Buffers and Insurance in the Voluntary Carbon Market: A Comprehensive Overview

Buffers within the Voluntary Carbon Market (VCM) are highly debated, with commentary ranging from confusion as to the function of a buffer, to frustration as to the level of contribution from project developers, to challenges around the fungibility of different carbon credit types, to appreciation for an inbuilt risk management mechanism that is core to the functioning of the VCM. This report aims to offer clarity about the ways in which buffers and insurance interact, and how they can work together to act as a stamp of confidence for carbon credit transactions.

In this report we discuss:

• How existing buffers have been structured to-date

• How the introduction of insurance could support Carbon Standards in their management of buffers

• The nuances of insurance across types of buffers, namely:

  • existing buffers for enhancing financial resilience and portfolio management

  • new buffers for managing near-term liquidity risk and building market confidence

  • high durability carbon removal solutions without existing buffer support mechanisms, and with ‘like for like’ durability replacement supply challenges

• The ways in which the insurance industry could, over time, collaborate with Carbon Standards to help enable VCM buffers to demonstrate integrity, respond quickly as risks evolve, and increase liquidity of high-quality carbon projects to meet buyer and seller demand.

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