XGC - Dan Brody – The evolving landscape of carbon markets, especially under Article 6 of the Paris Agreement, brings fresh challenges and uncertainties. Cross-border credit transfers expose participants to risks—non-delivery of credits, reversal of sequestration, and political shifts—that can erode trust in voluntary carbon markets.

Innovative insurance products are emerging as a critical tool to manage these risks and reinforce market confidence.

The Growing Need for Carbon Credit Insurance

Article 6 aims to streamline international carbon trading, but ensuring credits meet rigorous standards—and avoiding double counting—remains complex. As market mechanisms evolve, participants face exposure to non-delivery and reversal risks, highlighting the necessity of tailored insurance coverage.

Insurers like Oka, Kita, and CFC now offer products that cover everything from forward-contract non-delivery to the release of sequestered carbon, mitigating financial fallout and enabling companies to engage in carbon trading with confidence.

Two Major Types of Carbon Insurance Coverage

• Non-Delivery Coverage: Essential for forward purchase agreements, this insurance protects buyers when projects fail to deliver expected credits, allowing deals to proceed with reduced financial risk.
• Reversal Risk Coverage: Afforestation or soil-carbon projects can lose stored CO₂ due to wildfires or other events. Reversal insurance ensures financial compensation, preserving both buyer investment and market integrity.

Bespoke Solutions for a Non-Standard Market

Carbon projects vary widely in methodology, location, and risk profile. Thomas Kelly of Howden Climate Risk & Resilience notes that policies are crafted case-by-case, with base templates adapted through negotiation to each project’s needs. Oka’s “Corresponding Adjustment Protect” guards against host-country policy reversals, while CFC embeds Article 6 compliance in its non-delivery policies.

Why Insurance Matters for Market Confidence

Voluntary carbon markets remain fragile. High-profile fraud cases and credit quality concerns undermine buyer trust. Insurance-wrapped credits command a premium by offering built-in assurance—reducing perceived risk and encouraging long-term commitments.

As more governments and corporations rely on voluntary markets for compliance, insurance becomes indispensable for safeguarding credibility and scaling market participation.

Looking Ahead

With Article 6 implementation underway, insurance’s role will only grow. Standardization of bespoke products will enable broader access and liquidity. XGC Software is at the forefront, integrating insurance data with XGCERP’s blockchain, AI, and IoT capabilities to automate risk monitoring, streamline claims, and fortify market integrity.

To learn how XGCERP can integrate bespoke insurance solutions into your carbon credit initiatives, contact us today.

Dan Brody, CTO, XGC Software