Forestry + Carbon Markets = worthwhile or worthless?
A recent Bloomberg Green article had a headline that pulled Kita in - “U.S. Public Forests Are Cashing In on Dubious Carbon Offsets.”
The article details how state and local governments in the US are enrolling publicly owned forests into carbon projects, with the result that the government agencies will be able to sell credit for these emission reductions to companies.
Key concerns are around enabling companies to “pay to pollute” via questionable additionality of the projects in question, with commentators in the article noting that managers of these forests will be capitalising on “weak rules in the carbon markets to garner payments for continuing the same forest practices they’ve utilized for decades.”
The article further notes “This impending surge in questionable offsets comes at a precarious moment for the carbon industry,” referring to an earlier BloombergNEF report - “Carbon Offset Prices Could Increase Fifty-Fold by 2050” which described different market scenarios divided along quality lines.
These are concerns Kita’s team have heard repeatedly as we’ve done our market research while we build our carbon performance insurance products, focusing on insuring carbon removal solutions and their carbon units on the voluntary carbon markets.
So - what’s our take?
We will be discussing this in more detail over the coming months, but here are some initial thoughts:
It is frustrating that weak regulation and the power of the unscrupulous few can hold back a whole industry when we need to be removing carbon (and increasing biodiversity) as fast as possible. Stronger regulation and oversight are urgently needed.
It would be great to avoid talking about a “market” as if there is a single one, rather than nuances between compliance and voluntary (not to mention codes and regional nuances). Nuance matters!
In our market conversations, we sometimes hear a “biodiversity” vs “carbon purist” view, with the biodiversity side advocating for nature-based solutions and seeing carbon removal as largely a side effect of biodiversity gain, and the carbon side thinking we should be focusing solely on technological solutions that don’t have questions around permanence or additionality. Kita’s view? We don’t have time for taking sides. We want all forms of carbon removal to scale, and when done well, all types bring benefits.
This is largely a human problem, not a science problem, meaning all carbon removal methods will require strong regulation or they will fall foul of the same human weakness. Other carbon removal methods can be accelerated by learning from the challenges of forestry.
The insurance need
We want to be the world’s first carbon insurer, so obviously we always come back to insurance. Insurance should play a key role in addressing the challenges with carbon removal!
Projects at significant risk of not delivering carbon removal promised - whether due to human or natural hazards - will either be uninsurable or pay much higher premiums. It is the carbon removal Kita is insuring, not the company or their image.
Insurance is a prerequisite of any strong, trusted market. However, strong, independent and transparent regulation and monitoring is a prerequisite for insurance to be viable within the carbon markets (and Kita’s focus is the voluntary carbon market).
Additionality, permanence and leakage are risks that need to be measured, monitored and addressed via insurance (as well as other means). Fortunately, science and technology to do this exist and are increasingly commercially viable.
Kita’s first market
We have given our first market a lot of thought, and we’ve decided to target UK forestry carbon removal.
Why?
The existing strong regulatory framework via the UK’s Woodland Carbon Code, while not perfect, addresses many of the challenges listed above. It is a growing market, with clear insurance requirements and an increasing number of participants who would benefit from insurance to reduce their risks.
We think our insurance can accelerate the flow of capital to high-integrity projects that will capture carbon, build biodiversity and provide societal benefit.
However, we keep our next markets (broader nature-based solutions and technological carbon removals, as well as other regions) firmly in mind.
The need for carbon removal is pressing, and we believe our insurance can help enable those many people who are building solutions with good intentions, helping them stand out from those looking to make a quick buck and damaging the reputation of the whole market in the process.
