Chaucer announces innovative new partnership with Kita, the carbon insurance specialist, to insure the delivery risk of carbon sequestration projects.
Chaucer, the global specialty (re)insurance group, today announces a new partnership with carbon credit insurance specialist Kita to bring first of its kind insurance products to the carbon markets. Kita’s first product, Carbon Purchase Protection Cover, insures the buyer of forward purchased carbon credits against delivery risk, removing a significant protection gap.
Increased buyer trust in carbon delivery leads to greater flows of capital to help scale carbon sequestration projects at the rate necessary to fight the climate crisis. Chaucer is investing in Kita as well as providing lead underwriting capacity; follow capacity will be provided by Munich Re Syndicate and RenaissanceRe. Kita was approved as a Lloyd’s coverholder in December 2022.
Kita protects carbon credit buyers against the risk of carbon sequestration projects failing to deliver expected volumes of high-quality carbon credits. For example, a company with a high-integrity net zero strategy might forward purchase carbon removal credits in an afforestation carbon project, with the aim of enabling an environment in which young trees can grow, capturing carbon and generating biodiversity benefits. Carbon Purchase Protection Cover protects against the risk that the afforestation project doesn’t generate verified high-quality carbon credits, due to, for example:
- Avoidable loss – e.g., the forestry project developer making an error in the planting phase
- Unavoidable loss – e.g., natural catastrophe such as fire, wind, or other perils such as disease or pest
- Fraud or negligence which invalidates the carbon credits prior to delivery.
Examples of a valid claim are:
- The forest developer contracted by the landowner mis-managed their financial commitments to purchase sufficient sapling stock for a forest creation scheme. As a result, the landowner was forced to contract with a new developer to take-over the forest management. This change of developer led to a lower-than-expected carbon yield in year 6 of the project resulting in a claim.
- Due to a shortage of forestry workers, an area of woodland surrounding a power transmission line was not cleared during the winter. The following summer, the forest suffered a higher intensity annual burn in the area leading to a biomass rather than just dead-wood loss. This resulting carbon shortfall could lead to a claim.