The team recently returned from Climate Week NYC, which put a spotlight on the tension defining carbon markets in 2024: high hopes tempered by unresolved risks. As financing lags and pressure mounts, a realistic path forward for carbon markets — and global net-zero goals — may depend on bridging these gaps with practical risk management. Here are our main takeaways. 

Caution on CORSIA

The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) has been described by many in the industry — ourselves included — as a transformative tailwind for carbon markets. In New York, while anticipation was at an all-time high, it manifested as optimism tempered by anxiety.

For the developers with whom we spoke, there was a palpable sense of frustration about the yet-undetermined status of many leading registries. Phase 1 is approaching the halfway point, yet ICAO’s Technical Advisory Body has yet to issue a decisive verdict on the ‘conditionally approved’ cohort. Consensus says we should expect an announcement in November. That’s a long time for would-be issuers to “wait and see” — particularly with so much concurrent confusion about the process and requirements, and particularly given mounting concerns about potential bottlenecks in a chronically undersupplied market.

Not Up to Standards

On the buy-side, too, uncertainty is driving caution. The Core Carbon Principles (CCPs) were still in their honeymoon phase at last year’s Climate Week NYC. This year, banks and corporates were more vocal about the practical limitations of the CCPs. At the GCMU roundtable attended by Chris, the prevailing view was that standards — though a critical component of a well-functioning market — are not a silver bullet for all problems relating to project risk and buyer confidence.

 

On that front, ‘permanence risk’ is front of mind among buyers, both compliance and voluntary, in 2024. Repeatedly, we were asked the question: How can carbon insurance guarantee against project reversal and contract risk, in a way that standards and ratings simply cannot? Unaddressed risk will continue to impact buying activity unfavorably: Several banks, too, noted that they were advising CORSIA clients against entering purchase agreements ahead of schedule.

Enter Insurance

Collectively, panels and conversations reinforced our view that there is a worrying trend towards ‘kicking the can down the road’ — with regards to both risk and regulation — that could create extended volatility in the CORSIA market and misaligned incentives in the VCM. 

Encouragingly, however, carbon insurance earned a far more prominent place on the Climate Week agenda than it had in previous years. Commentators are waking up to the critical role it plays, particularly as the limits of standards and regulation become more apparent. Their value lies in mitigating risk, on a systematic scale. By contrast, insurance is being positioned as a key solution for managing risk — protecting market participants at every entry point — to foster confidence and fuel growth.

 

The team engaged in plenty of conversations about financing the VCM: both with financial institutions that are sitting up to its increasingly interesting [ESG-positive] investment potential; and with ambitious project developers that need access to broader pools of capital. With interest from both sides, there is a clear opportunity here — though, as we heard from Blackstone, “the availability of insurance will be key.”

What Next?

“Finance” was one of the 10 headline themes of the week, and it wasn’t a placeholder topic. The financial services industry attracted far more attention this year than last, with financial infrastructure (specifically, the catalytic role it can play in transitioning the global economy to net zero) garnering event-wide interest, attention, and even excitement (which is not a word you hear often in relation to “financial services”). This tallies with observations made by Chris in his review of the GreenBiz Conference 2024: At an organizational level, decarbonization — once the preserve of the CMO — is, increasingly, a CFO, CEO, CRO etc. issue. The same is true at a macroeconomic level. And is it any surprise? With Hurricane Helene following on the heels of yet another record wildfire season, US insurance protection gaps are sounding alarm far beyond New York. Perhaps because of the environmental destruction on our doorstep, the VCM — like financial services — received a far more favorable cross-event response (i.e. not only from those of us within the industry) than in previous years. Finally, we’re seeing carbon markets, imperfect and young though they are, framed as part of the solution. That is a really encouraging step — and a promising omen for the tone at COP 29.