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Carbon Markets

There are a wide range of risks in the carbon markets, many of which are insurable.

Risks in the carbon markets Our experts
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    Clean technologies
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    Importance of the carbon markets

    Climate change is a real and accelerating threat1. Substantial emissions reductions/removals are needed to limit climate change and its impacts.

    High-integrity carbon markets have the potential to support decarbonization efforts globally, helping to accelerate net emissions reductions while reducing their cost2.

    Such markets can also provide myriad co-benefits by helping to support economic development, sustaining local communities, and conserving natural resources2.

    Risks in the carbon markets

    At the heart of the carbon markets are physical installations - industrial, technological, or natural – that reduce or remove greenhouse gases. Under certain circumstances, crediting programs then issue carbon credits in recognition of those reductions or removals. These credits can then be bought to offset hard-to-abate emissions, by entities with voluntary commitments or, in some cases, with regulatory requirements.

    High integrity credits should uniquely recognise real emissions reductions or removals that have been achieved using a scientifically recognised methodology; quantified and verified; and are additional and permanent3. The issuing program should have effective governance, tracking and transparency3. Responsible offsetting requires that all reasonable efforts have been made to reduce absolute emissions before offsetting the remaining hard-to-abate emissions4.
    There are a wide range of risks in the carbon markets which impact the creation and supply of carbon credits. Many of those risks are insurable. Risks include:
    • Natural perils (wildfire, flood, storm, earthquake, drought etc.)
    • Political risks (government interference, political violence etc.)
    • Construction and property damage
    • Clean technology performance risks
    • Carbon credit cancellation/invalidation/impairment

    The insurance market is developing solutions to help de-risk the carbon markets and increase investor confidence.

    USD 50bn

    Estimated carbon project investment 2012 - 2023

    (ref 5, 6)

    Clean technologies
    © industrieblick / Adobe Stock

    Carbon market stakeholders

    Stakeholders across the entire carbon market value chain are exposed to risk. These include:

    • Project developers and investors (nature-based, technological & industrial)
    • Carbon credit programs and registries
    • Carbon market platforms
    • Carbon credit buyers

    Get in touch

    Our team has in-depth experience of carbon markets and insurance. We work in partnership with carbon market stakeholders and with the wider insurance industry.

    Our ambition is to provide solutions to help our clients and support net-zero ambitions.
    Learn more
    Contact us to discuss risks and find out more about our insurance solutions for the carbon markets.

    Our experts

    Julian Richardson
    Julian Richardson
    Chief Underwriting Officer, Green Solutions
    Munich Re Specialty - Global Markets
    Martin Lawless
    Martin Lawless
    Group Head of Carbon & Envir. Commodities
    Islay Lord
    Islay Lord
    Senior Green Solutions Underwriter
    Munich Re Specialty - Global Markets, Syndicate
    Alexa Mayer-Bosse
    Alexa Mayer-Bosse
    AgRiskPartners
    Alexa Mayer-Bosse, Senior Underwriter for Carbon, Agriculture and Forestry at Munich Re Group, is also part of our Green Solutions team.

    Munich Re

    For 50 years, Munich Re has taken a leadership role in working to combat climate change. Through credible expertise, innovative solutions, and climate commitments of our own, Munich Re is helping mitigate the risks of climate change.
    See what Munich Re is doing

    References

    1  https://www.munichre.com/en/risks/climate-change.html

    2  https://www.whitehouse.gov/wp-content/uploads/2024/05/VCM-Joint-Policy-Statement-and-Principles.pdf

    3  https://icvcm.org/core-carbon-principles/

    4  https://www.smithschool.ox.ac.uk/research/oxford-offsetting-principles

    5  https://www.msci.com/www/research-report/investment-trends-and-outcomes/04638716796
    (“Between 2012 and 2022, investment into carbon-credit projects totaled USD 36 billion”)

    6  https://abatable.com/blog/carbon-project-development-financing-levels-2023/
    (“We estimate that total carbon project developer financing reached an estimated $8.1bn in H1 2023 across 109 deals tracked.”)