Howden To Assess Insurance For CORSIA Carbon Credits

In a significant move for carbon markets towards greater credibility and scalability, world insurance intermediary Howden has been commissioned by the world's premier climate certification body, Gold Standard, to audit specific classes of insurance policies that are CARBON OFFSETTING and RECENT CARBON REDUCTION SCHEME FOR INTERNATIONAL AVIATION (CORSIA)-linked. The initiative is intended to reduce investment risk in carbon offset projects and facilitate issuance of high-quality carbon credits compliant with CORSIA's rigorous eligibility criteria.

Howden's appointment adds a new independent monitoring function to the aviation decarbonisation system. Under this partnership, Howden will audit insurance products to see if they live up to the high standards set by Gold Standard. These include political and regulatory risks that are commonly encountered by developers and investors in carbon offsets, among the key discouragers to the development of climate finance.

The move is against the background of the first phase of CORSIA, which runs from 2024 to 2026. Global airlines in the plan developed by the International Civil Aviation Organization (ICAO) will be asked to offset any rise in emissions above the 2020 baseline level. Air carriers can offset the obligation by buying eligible carbon credits or utilizing sustainable aviation fuel (SAF). The inclusion of insurance as one of the risk-mitigation methods translates to credits used by airlines as not only being traceable and verifiable, but also immune to political instability.

Charlie Pool, howden's Head of Carbon Markets, Climate Risk and Resilience, highlighted the importance of the new position. "This partnership is an important milestone for carbon markets. By increasing the supply of insurance products and lowering risks, the partnership will increase certainty through third-party verification, enabling buyers to buy with confidence and in accordance with internationally accepted norms," Pool said.

The alliance will likely increase more insurance products available to carbon credit developers and sponsors of projects. By partitioning political and jurisdictional risks, it eliminates the risk factor to a great degree and clears the way for more institutional finance in the voluntary carbon market. This influx of capital, once locked to the extent of risk exposure, is now liberated for supporting new ventures or expanding the ongoing ones in areas where political unrest or indistinct regulatory systems rendered it difficult.

Of note, the assessment mechanism under Howden, provided and assured by Gold Standard, also ensures international and national climate goals' alignment to avoid double counting of emission reduction. This is especially crucial in ensuring the market's integrity and transparency in an operation with multiple stakeholders working under various legal frameworks.

Gold Standard CEO Margaret Kim urged increased access to the CORSIA marketplace and insurance coverage in carbon market infrastructure. "To unlock climate action for people and nature, we need to increase access to new and emerging markets, such as CORSIA.". Through the finding of insurance policies through a formal review process and enabling their utilization to cover financing political risk, it is feasible to have even more projects provide credits for CORSIA's initial phase, in a credible, reliable and on solid bases,\\\" added Kim.

Gold Standard's acknowledgment of insurance function is a wider movement in structuring and authenticity assurance of climate-related financial instruments. Gold Standard's structure model for authenticating insurance policies can be employed as a template that can be extended across sectors and standards, such as those under Article 6 of the Paris Agreement and national-level compliance schemes.

The action is also set to have a knock-on effect throughout the carbon markets as an example of how insurance can add rigour to both the financial and environmental credibility of emissions reduction projects. Whilst airlines look for tried and tested means of complying with CORSIA, and investors increasing demand for high-quality credits, insurance-based mechanisms come with a guarantee of credibility and stability.

This is a great illustration of how embedded insurance boosts carbon market integrity," said Pool. "Here, it helps aviation energy transition by enabling issuance of credible carbon credits and CORSIA compliance. The new insurance process will also enable institutional capital, long deterred, to enter the market, unlocking a thrilling precedent that can be replicated elsewhere and unleash the full potential of carbon markets.".

In the long run, the collaboration of Howden and Gold Standard can redefine climate risk management in the aviation industry and more widely. By institutionalizing the insurance function in the carbon offset supply chain, not just it makes credits more credible but also catalyzes a maturity of the voluntary carbon market into a more transparent, resilient, and investable market.