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.

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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.

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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

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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

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AuthorsDrMischaRepmannDrOliverSchelskeDaraColijnSamendraPrasad

TheauthorswouldliketothankJanGuddalforhisworkonTable2ofthereport.TheauthorsalsowouldliketothankClaudiaBolli,MartinFehr,MarcGermeau,CherieGray,JimmyKeime,ThomasKocher,ElaineO’Brien,GillianRutherford,PhilippServatiusandLasseWallquistfortheirfeedbackandcommentsonthereport.

EditorPaulRonke

ManagingeditorDrChristophNabholzChiefResearchOfficer

Theeditorialdeadlineforthisstudywas24March2021.

Theinternetversionmaycontainslightlyupdatedinformation.

Graphicdesignandproduction:CorporateRealEstate&Services/MediaProduction,Zurich

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