Thevalueatriskisgivenbythecostofreplacingthelostcertificatesatcurrentmarketprices.Duetomarketvolatility,thereplacementcertificatescouldsellatamuchhigherpricethanwhatwasoriginallypaid.108Asaremedy,thebuyercouldaskthesellertoprotectthevalidityofthecertificatesthroughsomesortofproductliabilityinsurance,wheretheproducttobecoveredisthenegativeemissionservice(intheformofthecertificates)offeredbytheseller.Buyersmayalsodecidetotenderandpurchasesuchacertificateinsuranceontheirowntobettercontrolandoptimallyprotecttheintegrityoftheirnet-zeroclaim.
Interestforinsuranceofferingsrelatedtoremovalcertificatesmaysoonbeamplifiedbytheemergenceofnewcompliancemarketsforcarbonremoval.There,regulatorswillrequireemitterstobalancetheiremissionsbypurchasingremovalcertificates.Toensurecomplianceandavoidfines,regulatedemittersmaythenalsostarttolookforinsuredcertificatesorcertificateinsurance.Also,publicsectorbuyerswilllikelyaddtothisnewdemandforinsurance.TheParisAgreementArticle6forcooperativemechanismswillallowonecountrytosellemissionreductionornegativeemissionservicestoanother.ThecorrespondingcertificatesarecalledInternationallyTransferredMitigationOutcomes(ITMOs).109Asinternationalclimatenegotiationsabouttherulebookforsuchtransfersareongoing,firsttransactionsarebeingpiloted.110PilottransactionsusuallytakeplaceviabilateralagreementsbetweenadevelopedcountryasbuyerandadevelopingcountryassellerofITMOs.Inthesecases,theinsurancetakerwouldtypicallybethebuyingcountry.
Tackling the long-term liability challenges of carbon storage: Toenableliabilityinsurancesolutionsforstoragereversalevents,long-termenvironmental,propertyandhealthimpactsmustbeclarified.Insurersneedtobeabletobuildreliableexpectationsaboutworst-caselossscenarios.Operational,managerialandregulatoryresponsibilitiesfordamagemustbeclear,inlinewiththeestablishmentofclearcause-effectanalytics.Thedifferentiationofstoragereversalintogradualandabrupt,thetypeofvalueatriskthroughreversal,andtheunderlyingtypeofcarbonremovalsolutionwilldeterminethetypeofinsurancecoverneeded.Thiscouldbeenvironmentalorproductliability.Insurancesolutionsofferedbytheprivatesectorwouldlikelybelimitedtoshorter-termsandwithdiverseexclusionclauses.
Coveringlong-termliabilitieswouldlikelybelefttopublicsectorsolutions,possiblyinpartnershipwiththeprivatesector.
108Bothvoluntaryandcompliancecarbonmarketshaveseensignificantpricefluctuationsinthepast.Forinstance,anemissionallowanceunitundertheworld’slargestcompliancecarbonmarket,theEUemissiontradingscheme,wentfrom~EUR4to~EUR40inonly3yearsfrom2018to2021.Seeeex,accessed23April2021
109Paris Agreement, UnitedNationsFrameworkConventiononClimateChange(UNFCCC),2015.110 S.Greiner,etal.,Article 6 Piloting: State of Play and Stakeholder Experiences,ClimateFinance
Innovators,December2020.
Insurancecouldplayarolewhencarboncertificatesneedtobereplaceduponstoragereversal.
Theemergenceofacompliancecarbonmarketforremovalcertificatesmaydrivedemandforsuchinsuranceofferings.
Thereisstillsomewaytogotoimproveriskknowledgeofstoragereversal.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 27
TheinsuranceofITMOtransactionsorotherfuturecompliancecarbonremovalmarketswouldopenthedoortopublic-privateinsurancepartnership.Thiswouldrequireadialoguewiththeregulatoronthequestionofsuitablerisksharingmodelsforcarbonremoval,inparticulartheinsurabilityoflong-termstorageliabilities.Someconsiderationsandmodelsdescribedinopenliteratureare:
Enhanced Oil Recovery (EOR) as comparative: CO2-EORmeansinjectingliquifiedCO2intomatureoilfieldstomobiliseandextractmoreoil.AttheendoftheEORoperation,theinjectedCO2remainsstoredinthedepletedoilreservoir.EORhasbeenpracticedinNorthAmericasincethe1970s.111ArecentstudyfeaturingexpertinterviewsonquestionsaboutCCSliabilitiesfoundrespondentsfromtheinsuranceindustryassumingthatanaloguescanbedrawnbetweenEORandCCS.112Thestudy,however,remainsunclearwhetherthisassumptionalsoappliestothelong-termliabilityofCO2storage(ie,thepartoftheCCSvaluechainmostrelevantinthecontextofcarbonremoval),orjustthebetter-understoodCO2capture,transportandinjectionphases.EORpresentsthelongest-standingrecordofpracticalexperiencewithundergroundCO2injectionforcommercialreasons,yieldingcorrespondinglosshistory.Furthermore,dedicatedCO2storagebenefitsfromtechnicalaswellaspolicyexperienceundertheUSoilandgasregulatoryframework.113
Carbon allowance reimbursement insurance (CARI):In2012,theClimateWiseinsuranceindustrygroupconceptualisedtheCARIpolicytoinsureoperatorsagainstthelossofcarboncertificatesundertheEUEmissionTradingScheme.114TheCARIpolicyislimitedtotheinjectionphaseonly,aspost-closure,long-termstorageliabilitiesareconsidereduninsurable.Policytermsforeseeyearlyrenewal,anumberofexclusions115andadeductible.Insurerandinsuredagreeup-frontontheexpectedmaximumamountofCO2storedaswellasonthepricepercertificateatwhichthepolicywouldindemnifytheinsureduponstoragereversal.Acknowledgingpricevolatilityinthecertificatesmarket,thesuggestionistolimittheliabilitytoapricecap,eitherfixedorbasedonthemovingaveragecertificatepricefromthepreviousfewyears.ClimateWisealsoaddressedsomechallengesthatwouldcomewithaCARI-typeinsurancecover:theannualrenewabilitythatcreatescostandthereforeinvestmentuncertainty,aggregationriskwithliabilitiesalreadycoveredoreventsaffectingseveraloperationssimultaneously,aswellashindranceduetolackofinsurancecapacity,triggerdefinition(proximatecauseversusaregulatorydecisiononthequantumofloss),andlossquantification.Todate,theCARIpolicymodelhasnotbeenoperationalisednorputintopractice.
111 SeeEnhanced Oil Recovery,OfficeofFossilEnergy,accessed23April2021.112 Havercroft,Ianetal.,2019,op.cit.113 V.Nunez-Lopez,E.Moskal, Potential of CO2-EOR for Near-Term Decarbonization, FrontiersinClimate,
27September2019.114 ThecertificatesundertheEUEmissionTradingScheme(EUETS)arecalledEmissionAllowanceUnits
(EUA).TheyallowanemitterundertheETStorelease1tonneofCO2totheatmosphere.AllemissionscoveredundertheETSarecappedandallemittersreceiveacertainamountofEUAsaccordingtoindustrybenchmarks.EUAscanthenbetradedamongemitters.Ifoneemitterreducesemissions(eg,acementplantthroughtheinstallationofaCCSfacility)itcansellthesurplusEUAstoanothercementplantthatdidnotimplementemissionreductionmeasuresitself.
115 ExclusionstoCARIpay-outs:defectsindesign,plan,specification,materialsorworkmanship;normalwearandtear,gradualdeteriorationornormalcorrosion;earthquake(canbeincluded,butcouldgiverisetoaggregationriskdependingonlocation);normalsetting,normalshrinkageornormalexpansioninlandand/orcaprock.Source:ClimateWise,2012.
Openliteratureprovidesjustafewhintsonhowtotacklethelong-ermstorageliabilityissue,amongtheseusingEORasexample,andpublic-sectorunderwriting.
28 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The role of insurance
Public-sector underwriting for risk sharing:Aslongasthereislimitedtonoexperiencewithlong-termCO2storage,theprivatesectorwillconsidertherelatedrisksas“unquantifiable”andshyawayfromfullexposure.Risksharingwithgovernmentswillplayanimportantroleovertheshorttomid-term.116Governmentsorresponsiblepublicauthoritiesmay:
– acceptliabilitycaps,includingonthemaximumcostforthereplacementoflostcarboncertificates;117
– fosterand/oradministerariskpoolingapproachliketheNuclearRiskInsurersLimited(NRI);118
– establishastand-aloneagency(a“deliverycompany”)tomanagethefull-chainrisksoftechnologydeployment;119andultimately
– acceptthetransferofliabilityfromtheoperatortothepublicsectorafteraclearlydefinedperiodpostinjectioncompletion.120
Byputtinginplacerobustregulationswithadiligentapproachtopermittingandreporting,governmentswillbeabletomanagetheirownexposuretorisksacquiredthroughsharingandtransfermodels.121
Buffer pools:Moststandardsfornature-basedsolutionshaveappliedbufferpoolstoaddresstheriskthatanemissionreductionorcarbonremovaloutcomeisreversedasaresultofadamagingeventtotheunderlyingnaturalasset(eg,fromawildfire,mismanagement,illegaldeforestation,policychanges,etc).Theideaisthatprojectssubjecttoknownnon-permanencerisksareassessedaccordingtocertaincriteriatodeterminehowmanyofthecertificatesissuedbytheseprojectscannotbesold,butinsteadneedtobedirectedintoabufferpool.122Fromthere,shouldastoragereversaleventtakeplace,replacementcertificatescanbereleased.TheStateofCalifornia’sLowCarbonFuelStandard(LCFS)appliesthebuffer-poolprincipalalsototechnologicalremovalslikeDACS.123Projectoperatorsneedtocontributeupto17%ofthecarboncertificatesgeneratedtoaso-called“BufferAccount”.Theassessmentofthebuffercontributionisdeterminedbyonsiteriskassessment,includingofwellintegrityandsiterisks.124Table4showstheguidetoaCCSproject’sriskratingthatdetermineshowmuchincertificatevaluetheprojectneedstocontributetotheLCFSbufferpool.Ifleakagefromstoragereservoiroccursduringthefirst50yearspostinjection,replacementcertificatesneedtobedrawnfromthecontributionstotheBufferAccountfromthatveryproject.Duringthenext50years,contributionsmadebyallpartiestotheBufferAccountcouldbeusedtoreplacelostcertificates.After100years,thepost-injectionmonitoringobligationends.
116 W.Goldthorpe,L.Avignon,M.Repmann,J.Schwieger,2018,op.cit.117 Carbon capture and storage: the second competition for government support, NationalAuditOffice,
January2017.118 OtherexamplesincludetheOilInsuranceLimited(OIL),OffshorePollutionLiabilityAgreement(OPOL),
SeeW.Goldthorpe,L.Avignon,M.Repmann,J.Schwieger,2018,op.cit119 R.Oxburgh,Lowest Cost Decarbonisation for the UK. The critical role of CCS,ReporttotheSecretary
ofStateofBusiness,EnergyandIndustrialStrategyformtheParliamentaryAdvisoryGrouponCCS,2016.
120 IntheEUandAustralia,thepost-closuretimelimitfortransferof(partial)liabilitiesis20years.121 W.Goldthorpe,L.Avignon,M.Repmann,J.Schwieger,2018,op.cit.122 SeeVerifiedCarbonStandard,2019.AFOLU Non-Permanence Risk Tool.VerifiedCarbonStandard,
2019,accessed23April2021.123 SeeCalifornia Air Resources Board,accessed21April2021.124 “AppendixG.DeterminationofaCCSProject’sRiskRatingforDeterminingitsContributiontotheLCFS
BufferAccount”,inCarbon Capture and Sequestration Protocol under the Low Carbon Fuel Standard, CaliforniaAirResourcesBoard,6March2018.
Regulationcanhelpgovernmentsmanagetheirexposures.
Table 4 GuidetoaCCSproject’sriskratingfordeterminingitscontributiontotheLCFSBufferAccount
Source: Carbon Capture and Sequestration Protocol under the Low Carbon Fuel Standard,CaliforniaAirResourcesBoard,6March2018.SeeAppendixG.DeterminationofaCCSProject’sRiskRatingforDeterminingitsContributiontotheLCFSBufferAccount
Risk type Risk category Risk rating contribution
Financial Lowfinancialrisk:CCSprojectoperatorsdemonstratetheircompanyhasaMoody’sratingofAorbetter;oranequivalentratingfromStandard&Poor’sandFitch
0%
Mediumfinancialrisk:CCSprojectoperatorsthatdemonstratetheircompanyhasaaMoody’sratingofBorbetter;oranequivalentratingfromStandard&Poor’sandFitch
1%
Highfinancialrisk:CCSprojectoperatorscannotmakeoneofthetwodemonstrationsabove 2%
Social Lowsocialrisk:CCSprojectslocatedincountriesorregionsrankedamongthetop20thpercentilebasedontheWorldJusticeProjectRuleofLawIndex
0%
Mediumsocialrisk:CCSprojectslocatedincountriesorregionsrankedamongthetop20thand50thpercentilebasedontheWorldJusticeProjectRuleofLawIndex
1%
Highsocialrisk:CCSprojectslocatedincountriesorregionsthatarenotranked,orrankedbelowthe50thpercentilebasedontheWorldJusticeProjectRuleofLawIndex
3%
Management Lowmanagementrisk:demonstratedsurfacefacilityaccesscontrol,(eg,injectionsiteisfencedandwellprotected)
1%
Highermanagementrisk:poorornosurfacefacilityaccesscontrol(eg,injectionsiteisopen,ornotfencedorprotected)
2%
Site Lowsiterisk:selectedsitehasmorethantwogoodqualityconfininglayersabovethesequestrationzone,andadissipationintervalbelowthesequestrationzone
1%
Highersiterisk:sitemeetstheminimumselectioncriteria,butdoesnotmeettheabovesitecriteria 2%
Well integrity Lowwellintegrityrisk:allwellsfortheCCSprojectmeetUSEnvironmentalProtectionAgency(EPA)classVIwellorequivalentrequirements
1%
Higherwellintegrityrisk:theCCSprojecthaswellsthatdonotmeetUSEPAclassVIwellorequivalentrequirements
3%
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 29
Public-sector underwriting for risk sharing:Aslongasthereislimitedtonoexperiencewithlong-termCO2storage,theprivatesectorwillconsidertherelatedrisksas“unquantifiable”andshyawayfromfullexposure.Risksharingwithgovernmentswillplayanimportantroleovertheshorttomid-term.116Governmentsorresponsiblepublicauthoritiesmay:
– acceptliabilitycaps,includingonthemaximumcostforthereplacementoflostcarboncertificates;117
– fosterand/oradministerariskpoolingapproachliketheNuclearRiskInsurersLimited(NRI);118
– establishastand-aloneagency(a“deliverycompany”)tomanagethefull-chainrisksoftechnologydeployment;119andultimately
– acceptthetransferofliabilityfromtheoperatortothepublicsectorafteraclearlydefinedperiodpostinjectioncompletion.120
Byputtinginplacerobustregulationswithadiligentapproachtopermittingandreporting,governmentswillbeabletomanagetheirownexposuretorisksacquiredthroughsharingandtransfermodels.121
Buffer pools:Moststandardsfornature-basedsolutionshaveappliedbufferpoolstoaddresstheriskthatanemissionreductionorcarbonremovaloutcomeisreversedasaresultofadamagingeventtotheunderlyingnaturalasset(eg,fromawildfire,mismanagement,illegaldeforestation,policychanges,etc).Theideaisthatprojectssubjecttoknownnon-permanencerisksareassessedaccordingtocertaincriteriatodeterminehowmanyofthecertificatesissuedbytheseprojectscannotbesold,butinsteadneedtobedirectedintoabufferpool.122Fromthere,shouldastoragereversaleventtakeplace,replacementcertificatescanbereleased.TheStateofCalifornia’sLowCarbonFuelStandard(LCFS)appliesthebuffer-poolprincipalalsototechnologicalremovalslikeDACS.123Projectoperatorsneedtocontributeupto17%ofthecarboncertificatesgeneratedtoaso-called“BufferAccount”.Theassessmentofthebuffercontributionisdeterminedbyonsiteriskassessment,includingofwellintegrityandsiterisks.124Table4showstheguidetoaCCSproject’sriskratingthatdetermineshowmuchincertificatevaluetheprojectneedstocontributetotheLCFSbufferpool.Ifleakagefromstoragereservoiroccursduringthefirst50yearspostinjection,replacementcertificatesneedtobedrawnfromthecontributionstotheBufferAccountfromthatveryproject.Duringthenext50years,contributionsmadebyallpartiestotheBufferAccountcouldbeusedtoreplacelostcertificates.After100years,thepost-injectionmonitoringobligationends.
116 W.Goldthorpe,L.Avignon,M.Repmann,J.Schwieger,2018,op.cit.117 Carbon capture and storage: the second competition for government support, NationalAuditOffice,
January2017.118 OtherexamplesincludetheOilInsuranceLimited(OIL),OffshorePollutionLiabilityAgreement(OPOL),
SeeW.Goldthorpe,L.Avignon,M.Repmann,J.Schwieger,2018,op.cit119 R.Oxburgh,Lowest Cost Decarbonisation for the UK. The critical role of CCS,ReporttotheSecretary
ofStateofBusiness,EnergyandIndustrialStrategyformtheParliamentaryAdvisoryGrouponCCS,2016.
120 IntheEUandAustralia,thepost-closuretimelimitfortransferof(partial)liabilitiesis20years.121 W.Goldthorpe,L.Avignon,M.Repmann,J.Schwieger,2018,op.cit.122 SeeVerifiedCarbonStandard,2019.AFOLU Non-Permanence Risk Tool.VerifiedCarbonStandard,
2019,accessed23April2021.123 SeeCalifornia Air Resources Board,accessed21April2021.124 “AppendixG.DeterminationofaCCSProject’sRiskRatingforDeterminingitsContributiontotheLCFS
BufferAccount”,inCarbon Capture and Sequestration Protocol under the Low Carbon Fuel Standard, CaliforniaAirResourcesBoard,6March2018.
Regulationcanhelpgovernmentsmanagetheirexposures.
Table 4 GuidetoaCCSproject’sriskratingfordeterminingitscontributiontotheLCFSBufferAccount
Source: Carbon Capture and Sequestration Protocol under the Low Carbon Fuel Standard,CaliforniaAirResourcesBoard,6March2018.SeeAppendixG.DeterminationofaCCSProject’sRiskRatingforDeterminingitsContributiontotheLCFSBufferAccount
Risk type Risk category Risk rating contribution
Financial Lowfinancialrisk:CCSprojectoperatorsdemonstratetheircompanyhasaMoody’sratingofAorbetter;oranequivalentratingfromStandard&Poor’sandFitch
0%
Mediumfinancialrisk:CCSprojectoperatorsthatdemonstratetheircompanyhasaaMoody’sratingofBorbetter;oranequivalentratingfromStandard&Poor’sandFitch
1%
Highfinancialrisk:CCSprojectoperatorscannotmakeoneofthetwodemonstrationsabove 2%
Social Lowsocialrisk:CCSprojectslocatedincountriesorregionsrankedamongthetop20thpercentilebasedontheWorldJusticeProjectRuleofLawIndex
0%
Mediumsocialrisk:CCSprojectslocatedincountriesorregionsrankedamongthetop20thand50thpercentilebasedontheWorldJusticeProjectRuleofLawIndex
1%
Highsocialrisk:CCSprojectslocatedincountriesorregionsthatarenotranked,orrankedbelowthe50thpercentilebasedontheWorldJusticeProjectRuleofLawIndex
3%
Management Lowmanagementrisk:demonstratedsurfacefacilityaccesscontrol,(eg,injectionsiteisfencedandwellprotected)
1%
Highermanagementrisk:poorornosurfacefacilityaccesscontrol(eg,injectionsiteisopen,ornotfencedorprotected)
2%
Site Lowsiterisk:selectedsitehasmorethantwogoodqualityconfininglayersabovethesequestrationzone,andadissipationintervalbelowthesequestrationzone
1%
Highersiterisk:sitemeetstheminimumselectioncriteria,butdoesnotmeettheabovesitecriteria 2%
Well integrity Lowwellintegrityrisk:allwellsfortheCCSprojectmeetUSEnvironmentalProtectionAgency(EPA)classVIwellorequivalentrequirements
1%
Higherwellintegrityrisk:theCCSprojecthaswellsthatdonotmeetUSEPAclassVIwellorequivalentrequirements
3%
30 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The role of insurance
Investingincarbonremovalsolutions
Carbonremovalsolutions,inparticularinfrastructure-heavytechnologicalandhybridsolutions,typicallyrequiresubstantialcapitalupfront,along-terminvestmenthorizon,orboth.Theavailabilityofspecialisedriskknowledgeandinherentneedtoinvestearnedpremiumsoverlongperiodsoftimetomatchassetsandliabilitiesmakesre/insurerswell-positionedaspartnersforthecarbonremovalindustry.However,mostindustrysolutionsarestillimmature,under-deployedandsomeunder-developed,makingexistingcarbonremovalopportunitieshigh-riskinvestments.Assuch,insurersneedtoholdsignificantlevelsofcapitalagainstsuchinvestments,notleasttoalignwithprudentialandsolvencyrules.
Currently,flagshipcarbonremovalprojectsaremostlygovernment-funded,125,126and/oraresupportedbymajorindustrialplayers,inparticularfromtheoilandgassector.127,128Governmentandlargeindustryaremoreabletotakeontheinvestmentriskinherentinnewtechnologies,whichinclude:129
Technicalandphysicalrisks,accentuatedbyimmaturityoftechnologies/lackofperformancedataanduncertaintiesaboutthequalityandavailabilityofnaturalresources(eg,theperformanceofanaturalcarbonsinkorgeologicalstoragereservoir,especiallyunderclimatechangeconsiderationswhichalterthebio-physicalcontext).
Marketandcommercialrisks:highupfrontcosts,longinvestmenthorizons/paybackperiods,investorunfamiliaritywiththenewtechnology,andcomplexityofinfrastructureinvestments.
Politicalandsocialrisks,suchastheneedtorelyonpublicfinancial/institutionalsupport,thelong-terminvestmenthorizon(muchlongerthanelectoralpolicycycles),and(potential)socialresistancetothenewtechnologies.
Projectdevelopersneedtoassesstheserisksandhowtomanagethem.Iftheyaretoattractinvestors,theyalsoneedabusinesscasethatconvincinglyforecastsacceptablecashflows.Finally,arobustinvestmentenvironmentisrequired.Tothisend,thethreemostcommonpolicyasksare:130
forpolicymakerstoputapriceoncarbonthatpaysforreducingandremovingemissions(includingintheformoftaxbenefits);
provisionofseedmoney,forinstanceintheformofgrantsorguaranteestofirst-in-kindandearlyadopterprojects;and
fairallocationofrisksacrossthepublicandprivatesectors,accordingtowherecomparativeriskmanagementadvantageslie.
Insummary,toacceleratethedeploymentofcarbonremovalanditspopularityamonginvestors,governmentsandpolicymakersneedsetinplacemoresupportandregulatorybacking.
125 £5m boost to scale up ground-breaking carbon capture pilot at Drax,drax,27June2019.126 Funding for Longship and Northern Lights approved,NorwegianGovernment,15December2020.127 The New York Times,7April2019,op.cit.128 “ShelllaunchesUSD300mforestplantooffsetcarbonemissions”,Financial Times,8April2019.129 Risk Gaps: A Map of Risk Mitigation Instruments for Clean Investments.ClimatePolicyInitiative,
January2013.130 Special Report on Carbon Capture Utilisation and Storage – Energy Technology Perspectives,IEA,
2020.
Carbonremovalsolutionsarehigh-riskinvestments.
Thepublicsectorandlargeindustrialplayersarecurrentlythemaininvestors.
Policyasksforarobustinvestmentenvironmentarecarbonpricing,subsidies,public/privaterisksharing.
Morepublicsectorsupportisneededtoattractprivatesectorinvestors.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 31
Thepublicsectorandalsoprivateinstitutions/groupshavelaunchedseveralinitiativesandguidelinesonnet-zeroambitions.Someremainsilentoncarbonremoval.Inignoringthepotentialupside,131,132theycanalsomisshighlightingthattobeabletoclaimafullynet-zero(asopposedtoalow-carbon)portfolio,investorswillinevitablyhavetofundnegativeemissionstobalanceanyresidualemissionsfromotherassetsintheportfolio.133Otherinitiativesandguidelinesareessentiallybearishintheiroutlook,134seeing“forestrestorationastheearliestfeasibleinvestmentopportunity,”andBECCSandDACSnotinvestiblebefore2030and2040,respectively(thoughtheprivatesectorhasstartedinvestinginDACS135).Othersseemorepromise.Forexample,initsrecentlypublishedInaugural2025TargetSettingProtocol,theUN-convenedNet-ZeroAssetOwnerAlliance,clearlydefines“investmentsineconomicactivities[…]sequesteringcarbondioxidealreadyintheatmosphere”as“ClimateSolutionInvestments”.136ThestandardasksAlliancememberstoreportontheirinvested/committedvalueincarbondioxideremovalinvestments.
Givenitsstillimmaturity,investors–re/insurersincluded–havenotyethadmuchopportunitytoexplorethecarbonremovalsectorasanewassetclass.Thisiswiththeexceptionofnature-basedsolutions,inparticularforestry.137
Outlook on nature-based solutions as investment opportunitiesAccordingtoTobin-delaPuenteandMitchell,twothirdsofcountriesareconsideringnaturalclimatesolutionsaspartofnationally-determinedcontributionstomitigateclimatechangeundertheParisAgreement.138Yet,naturalclimatesolutionscurrentlyreceiveonlyabout6%oftotalpublicfundingonclimate,139suggestingalargeprotectiongap.Openliteraturedoesnotyetprovidelong-terminvestmentestimates.Usingrevenuefiguresasaproxyforinvestmentsize,VividEconomicsestimatesthatreforestationprojectscouldgenerateuptoUSD190billioninrevenueby2050.140Short-termestimatesexist:Deutzetal.assesscurrentglobalprivateandpublic-privateannualinvestmentvolumeinnaturalclimatesolutionstobebetweenUSD0.8–1.4billion,andthatthiscouldincreasetoanestimatedUSD25–40billionperyearby2030.141Theseestimatesincludethetransactionvolumeofcarbonavoidancecertificatesfromnaturalclimatesolutionstradedonthevoluntarymarket.Thismarketreachedanall-timehighin2019andhascontinuedtogrow,despitetheeconomicdownturnundertheCOVID-19pandemic.142Lately,buyersareexplicitlysolicitingcarbonremovalasopposedtotheconventionally-boughtcarbonavoidancecertificates.143,144Thisisyetanotherindicatorofagrowingnumberofnature-basedsolutionprojectsthatwillsoonbeonthelookoutforfinance.
131 Net Zero Investment framework for Consultation, InstitutionalInvestorsGrouponClimateChange,2020.132 “TheOxfordMartinPrinciplesforClimate-ConsciousInvestments”inNet Zero Carbon Investment
Initiative,OxfordMartinSchool,2018.133 Thereexistsnotrulyzero-carbonassettoday.Forexample,evenrenewablescomewithresidual
emissions(thealuminiumandsteelintherotorsofawindfarm,thebunkerfuelfromthecargoshipthatbroughtthesolarPVpanelsfromChinatoEurope,etc).
134 An investor guide to negative emission technologies and the importance of land use.VividEconomics,InevitablePolicyResponse,2020.
135 bloomberg.com,2June2020; The New York Times, 7April2019,op.cit.136 Inaugural 2025 Target Setting Protocol, UN-Convened Net-Zero Asset Owner Alliance. Monitoring
Reporting and Verification Track.PRI,UNEPFI,2021.137 VividEconomics,InevitablePolicyResponse,2020,op.cit.138 Theterm“naturalclimatesolutions”lumpstogetheractivitiesthateitheravoidemissionsfromlandscapes
andwetlandsthroughconservation,orremoveemissionsthroughthenature-basedsolutions.139 J.Tobin-delaPuente,A.W.Mitchell,The Little Book of Investing in Nature, GlobalCanopy,2021.140VividEconomics,InevitablePolicyResponse,2020,op.cit.141 A.Deutz,G.M.Heal,R.Niu,ESwansonE.Townshendetal.,Financing Nature: Closing the biodiversity
financing gap,ThePaulsonInstitute,TheNatureConservancy,theCornellAtkinsonCenterforSustainability,2020.
142 “Carbonoffsetmarketprogressesduringcoronavirus”,Financial Times,29September2020.143Foranexplanationofthedifferencebetweenthesetwotypesofcarboncertificates,see“Focus:Moving
fromcarbonoffsetstocarbonremoval”,inSustainability Report 2019,SwissRe.144Forexample,stripe.com18May2020;shopify.com15September2020;Microsoft2021,op.cit.
and“ShopifyPurchasesMoreDirectAirCapture(DAC)CarbonRemovalThanAnyOtherCompany”,shopify.com,9March2021.
Investorinitiativesandguidelinesarestillmostlybearishontheneedforandpotentialofcarbonremoval.
Otherthaninforestryprojects,investmentsincarbonremovalprojectsremainscarce.
Nature-basedsolutionsareprojectedtogeneratesubstantialrevenuesinthenextdecades,alsoinviewofanexpectedsurgeincarbonmarketvolume.
32 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The role of insurance
Carbonremovalcertificatescanalsobeusedtostructurenewprojectfinancemechanisms.Along-termcontractcalledaCarbonRemovalPurchaseAgreement(CRPA)betweenacarbonremovalprojectdeveloperandcertificatebuyercanbeusedassecurity.Thelongerthecontracttermandhigherthecreditratingofthebuyer,themorevaluablethesecurity(ie,thecheaperthecapitalcostforthedeveloper).RevenuesfromcertificatesalesundertheCRPAcanbearrangedtoflowdirectlytothefinancingparty.ThismimicstheEmissionReductionPurchaseAgreement(ERPA)backedfinancemodel.145Financierswithaneedforcertificates(eg,tocompensatetheirunavoidedoperationalemissionssubjecttoanet-zerocommitment)mayalsotake(partsof)theproject’scertificatesdirectlyontotheirbook,inexchangeforacorrespondingreductionintheinterestrate.Someofthesetypesoffinancingmechanismsareexplainedinmoredetailinexistingliterature.146
Anotherfinancingmeanscouldbecarbonremoval-typebonds,asanewsub-classofgreenbonds.Thesecouldbedebtinstrumentstoaggregateapipelineofprojectsofvarioustypeandsize.Theywouldofferanewopportunitytodiversifyprojectriskandrendersmallerprojectsinvestibleforabroaderarrayofinstitutions,includinginsurers.
Indevelopedmarkets,traditionalfinancingmechanisms(projectfinance,publicfunding)willremainstrongdriversforcarbonremovalprojects.Indevelopingmarkets,itisusuallymoredifficulttoattractcapital.Currentlyblendedfinance–themixingofpublic(eg,guarantees)andprivate(eg,equity)finance–isaclearsignaltoinfrastructureinvestorstoactundersolidumbrellasandratingsfrommultilateralinstitutions,becauseitsupportsthede-riskingofprojectsthatareotherwisenotinterestingforinvestors.TheNet-ZeroAssetOwnerAlliancecallsonassetmanagerstosupportblendedfinance,becauseitallows“publicfinanciersandotherdonorstouseasmallamountoftheirownresourcesasafirst-losstomobilizelargeamountofprivatecapital”.147TheUNEnvironmentProgramme’sFinanceInitiativeproposesblendedfinanceasatooltospursustainabledevelopmentprojectsinthefieldofbluecarbon.148Thismaysetaprecedentthatcouldbeusedtofurtherexpandthecarbonremovalinvestmentspace,especiallyasmanynature-basedsolutionopportunitiesarelocatedinemergingmarkets.
Altogether,theabove-listedtrendsandmodelsindicateampleinvestmentopportunitiesinnaturalassetsthatusevegetationorsoilsascarbonsinks.VividEconomicsconcludesthat“NegativeEmissionTechnologiesarethenextinvestmentfrontierandoffertrilliondollarupsideopportunities”.149Capitalmarketsarefamiliarwithinvestinginforestsasnaturalassetsand/orfortimber.Forestryinsurance,forexample,againststormsisaknownfieldinunderwritingaswell.150Otherpartsofthenature-basedsolutionspace(eg,oceans)arelessexplored.Nevertheless,progressisbeingmadetobetterunderstand,classifyandstandardisetheclimateservicesprovidedbyallnature-basedsolutions.151Forexample,remotesensingincombinationwithmachinelearningcapabilitiescanreducetheneedforfrequentfieldsamplingofsoilsandvegetationtoassessandmonitorthecarbonstockofnaturalassets.152Thisreducesmanagementfeesandimprovesriskmanagementcapabilitiesthroughmoreaccuratedataandmorefrequentreporting–alsoaddingtotheriskknowledgerequiredforeffectiveunderwriting.
145 AnERPAisalong-term(usually3–15years)offtakeagreementforconventionalcarbonavoidancecertificates,usuallyatpredefinedvolumeandprice.ForERPA-backedfinance,seeW.Goldthorpeetal.2018,op.cit)
146VividEconomics,InevitablePolicyResponse,2020,op.cit.147 Net-zero asset owner alliance calls on asset managers to support blended finance,UNEnvironment
Programme(UNEP),16February2021.148UNEnvironmentProgrammeFinanceInitiative,2020.A Blue Path to Recovery: The Power of Finance to
Rebuild Ocean Health,UNEP,2020.149VividEconomics,InevitablePolicyResponse,2020,op.cit.150Forest Insurance: A largely untapped potential. SwissRe,2015.151 G.Somarakis,S.Stagakis,N.Chrysoulakis, ThinkNature Nature-Based Solutions Handbook,2019.152 See,forexample,Aspiring Universe, Pachama, andSiliviaterrra.CurrentlyongoingistheSustaintech
Xcelerator supportedby–amongothers–TheWorldBank,seekingtofostersolutionstoincreasetrustinnature-basedsolutions(eg,monitoringandverificationtechnologiesincludingremotesensingwithAIandlatestmodellingadvances,technologiestosupportgroundsamplingetc).
Long-termpurchasingagreementsofcarboncertificatescansupportprojectfinance.
Carbon-removalbondscouldhelpmakesmallerprojectsalsoinvestible.
Blendedfinanceisanotherkeytool,particularlyinemergingmarkets.
Advancementsintheunderstandingandmonitoringofthesolutionswillcontinuetoimprovetheattractivenessofnature-basedsolutionsasanassetclass.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 33
Outlook on technological and hybrid solutions as investment opportunitiesRobust,bottom-upestimatesoftheinvestmentneedsforthefullBECCSandDACCSvaluechainsarenotyetavailable.Reasonsincludeuncertaintiesaboutfuturecost,timingandextentofdeployment,ordifficultiesinappropriatingsharedinfrastructurelikepipelines,storageinfrastructureetc.Usingagainrevenueestimatesasaproxyforinvestmentsize,thesefiguresareinthetriple-digitbillions.TheUSNationalAcademyofSciences,EngineeringandMedicinestipulatesthat5billiontonnesofnegativeemissionperyearfromtechnologicalremovalsolutionscouldgenerateanannualrevenueofUSD500billion.153VividEconomicsarrivesatafigureofUSD625billionperyearby2050.154
TakingCCSasaproxyforBECCSorDACCS(ie,referenceofscaleforinvestmentsinthattypeofinfrastructure),onecanappreciatehowlargeinvestmentsintechnologicalcarbonremovalinfrastructureultimatelycouldbe.TheEnergyTransitionCommissionestimatesaninvestmentneedofUSD160–190billionperyearforCCSoverthenext30years(cumulativelyUSD4.8–5.6trillion)tomitigate6–10billiontonnesofCO2emissionsoverthatperiodfrompower,hydrogenproductionandheavyindustry.155Since2010,globallyUSD15billionhasbeeninvestedinto16large-scaleCCSprojects.156Another16bigprojectsinadvancedplanningstagetodayamounttoanotherUSD27billionofinvestments.157Privatesectorcontributionshavecomemostlyfromoil&gasmajors.Duringthesameperiod,startupsseekingtocommercialiseCO2utilisationrouteshaveraisednearlyUSD1billioninprivatesectorinvestment.158Thehandfulofdirectaircapture(DAC)firmsaroundtodayhaveraisedsomeUSD200millioninprivatecapital,andanotherUSD200millioninpublicresearchanddevelopmentgrants.159ThesearemuchsmallernumbersthanthelevelofcapitalthathasalreadygoneintolargeCCS,butarenonethelessnotableforatechnologylong-consideredeconomicallyunviable.
Governmentspendingontechnologicalcarbonremovalsolutionsisontherise,too.In2019,theUSCongressallocatedUSD60milliontowardscarbonremoval.160Ayearlater,USD447millionofthesecondstimulusbillwasearmarkedforcarbonremovalR&Dby2025,startingwithUSD175millionin2021.161TheEUInnovationFundtosupportlow-carbontechnologyisvaluedatEUR10billion.162Belowaretwoexamplesofgovernment-backedflagshipprojects,theBritishAcornprojectandtheNorwegianLongshipproject(see Acorn and Northern Lights: two flagship CCUS projects).OriginallyconceivedaspureCCUSprojectstodecarboniseindustry,botharenowpartneringwithaircaptureandbioenergycompanies,demonstratingthebroaderinvestmentpotentialofferedbythecarbonremovalvaluechain.
153Negative Emissions Technologies and Reliable Sequestration – A Research Agenda,TheNationalAcademiesofScienceEngineeringMedicine,2019.
154VividEconomics,InevitablePolicyResponse,2020,op.cit.155 Making Mission Possible – Delivering a net-zero economy,TheEnergyTransition,2020.156 IEA,2020,op.cit.157 “StoredCarboncouldmorphintoinvestmentgold”,Reuters,20October2020.158Putting CO2 to use,IEA,2019.159 Authors’estimate,informedbyIEA’sfiguresofUSD180millioninprivatecapitalandUSD170millionin
publicfundsraisedsince2019(IEA,2020,op.cit.)160US Government Allocates $60 Million to develop Carbon Removal Technology,WorldResources
Institute,2019.161 “BusinessesAimtoPullGreenhouseGasesfromtheAir:It’saGamble”,The New York Times,
18January2021.162 See“InnovationFund”inClimate Action,EuropeanCommission.
EstimatessuggestannualrevenuesoftechnologicalremovalswillbebetweenUSD500-625billionby2050.
CurrentinvestmentsinCCS(foremissionmitigation)areatUSD42billion.
Governmentbackingfortechnologicalcarbonremovalisincreasing…
34 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The role of insurance
Thefinancingrequiredfortechnologicalsolutionsismuchgreaterthanfornature-basedsolutions.Todate,themainfinancingconcernforfullchainBECCS,DACSandCCUSistosecurethenextR&Dgrantfromgovernment.Projectscurrentlyunderwayareheavilysubsidisedfirst-of-kindfacilities.Thereisalongwaytogobeforetheybecomeareadilyinvestibleassetclassfortheprivatesector.Thatsaid,“ifgovernmentsmakethefirstmove,awallofgreenfinancecouldfollow.”163Foritspart,theoilandgassectorhasbeeninvestingintheseprojectsfromthetimethatCCSbecameatopic,butmuchmoreisneededtoembracetheinevitabletransitionfromfossil-fuelproviderstostorageserviceproviders.Furtheruptakeofcarbon-removalinfrastructureinvestmentcouldspurbanks,insurersandotherstofollowsuit.
Acorn and Northern Lights: two flagship CCUS projectsInspring2020,theUKgovernmentannouncedaGBP-800-millioninfrastructurefund,subsequentlytoppeduptoGBP1billion,tosupportdevelopmentofuptofourindustrialCCUSclusters.164ThisalignswiththeUK’sgoaltobecomeaworldleaderincarbonstoragetechnologies,withatargettostore10milliontonnesofCO2by2030.165
InSeptemberlastyear,PaleBlueDotEnergyandCarbonEngineeringCanadaannouncedajointproject.166PaleBlueDotisanenergyconsultancythatleadstheUKAcornprojectinEasternScotland.AcornisaflagshipoftheUK’sCCUSprogramme,withaplantocaptureinfirstphase340000tonnesofCO2fromtheSt.Fergusgas-firedpowerplantandlatertoalsoconnecttoahydrogenproductionfacility.TheCO2willbecompressedandsentthroughanexistingnaturalgaspipelinetoageologicalstoragesite100kmoffshore.167Withcontinuedgovernmentandprivatesectorsupport(Chrysaor,ShellandTotalareprojectpartners),theprojectcouldbecommissionedin2024.InvestmentneedsareestimatedatUSD270–550million.168CarbonEngineeringisoneoftheleadingDACcompaniesfromBritishColumbiainCanada.CarbonEngineeringwillinstallaDACfacilitythatconnectstotheAcorntransportandstorageinfrastructure.TheDACfacilityisexpectedtogolivearoundtwoyearsaftertheAcornprojectgoesonline.
AfurtherexamplewhereCCUSmeetsDACSisNorway’sfull-scaleCCSprojectLongship.Inphase1,theprojecttargetsthecaptureof0.7and1.1milliontonnesofCO2peryearfromacementandawaste-to-energyplantnearOslo.NorthernLights,ajointventurebetweenEuropeanoilmajorsEqinor,ShellandTotal,willtakedeliveryoftheconcentratedliquifiedCO2fromthetwocaptureplantsandshipitintailor-madevesselstoBergen.Thereitwillbeunloadedandtransportedinaseafloor-mountedpipelinetoaCO2storagesite2600metersunderground.InPhase2,capacityofthetransportandstoragewillbeincreasedto5milliontonnesofCO2peryear.PartsoftheinfrastructureforPhase2havealreadybeenbuilt.
163Reuters,20October2020,op.cit.164UK Government Set to Fund Four CCS Hubs and Clusters,GlobalCCSInstitute,18November2020.165 “PMoutlineshisTenPointPlanforaGreenIndustrialRevolutionfor25000jobs”,www.gov.uk,
18November2020.166Pale Blue Dot Energy and Carbon Engineering create partnership to deploy Direct Air Capture in the
UK,PaleBlueDot,17September2020.167 SeeAcorn168D16 Full Chain Development Plan and Budget,Acorn,May2018.
…butmorepublicsectorbackingcouldcatalysemoreegreenfinance.
TheUKgovernmenthaspledgedGBP1billionininvestmentforCCUS.
TheAcornprojectappliesCCUStoahydrogenproductionfacility.AcollaborationwithaDACfirmwillmakeAcornanegativeemissionspilot.
TheaimofNorway’sLongshipprojectistocreatecapacitytotransportandstoreupto5milliontonnesofCO2peryear.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 35
InvestmentfortheLongshipPhase1pilotisUSD2.1billion.169TwothirdsisbeingfundedbytheNorwegiangovernment,andtheremainderbythecaptureoperatorsandNorthernLightsjointventure.CostsarecurrentlyestimatedatmorethatUSD100pertonneCO2stored.170NorthernLightsforeseesUSD400millioninannualrevenuefromitsCO2storageservicebusinessduringthewholePhase2(thatadds4milliontonnesofCO2peryearinstoragecapacity).ThetotalstoragecapacityoftheNorthernLightsinjectionsiteisestimatedat100milliontonnes,meaningthattheinjectionwellcouldbeoperatedfullcapacityfor20yearsbeforeexpansionisneeded.TheStorageAtlasoftheNorwegianContinentalShelfconcludesthatstoragecapacityalongtheNorwegianWestcoastissufficientlylargethatitcouldstoremorethan80billiontonnesofCO2.171Thisisequivalentto1000yearsofNorway’sowncurrentannualCO2emissions,or20yearsofalloftheEU27currentannualemissions.Thesenumbersdemonstratethatcarbonmanagement,or“CO2-as-a-service”couldquicklyturnintoabusiness,cateringanewexportindustry.172
Inviewofthegrowinginterestinnegativeemissions,theNorthernLightsjointventurehasalsostartedtolookintosourcesofbiogenicorair-capturedCO2.StockholmExergiplanstocaptureCO2fromitsbiomassfuelleddistrictheatandpowerplantVärtaverket,andshipittotheNorthernLightsinjectionfacility.173InMarch2021,NorthernLightsannouncedapartnershipwithSwissair-capturepioneerClimeworkstoexploreaDACSprojectinNorway.174
Buyingcarbonremovalservices
Toachievenetzeroemissionsby2050orideallyearlier,companiesshouldconsidertheirsustainabilitystrategyandbusinessmodels.Theyfirsthavetotacklethoseemissionsforwhichtheyaredirectlyresponsible,inotherwordsemissionsfromownoperations.Arobustnet-zerostrategyforoperationalemissionsbuildsonseparatetargetsfor:1)stringentemissionreductions;and2)balancinganyemissionsthatcannotbeavoidedbyanequivalentamountofnegativeemissionsthroughcarbonremoval.Thestrategyshouldprioritisetheformer.Companiesshouldseektoreduceemissionsasfastandasmuchaspossibleinordertominimizetheneedforpotentiallyveryexpensivenegativeemissions.Settingaseparatetargetwithinterimmilestonesforcarbonremovalisimportanttoalleviatethefree-riderproblem:ifallfirmsweretowaituntil2049beforeremovingunavoidableemissionsinanticipationoffallingpricesincarbonremovaltechnology,therewouldbeashortfallinknow-how,capacityandaffordabilityofremovalservicesin2050.Sinceearly2020,dozensofbanksandinsurershavecommittedtonet-zeroemissionsintheirownoperations.175Achievingnet-zerowillbeeasierforthefinancialindustrywithhighernetincomepertonneofoperationalemissionsthanproductionindustriessuchasmining,cementortextiles.Largebanksandinsurers,forexample,havecomparativelylittleinthewayofdirectemissions,andampleresourcestodealwiththem.Customer-facingindustriesalsotendtohavelargerfinancialmeans.176
169Funding for Longship and Northern Lights approved,Norwegiangovernment,13December2020.170 Reuters,20October2020,op.cit.171 SeeNorwegianPetroleumDirectoratewebsite,accessed24February2021.172 Reuters,20October2020,op.cit.173 Stockholm plans world’s first carbon-negative district heating,Recharge,28January2020.174 Climeworks and Northern Lights to jointly explore direct air capture and CO2 storage in Norway
NorthernLights,9March2021.175 Accelerating Net Zero – Exploring Cities, Regions, and Companies’ Pledges to Decarbonise,Data
DrivenEnviroLab,NewClimateInstitute,September2020.176 Net-Zero Challenge: The supply chain opportunity,WorldEconomicForumincollaborationwithBoston
ConsultingGroup,January2021.
ThestoragecapacityattheLongshipsitecouldcover20yearsofEU27emissions.
Possibilitiestoexpandtheprojecttoincludebiogenicorair-capturedCO2arebeingexplored.
Beyondreducingemissions,thefinancialindustryisinprimepositiontoactasearlybuyerofremovalservices.
36 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The role of insurance
Themostmaterialdirectemissionsourcesofaninsurerarebusinesstravel,datacentres,officespaceandcommuting.Net-zerotargetsmusttriggerseriousactions:177leantravelpolicies,100%renewablepowerincludingfordatacentres,andgreenbuildings,toppedbythesettingofaninternalpriceoncarbonthatpresentsachallenge.TheUNGlobalCompactcallsonfirmstosetaminimuminternalcarbonpriceofUSD100pertonneofemissions.178Untilnow,companieshavecompensatedunavoidedemissionsthroughconventionalcarbonavoidancecertificates(carbonoffsets).Throughthese,anemitterpaysthirdpartiestoavoidanequivalentamountofemissionstothosetheemitteritselfcannotavoid,asillustratedinFigure6.ThistypeofCO2compensationqualifiesfortheclaim“climateneutral”operations.Itdoesnotmeettherequirementsforanet-zerotarget,wherebyanemitterhastobuyacertificatefromacarbonremovalproject,provingthatunavoidedemissionshavebeenbalancedthroughanequivalentamountofnegativeemissions.
Themarketforconventionalcarbonoffsetsisfullyestablished,withpricespertonneofCO2typicallyrangingfromlessthanUSD1toamaximumUSD20.Amarketforcarbonremovalcertificateshasyettobeestablished.Firstmarketplaceinitiativeshaveemerged,butthefewexperiencesoflargerremovalservicepurchasesbycorporatesincludedanarduoustendering,selectionandcontractingprocess(eg,Stripe,179Shopify,180andMicrosoft181).Essentially,removalslackinternationalstandardisation,aredifficulttofind,andtheirpricecanbesignificantlyhigherthanthatforcarbonoffsets.PricesrangefromUSD5–10pertonneofCO2forsomealreadyexistingprojectsinthenature-basedsolutionsspace,toseveralhundredsofUSDpertonneforlessdeveloped,technologicalsolutions.Theworld’sfirstcertificatesforDACSinIcelandarecurrentlyavailableoverthecounterformorethanUSD1000pertonneofCO2,182andwholesaleforaroundUSD700–800.183Inthisenvironment,businessinstinctistofavourthecheapernature-basedsolutions,inparticularcertificatesfromforestprojects.Overthelongrun,however,nature-basedsolutionsalonemaynotbesufficienttoachievethegoaloflimitingglobalwarmingtowellbelow2°C(see Why companies should support more than forests below).
177 A.Pineda,A.Chang,etal.Foundations for science-based net-zero target setting in the corporate sector – V1.0.ScienceBasedTargetInitiative,DataDrivenEnviroLab,NewClimateInstitute,2020.
178 Put a price on carbon, UNGlobalCompact,accessed28February2021.179 stripe.com,18May2020,op.cit.180shopify.com15September2020,op.cit.181 Microsoft2021,op.cit.182 SeeClimeworks webshop, accessed28February2021.183stripe.com, 18May2020,op.cit.
Todate,purchasingcarbonoffsetshasbeenthestatusquoofcompensatingoperationalemissions.
1 tonne of CO2
emittedby us
+ =1 tonne of CO2
emittedelsewhere
2 tonnes of CO2
emitted
Reduce Reduce and offsetClaim: “climate neutral”
1 tonne of CO2
emittedby us
+ =1 tonne of CO2
avoidedelsewhere
1 tonne of CO2emitted
Reduce and removeClaim: “net-zero”
1 tonne of CO2
emittedby us
+
=1 tonneof CO2
removed
net-zero CO2
Figure 6 Strategiestomanageoperationalemissionsandresultingclaims
Source:SwissRe
Higherpricesforcarboncertificatesfromtechnologicalsolutionsdrivesbusinessestowardsnature-basedsolutions.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 37
Why companies should support more than forestsCurrently,mostimplementationplansbehindcorporatenet-zeropledgesfavourcheaperandmoreaccessiblenature-basedsolutioncertificates.Forestprojectsdominatecorporatepurchasesofcarbonremovalsservices,followedbysoilcarbonsequestrationandbluecarboninitiatives,inparticularmangroves.184Sustainablyrunforestprojectsarekeytosolvingtheclimateissue,andcomewithawealthofco-benefits.However,newforestsconflictwithotherland-useneedslikefarmingorecosystemconservation.Theirupperlimitremovalpotentialfallsshortoftheamountofnegativeemissionsthatsciencepredictswillbenecessarytohitthe1.5°Cglobalwarmingtarget:asalreadystated,the1.5°Climitrequirescumulativelyupto1000billiontonnesofnegativeemissionby2100,equivalenttoaroundayearlyneedof10–20billiontonnesthroughoutthesecondhalfofthecentury.
Minxetal.reviewedestimatesfortheremovalpotentialofforestprojectsandfoundthatexistingandnewforestswillcumulativelybeabletostore135billiontonnesofCO2bytheendofthecentury.185Theyearlypotentialwasassessedat0.5–3.6billiontonnes,withacaveatthatsuchratescouldonlybesustainedinthemid-term(until~2050),andonlyifnootherland-usebasedcarbonremovalsolutionsruninparallel.Thisisdueto“bio-physicalandsocio-economiclimits”and“rapidsinksaturation”.186Suchshortcomingsunderlinethatcorporatesshould–inparalleltoinvestinginnature-basedsolutions–startsupportingthedevelopmentandscalingoflessmature,moreexpensivebutmorescalabletechnologicalsolutions.
Asecondissueiswhattypeofremovalsshouldbalancewhatsourcesofresidualemissions.Iftoday’sclimatepioneersputalltheirCO2compensationmoneyexclusivelyintoforestprojects,theywouldessentiallybuyupallreadilyavailableland.Then,aslandbecomesscarce,priceswillriseandcarbonremoval–onaverage–willbecomemoreexpensiveforall,includingforlessdevelopedmarketsandforindustrieswithhard-to-abatefootprints.
Ifinsteadcompaniessignaltheirwillingnesstopaythefirst-moverpriceofmorescalableand/butmoreexpensivehybridandtechnologicalsolutions,themarketwilltranslatethatsignalintosupply.Theimmaturehybridandtechnologicalsolutionswillstarttoscale,andpriceswillcomedown.Thisway,theaveragecarbonremovalcertificateswillbecomecheaperforall–hopefullyontimeforwhentheworldneedsthematthegigatonne-scale.
Theonlywaytogrowthecarbonremovalindustrytotherequiredscaleisbycreatingdemand:voluntarybuyerswhoactnowandcanaffordthefirst-moverprice,and/orlawmakersenforcingcompliancemarketsattherightpricepointglobally.Thelatterseemslessrealisticthantheformer.Thequestionishowwell-resourcedprivatesectorinstitutionslikebanksandinsurersthatareabletofundthefullportfolioofcarbonremovalsolutions,canengageandcreatedemandinthemostimpactfulmanner.Inmostcases,buyersofcarbonremovalservicesrequireanattestationoftheirengagementintheformofcertificates.187Inmostcases,buyersofcarbonremovalservicesrequireanattestationoftheirengagementintheformofcertificates.188Therearethreesourcingoptionsforcarbonremovalcertificates.
184SwissRekeepsitsowndatabaseofcorporatenet-zeropledges,alessdetailedpublicdatabaseispublishedbytheAmerican UniversityofWashingtonDC,accessed28February2021.
185J.Minx,etal.,2018,op.cit.186S.Fuss,etal.,2018,op.cit.187 Otherthanthrough-purchasingremovalcertificates,companiescouldalsorealisenegativeemissions
insidetheirvaluechain(=“insetting”:Eg,achocolatemanufacturersponsorstheswitchtoagroforestryandabiocharplantfortheircacaofarmers),wheretheymayormaynotregistertheiractionunderastandardthatissuescertificates.Furthermore,somestakeholdersadvocateforcontributionalclaims,wherecompaniesbecomeclimatefinancierswithoutinsistingonatonne-by-tonneaccounting,butsomeotherformsofpaymentandreportingterms.
188Otherthanthrough-purchasingremovalcertificates,companiescouldalsorealisenegativeemissionsinsidetheirvaluechain(=“insetting”:Eg,achocolatemanufacturersponsorstheswitchtoagroforestryandabiocharplantfortheircacaofarmers),wheretheymayormaynotregistertheiractionunderastandardthatissuescertificates.Furthermore,somestakeholdersadvocateforcontributionalclaims,wherecompaniesbecomeclimatefinancierswithoutinsistingonatonne-by-tonneaccounting,butsomeotherformsofpaymentandreportingterms.
Nature-basedsolutions,inparticularforestprojects,areimportant…
…butfallshortindeliveringtheamountofnegativeemissionsrequiredtomeetthe1.5°Cglobaltemperaturerisetarget.
Aheavyfocusonnature-basedsolutionsnowwillinevitablydriveupthepriceandwillmakeitharderfortheworldasawholetoreachnet-zeroby2050.
Payinghigherpricesnowforhybridandtechnologicalsolutionswillseepricesdecreaseinthefuturewhentheworldneedsthematscale.
Buyersofcarbonremovalservicescanchoosefromthreesourcingoptionsforremovalcertificates.
38 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
The role of insurance
Thesecomewithdecreasinglevelsofcommitmentandthusimpact,butalsowithdecreasinglevelofbuyer-vendorinteraction,andthuslesstransactionaleffort:
Carbon Removal Purchasing Agreements (CRPA)arelong-termofftakeagreementswithbespokevolumeandpriceoverseveralyears.TheyarelikeanERPAforcarbonoffsets,orapowerpurchaseagreement(PPA)forgreenelectricity.Thetransactionaleffortishigh,butstandardcontractswhereonlytheconfirmationandschedulehavetobenegotiatedarelikelyatsomepointintime.TheCRPAguaranteesfuturerevenuetothecarbonremovalserviceprovider,whichrenderstheunderlyingprojectbankable.Therefore,theCRPAbringsnewremovalprojectsonline,makingitanimpactfulsourcingoption.
Carbon removal purchasing facility (CRPF): ACRPFmatchestheaggregateddemandofseveralbuyerswiththeaggregatedsupplyfromaprojectpipelineaccordingtopre-definedparticipationrulesandprojectcriteria.189Forthebuyer,thetransactionaleffortislowerthanforCRPAsbecausethefacilityismanagedbyatrusteethatadministersallcontracts,andbuildstheprojectpipeline(sourcing,duediligence,contracting,registrationunderastandardifnecessary,verificationoversight).Thetrusteeispaidfortheseeffortsdirectlyfromthefacility.ThestrengthofaCRPFasamarketcatalystisthatthetrusteecanusefundsfromthefacilitytocreatetheprojectpipelineandprovidelimitedfinancialsupportuntiltheprojectcanstartissuingcertificates.Afterthatpoint,furtherpaymentsaresubjecttothedeliveryofcertificates.Inotherwords,thefacilitycantosomelimitedextentprovideup-frontfinance,aheadofthebulkresult-basedpayments.Thisallowsrealisationofprojectswithpromising,butless-proventechnologiesthatwouldotherwisestruggletosecureup-frontfinancefromtraditionallenders.
One-off purchases (over-the-counter): Buyerswhodonotwanttocommitlong-termcancovertheircertificatesdemandyear-by-yearthroughone-offpurchasesover-the-counter,viabrokers/intermediaries,orthrough(Dutch)auctions.Intheabsenceofestablishedmarketstructuresormarketplaceinitiatives,companiesmayorganisetheirowntenderprocesstodirectlysolicitoffersfromcarbonremovalproviders.Whilethetransactionaleffortsarelimitedforone-offpurchases(withtheexceptionofowntenders),theyarealsonotthemostimpactful.Themarketriskremainswiththesellerwhomayhavedifficultytoscaleproductionintheabsenceofabankablecontract.Also,certificatessourcedinthismannerstemfromexistingprojects,someofwhichcanbequiteold(asinthecaseofforestprojects).Buyerswhosegoalistobringnew,additionalremovalprojectsonlineshouldconsiderothersourcingoptions.
Withtransactionaleffortcomeschancefordirectengagementwithacounterparty.Today,giventheimmaturityofthemarket,thelimitednumberofcounterpartiescanautomaticallybeconsideredtheworld’sleadingcarbonremovalserviceproviders.Ifaninsurerdemonstrateswillingnesstotakerisksbyenteringalong-termofftakeagreement,thatfirmmaybeperceivedasacrediblepartnerforotherrisks,andasaninvestorofchoice.Tothisend,buyingremovalstocompensateoperationalemissionscanalsobeadooropenertonewinsurancebusinessopportunities.
Thescienceisclear:carbonremovalisanecessityfornet-zero,ontopofmassiveemissionreductionefforts.Beyond2050,theworldmustbeabletotacklehistoricemissionsandremainnet-negative.Thescaleoftheproblemisdaunting:by2050,anewindustrymusthavecapacitytoremovethesameamountofemissionsfromtheatmosphereascomingfromhumanity’suseofoilandgastoday.
189Thesinglevolumesofeachbuyerareusuallysmall,andtheycannotenterCRPAswithsufficientlylarge(andthuseconomical)projectsontheirown.Alternatively,theaggregationservestosharetheburdenofthefirst-moverprice,wherebuyers–forcostcontrolreasons–onlywanttocommitsmallervolumesonaparticularsetofremovalsolutionscoveredbythefacility.
Directengagementwithsuppliersviapurchaseagreementscanopendoorsforinsurerstonewbusinessopportunities.
Toreachnet-zero,massiveemissionreductionsandcarbonremovalatthegigatonnescaleareneeded.
Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions 39
Conclusion
Thecarbonremovalindustryisinitsinfancyandneedstodevelopquickly.Existingbarriersstandinginthewayofmarketgrowthneedtobeovercome.Eachstageofthevaluechainfaceschallenges.Supply-siderestrictionssuchascost,lackofknowledgeandresistancetochangemayslowlyprogress,butthetechnologicallearningcurvemayhelpalleviatetheseissuesassolutionsbecomemorematureandefficient.Addingtothedifficultyingettingwhatisstillalow-volumeindustryupandrunningisanundefinedandunregulatedmarketplaceandlackofuniformstandards.
Demand
• practical constraints – cost (first-mover price), lack of market intelligence
• lack of regulatory requirements (mandates)
• net-zero commitments on the rise (financial), but commitments to carbon removal is far behind the actual need
• uncertainties on permanence• perceived risk of mitigation deterrence
Marketplace
• lack of standards• lack of regulation of international
transfers of removal outcomes• small volumes/no fungibility
Supply
• practical constraints – cost, lack of knowhow, resistance to change
• lack of economic incentive• conflict of use – food & feed,
water, conservation, infrastructure, subsurface use, …
• uncertainties on permanence
Source:SwissRe
Aparticularhindrancetoscaling-upisthefirst-moverproblem.Todaythemostscalablecarbonremovalsolutionsarealsothemostexpensive.First-moverswillbearthehighcostofgettingtheindustrytocriticalmass,whilefree-ridersremainonthesidelineswaitingforpricestofall.Further,thereisnobusinesscasewithoutcarbonpricing.Thescale-upofcarbonremovalreliesontheexistenceofstringentclimatepolicies,currentlyabsentinmostjurisdictions.
Suchissuesaretypicalofanuntappedmarketonthecuspofexplosivegrowth.Theprivatesectorcanleverageandacceleratethedeploymentofthecarbonremovalindustry.Figure8illustrateshowthosewiththefundstodosocouldrealisemeaningfulgainsbysteppingintode-riskcarbonremovalservices,financedevelopersandprojects,andcreatedemandthroughpurchasingcarbonremovalcertificatestobalancetheirownoperationalfootprint.Theinsuranceindustryiswell-positionedonallthreefronts.Re/insurers’riskknowledgeandtransfercapabilities,pairedwiththeirlong-terminvestmenthorizonandahighnetincomepertonneofoperationalemissions,makeforidealcarbonremovalprojectpartners.
De-risk• Take market risk through
long-term offtake agreements• Take other exposures, incl.
property, engineering and novel storage reversal covers
Finance• Invest in suppliers• Project finance • Other contributions
Buy• Realize carbon removals inside
own value chain (insetting)• Buy carbon removal certificates
from external providers
Source:SwissRe
Theindustryneedstogrowquickly,andthemanybarriersalongthecarbonremovalvaluechainneedbeovercome.
Figure 7 Selectedbarrierstogrowthinthecarbonremovalvaluechain
Thoseableandwillingtopaythehighfirst-moverprice,andstringentsupportpolicies,arevitalforsectordevelopment.
Theinsuranceindustrycanfacilitategrowthofcarbonremovalviade-risking,financingandbuying.
Figure 8 Howinsurerscancontribute
40 Swiss Re Institute Theinsurancerationaleforcarbonremovalsolutions
Conclusion
Forinsurers,mostcarbonremovalsolutionshaveclearlinkstodifferentlinesofbusiness.Forexample,soilcarbonsequestrationandbiocharlinkdirectlytothefutureofagribusiness;afforestationbuildsamarketfornewinsuranceproductstoreplaceinefficientstoragereversalsafeguardsfromfiresanddisasters;bluecarbonproductsnaturallyfitwithintherealmofdisasterinsurancewhilealsodecreasingfuturecostsfromflooding;andgeologicalCO2storageopensupnewopportunitiestocovertheriskofleakageorinducedseismicityviaearthquakeinsurance.Forclassicalengineeringcoversandwell-establishedforestcovers,thecaseforinsurabilityismuchclearerthanforliabilityquestions.
Ingeneral,theinsurabilityofcarbonremoval,inparticularthestorageliabilities,stronglydependsonarobustlegalandregulatoryframeworkthatgovernsfinancialsecurityobligationsandeventuallythetransferofliabilitiestothepublicsector.190Currently,thisisyettobedevelopedformostcarbonremovalsolutions.Eventhestandardbodiesofthevoluntarycarbonmarket(Verra,GoldStandard,ACR,etc)havenotyetcomeupwithmethodologiesforalltypesofremovals–inparticularthetechnologicalsolutions–thatwouldaddressquestionsabouttheriskofstoragereversal.Altogether,aninsurancemarketforcarbonremovalsolutionshasnotyettakenoff.Oftenvoicedistheneedfortheinsuranceindustrytoparticipateproactivelyinthedialoguebetweenregulatorsandprojectdevelopers,orstandardbodiesandprojectdevelopers.Thecallistobringintheriskassessmentperspective,andclarityastounderwhichconditionstheprivateinsuranceindustrycanengagemoreactivelyincarbonremovalasarisktaker.
Theassetmanagement,investorsideofinsurancefacesbarrierstoenteringthecarbonremovalmarket.Thisisduetothestillimmaturityofthemarket,andthelackofinsuranceofferingsandinstitutionalsupportthatwouldalleviatesomeoftheinvestmentrisks.Itisunlikelythatanypotentialinsurerorotherinvestorwouldgointocarbonremovalalone.Instead,investorslookforopportunitiesforsidecarinvestments,forinstancealongsidetheoil&gasmajorsalreadyinvestinginthetransitiontonet-zero.Thiscouldsmoothinitialfearsaboutthematurityofthemarket.Ultimately,thegrowingmomentumofshareholderpressure,tighteningclimatepolicies,investors’ownnet-zerocommitments,andrapidlyimprovingtechnologyofcarbonremovalsolutions,willattractinvestors.Thequestionis“howsoon?”
Asabuyerofcarbonremovalservices,insurershavethepossibilitytohelpcreateamarketthatwillopenavenuestonewbusinessrelatedtotheupcomingcarbonremovalriskpoolsandassetclasses.Tothisend,theircarbonremovalpurchasingstrategiesneedtolookaheadandvaluequalityandimpactoverleast-costoptions.
Insurersthattaketheriskandengageearlyincarbonremovalmayfindinvestmentswell-rewarded.Atfirst,theymayincreasetheirunderstandingofthenewcarbonremovalrisklandscapebyofferingstandardproductsfortheeasy-to-coverexposures,byinvestingatasmallscale,andbyenteringlong-termofftakeagreementswithselectcarbonremovalproviders.Then,asthemarketmaturesandtheriskknowledgeconsolidates,liabilitycoversforcarbonremovalservices–currentlyconsidereduninsurablebymany–mayalsobecomestandardbusiness.Atthatpoint,thefront-runnersamonginsurerswillprofitfromtheon-the-groundexperiencealreadygathered.Theywillbeseenascredibleinsurancepartnersandinvestorsofchoice.Eventually,oncethecarbonremovalmarketreachesitsperceivedtrillion-dollarstatus,therewillbeawholelottoinsureandtoinvestin.
190Thisisnotdissimilartotheinsurabilityofnuclearwasterepositories,wheretheregulatordefinesthelevelandperiodoffinancialsecurities,aswellasthemonitoringandverificationobligations,beforeacceptingthepassingofanyremainingliabilitiesfromtheoperatortothepublicsectorinformofasuitablegovernmentalbody.
Thereareclearlinksbetweencarbonremovalandinsurancebusinesscases.
Expertscallontheinsuranceindustrytogetinvolvedinimprovingthebankabilityofcarbonremovalprojects.
Investmentsside-by-sidewithbiggerplayerscanlowerthebarriersforassetmanagement.
Impactfulpurchasesofcarbonremovalservicesmayenablefurtherbusiness.
Earlyengagementofinsurersinthecarbonremovalmarketwillreapaseriesofbenefitsasthemarketdevelops.
Published by:
SwissReInstituteSwissReManagementLtdP.O.Box8022ZurichSwitzerland
AuthorsDrMischaRepmannDrOliverSchelskeDaraColijnSamendraPrasad
TheauthorswouldliketothankJanGuddalforhisworkonTable2ofthereport.TheauthorsalsowouldliketothankClaudiaBolli,MartinFehr,MarcGermeau,CherieGray,JimmyKeime,ThomasKocher,ElaineO’Brien,GillianRutherford,PhilippServatiusandLasseWallquistfortheirfeedbackandcommentsonthereport.
EditorPaulRonke
ManagingeditorDrChristophNabholzChiefResearchOfficer
Theeditorialdeadlineforthisstudywas24March2021.
Theinternetversionmaycontainslightlyupdatedinformation.
Graphicdesignandproduction:CorporateRealEstate&Services/MediaProduction,Zurich
©2021SwissReinsuranceCompanyLtdAllrightsreserved.
Theentirecontentofthissigmaeditionissubjecttocopyrightwithallrightsreserved.Theinformationinthissigmamaybeusedforprivateorinternalpurposes,providedthatanycopyrightorotherproprietarynoticesarenotremoved.Electronicreuseoftheinformationpublishedinsigmaisprohibited.
ReproductioninwholeorinpartoruseforanypublicpurposeispermittedonlywiththepriorwrittenapprovalofSwissReandifthesourcereference“Theinsurancerationaleforcarbonremovalsolutions”isindicated.Courtesycopiesareappreciated.
Althoughalltheinformationusedinthissigmawastakenfromreliablesources,SwissRedoesnotacceptanyresponsibilityfortheaccuracyorcomprehensivenessoftheinformationgivenorforwardlookingstatementsmade.Theinformationprovidedandforward-lookingstatementsmadeareforinformationalpurposesonlyandinnowayconstituteorshouldbetakentoreflectSwissRe’sposition,inparticularinrelationtoanyongoingorfuturedispute.InnoeventshallSwissRebeliableforanylossordamagearisinginconnectionwiththeuseofthisinformationandreadersarecautionednottoplaceunduerelianceonforward-lookingstatements.SwissReundertakesnoobligationtopubliclyreviseorupdateanyforward-lookingstatements,whetherasaresultofnewinformation,futureeventsorotherwise.
Orderno:1507780_21_EN