Microsoft’s Carbon Removal Update
The recent update on Microsoft’s carbon removal programme - available here - lists three lessons learned in the second year of their efforts to support carbon removal projects. All three lessons speak to the risks inherent in both the purchase of carbon removal credits as well as the funding of carbon removal projects. These are risks that Kita is helping to mitigate with insurance products targeted at carbon removal solutions - both nature-based and technological.
Microsoft outlines three areas of concern:
First, the removal market lacks strong, common definitions and standards. This forces firms to either implement expensive and lengthy due diligence processes, or accept the risk that the carbon removal projects and offsets may not perform as advertised.
Kita’s comment: The availability of insurance will help to bolster the transparency and reliability of this market by giving clear signals to buyers around the quality and durability of the removal programme.
Second, there is a lack of high-durability solutions. Microsoft defines these as solutions that lock away carbon for millenia. They include carbon mineralisation and direct air capture projects. Microsoft calls for corporate buyers to support multi-year purchase agreements to help the proliferation of these technologies, noting that these types of contracts are ‘analogous to renewable energy power purchase agreements…which have helped to accelerate mainstream renewable energy supply and adoption’.
Kita’s comment: Insurance products - including the ones being developed by Kita - can directly reduce the risk faced by firms engaging in these types of advanced purchases by helping to guarantee the delivery of the carbon promised.
Third, forestry and soil carbon removal projects face significant challenges in quality, but offer short-term climate value and a number of social and biodiversity co-benefits.
Kita’s comment: Insurance products can bring greater transparency and quality assessment of these projects. The products Kita is developing will use innovative technologies to measure and monitor the risk inherent in these and other nature-based solutions, increasing the confidence of the buyer that they are making a legitimate contribution to reducing atmospheric carbon concentrations.
In the process of highlighting the shortcomings of the existing carbon removal market, in our view, Microsoft has strengthened the case for the introduction of effective insurance solutions.
Kita’s goal is to bring such insurance products to market. This will not only reduce the risk faced by participants in the carbon removal market, but also help capital be deployed more efficiently, and risk managed more effectively. This increases the likelihood that more carbon removal projects will come to market, and therefore, more carbon will be removed from the atmosphere in the timeframe the climate crisis necessitates.
