Insurance firm Howden has launched cover for carbon dioxide (CO2) leakage from commercial-scale carbon capture and storage (CCS) facilities.
It believes the product will ‘unlock’ vital investment to support the transition to Net Zero.
Designed by Howden and led by SCOR’s syndicate at Lloyd’s, it provides cover for environmental damage and loss of revenue arising from the sudden or gradual leakage of CO2 from CCS projects into the air, land and water.
The solution addresses a key risk associated with CCS technology and supports the development of a commercial insurance market for leakage risk, the need for which has been highlighted by the UK Government Department for Energy Security & Net Zero’s Business Model for CCUS.
Other following markets within Lloyd’s have committed to support the facility, with further capacity anticipated to meet commercial demand globally. It is led by Glenn O’Halloran, Executive Director, Howden Climate Risk & Resilience.
The financial viability of CCS projects often relies on revenue from the voluntary and compliance carbon markets. This new form of insurance covers liabilities arising from carbon credits and allowances, including UK and EU ETS liabilities.
It marks the second carbon product from Howden, following the launch of a carbon credit invalidation insurance solution in 2022.
The global carbon capture and sequestration market is projected to reach a value of $7.49bn by 2030 at a CAGR of 19.9% between 2023 and 2030, accelerating the need for effective insurance solutions to protect the financial viability and stability of CCS projects.
Howden’s facility will de-risk projects critical to the decarbonisation of the global economy by offering balance sheet protection through structured risk transfer solutions.
Rowan Douglas CBE, CEO, Howden Climate Risk and Resilience, said, “By improving the bankability of critical CCS projects, we are establishing insurance as a force for good and building on the work being done by the Sustainable Markets Initiative (SMI) to realise the potential of engineered carbon removal solutions and move this nascent sector into the mainstream.”
John Neal, CEO, Lloyd’s and Chair of the Sustainable Markets Initiative Insurance Task Force said the facility is an example of what can be achieved when joining forces to support climate positive solutions.
“Developed at Lloyd’s, in partnership with The Insurance Task Force of the Sustainable Market’s Initiative, we hope together we can spark more cross-sector collaboration that will enhance our resilience against the climate crisis,” he said.
Romain Launay, CEO, SCOR Specialty Insurance and Marie Biggas, CUO, SCOR Syndicate added that the facility is evidence of how collaboration can de-risk the global energy transition.
“Furthermore, it fully supports SCOR’s target to multiply insurance and facultative reinsurance coverage for low carbon energy by 3.5 by 2030. We look forward to working with Howden and the market to boost investor and lender confidence in CCS projects.”
Aside from insurance solutions, developers can protect the financial stability of a CCS project by implementing risk mitigation techniques during a project’s construction, operation, and decommissioning phases. Marsh is among other leading insurers offering CCS cover (click here).
A University of Reading paper found a ‘robust regulatory and legal regime’ for CCUS is required in the EU and internationally.
“Insurance plays a pivotal role in ensuring there is a safety mechanism to help deploy CCUS technology and battle climate change,” it notes. “The fact that CCS damage is categorised as manmade, liability law is to be called upon in the first instance.”