Frequently Asked Questions
Corresponding adjustments Protectâ˘
Overview
Corresponding Adjustment Protect⢠is an insurance policy that protects against the risk of an authorized credit losing its Article 6 authorization due to the Corresponding Adjustment not being made by the host country. The policy is underwritten by Oka Syndicate 1922, a Lloydâs syndicate.
Why are Corresponding Adjustments important?
Corresponding Adjustments are a prerequisite for voluntary carbon market (VCM) credits used in compliance markets, including CORSIA and other emissions trading schemes. Buyers who must retire credits to offset their emissions risk non-compliance if they use a credit that has not had a Corresponding Adjustment.
Why is a Corresponding Adjustment Protect⢠policy important?
The policy pays out to the insured in the event that a Corresponding Adjustment is not applied to a credit, allowing the insured to replace it with an Article 6 authorized credit. In this way, the buyer of the credit can maintain compliance with the relevant carbon market rules and have confidence that their carbon investment has not been double claimed.
How much is the policy payout?
Each carbon credit will have a stated value provided by the insured to Oka. The policy will pay out the stated value per credit times the number of insured credits, less a retention.
Will the insurance payout be sufficient to cover the cost of replacement credits?
The developer (or, in the case of developer insolvency, the credit holder) can easily adjust stated values during the life of the policy. This is done through a simple endorsement process. Additional premium may be required if the stated value of credits increases or premium may be returned if the stated value decreases. This change in premium will be charged or refunded pro rata based on the remaining term of the policy.
What is the term of the policy?
The policy term is flexible and can be two, three, or four years from the policy start date, with the option to request renewal at the end of a term.
When can the policy start?
The policy can start after the credit has been issued and âfirst transferâ has occurred.
Can the carbon credit buyer see proof of insurance?
Yes, the insured will be able to provide a copy of the insurance policy to the owner of the insured carbon credit.
What exclusions are there?
The policy excludes:
- Host countries that are on a sanctioned list issued by the US, UK, or EU.
- Litigation costs, injunctive or equitable relief, punitive damages.
- Losses caused by:
- Invalidation of the credit itself by the registry (due to over crediting, measurement errors, project failure or other invalidation event)
- Registry collapse
- Cyber events
- Nuclear events
- War, terrorism, strike, and civil riots
Carbon Credit Insurance
How does carbon credit insurance work?
Oka underwrites projects dynamically based on the project developers, verifiers, vintages, locations and dozens of other factors. These are then placed in our underwriting engine and the priced risk of the credit is reflected in the premium.
Carbon credit insurance covers the risks associated with carbon credit purchases. Any insured carbon credits that are either invalidated or reversed would be protected and their value would be reimbursed.
How do you underwrite carbon credit insurance?
Oka delivers your quote at no cost to you within a few business days. To prepare a quote, we need the following:
- Project Name(s) and ID(s)
- Credit Volume(s)Â
- Stated Value(s)Â
- Vintage Year(s)
How is carbon credit insurance different from the buffer pools used by registries?
Carbon credit buffer pools hold non-tradable âbufferâ carbon credits to cover the non-permanence risk associated with carbon offset projects. A single account holds the buffer credits for all projects. In the case of a reversal, buffer credits are canceled to protect carbon known or believed to be lost. In theory, as long as the buffer pool remains solvent, the programâs permanence remains intact.Â
Buffer pool risk models are not dynamic and do not account for growing catastrophe risks. Moreover, buffer pools cover only unexpected natural risks â such as fire, droughts, and disease â but not other risks associated with the credits, such as fraudulent issuing or human induced reversals.Â
There is a risk that buffer pools are severely undercapitalized. A recent Frontiers article found that nearly one-fifth of Californiaâs total forestry buffer pool was depleted in under a decade, equivalent to over 95% of the program-wide contribution intended to manage all fire risks for 100 years.Â
Buffer pools alone cannot mitigate the many compounding risks that face a carbon credit throughout its lifecycle with buffer pools. By comparison, Oka transfers carbon credit risks and converts them into a cost that can be managed upfront, increasing the value of sellersâ credits and securing corporationsâ carbon investments.
What makes a high-quality carbon credit?
A carbon credit must have a comparable environmental impact to achieve GHG emission reductions. The world must be at least as well off when a carbon credit is used than it would have been if the credit owner had reduced their carbon footprint. Therefore, carbon credits must be associated with GHG reductions or removals that:
- have a robust determination of the GHG emissions impact (i.e. additional, not vulnerable, not overestimated)
- avoid double counting
- address non-permanence
- facilitate a transition towards net-zero emissions
- have strong governance arrangements and processes
- are not associated with significant environmental and social harms
When these criteria are met, credit owners have a high degree of confidence their carbon credit investments are high-quality.
What is covered with carbon credit insurance?
There are unforeseeable and unavoidable post-issuance risks, associated with buying carbon credits, including invalidation and reversal.
- Invalidation risksÂ
- Overcrediting, Non-Additionality, Adverse Impacts, Exclusive Claim, Project FraudÂ
- Natural Catastrophe Reversals
- Wildfire, Flood, Storms, Droughts, Earthquakes, etc.
- Human Induced Reversals
- Negligence, Misconduct, Project Failure
Oka is de-risking the voluntary carbon market (VCM) for buyers and sellers of carbon credits. Corporations can better honor their climate commitments by purchasing insured credits which effectively mitigate these risks and protect their reputations.
What are examples of claimable events?
In the event of an approved claim, Okaâs Carbon Protect policy would pay out for events such as:
- Wildfire destroys half a forest and the developer doesn’t have the funds to re-forest and recover
- Project fails financially due to mismanagement or lack of funding from credit sales
- Project discovered to be non-additional due to land already being protected before start date of project
- Project discovered to be over-credited due to aggressive baseline selections
- Community stakeholders go back to business as usual practices due to opportunity costs
How can I buy Carbon Credit Insurance?
For inquiries regarding our products or to request a quote for specific projects, please reach out to our Support Team at: help@carboninsurance.co or +1 (435) 200-3222.
Oka, The Carbon Insurance Companyâ˘
Who is Oka, The Carbon Insurance Company�
Oka is a global insurance company that specializes in the climate transition. It operates Oka Syndicate 1922 within Lloydâs of London, which is the oldest insurance marketplace in the world and one of the largest.Â
Who backs Oka? (How does Lloydâs Oka Syndicate 1922 operate?)
As a Lloydâs syndicate, Oka benefits from the financial stability and governance at Lloydâs, whose financial strength ratings can be found here. As a syndicate, Oka also benefits from the strength of the Lloydâs brand, the global license network, and a wide range of other central activities carried out on behalf of the market.
Okaâs coverage is also supported by some of the largest reinsurers, providing extra capital and stability to our products.
How does Oka ensure it can pay claims?
Under Lloydâsâ regulations, Oka is required to estimate all its future claim liabilities and must hold assets in trust to meet these liabilities. It is subject to strict regulatory oversight by Lloydâs and is regularly audited to ensure it meets stringent capital adequacy requirements. Oka also partners with reinsurers that provide capital and help ensure claims are paid.
In addition, Lloydâs governance means that Lloyd’sâ A-rated central fund acts as a backstop to all risks written by the syndicate.
How does Oka make it easier to navigate the carbon credit industry?
The VCM of today is fragmented and subject to serious governance issues. Given the demand for carbon credits and increased scrutiny on public corporations committing to decarbonization strategies, carbon credit sellers need ways to build trust with their corporate buyers â and the world needs a VCM that clears the pathway to net zero.Â
Carbon credit insurance delivers security, confidence, and protection in an evolving decarbonization landscape. Oka ensures carbon credit sellers can offer high-quality carbon credits as part of their portfolio and public corporations can protect their investments and their reputations when engaging with the VCM.
How does Oka ensure the transition to a net-zero future?
According to the Intergovernmental Panel On Climate Change (IPCC), the world has until 2030 to take definitive action to mitigate the impacts of climate change to prevent global temperature increases exceeding 1.5°C. Carbon credits are necessary to offset residual emissions, but the voluntary carbon market (VCM) is opaque and unregulated. Insurance will help accelerate the transition to net zero by de-risking the VCM. Oka believes that projectsâ reliability, transparency, and scalability will improve as insurance becomes a default feature of carbon credit transactions.
Market Regulation
California Climate Disclosure Laws
In October 2023, California SB 253 and SB 261 became laws as the Climate Corporate Data Accountability Act (CCDAA) and the Climate-Related Financial Risk Act (CRFRA), respectively. According to the three Senators who introduced the legislationâSen. Scott Wiener (D-San Francisco), Senator Lena Gonzalez (D-Long Beach), Senator Henry Stern (D-Los Angeles)âthe bills work together to âimprove transparency, standardize disclosures, align public investments with climate goals, and raise the bar on corporate action to address the climate crisis.â
SEC Climate Disclosure
The proposed SEC Climate Rule will require public companies to disclose their carbon emissions and decarbonization targets and progress to investors. Specific requirements and timings will be announced in the final version of the rule, expected in 2024.
How will the SEC environmental disclosures affect my carbon credit program?
The SEC environmental disclosures will require emissions disclosure from any public company listed in the United States. The landmark proposal, released for consultation in March 2022, requires the disclosure of:
- Projected risks and material impacts on the business, strategy, and outlook caused by climate change.
- Scope 1 and scope 2 GHG emissions
- Scope 3 if the material or the registrant sets an emissions reduction target that includes Scope 3 emissions.
- Governance of climate risks and risk-management processes
- Decarbonization plans with interim targets
The proposal is broadly aligned with frameworks proposed by the Task Force on Climate-Related Financial Disclosures.
Not only must companies with voluntary net-zero commitments be more explicit about their objectives and interim targets, they must also specify their use of carbon credits (per pages 77 and 271 of the proposal).
Nearly 350 million carbon credits were issued in 2021, Â representing a 220% increase in volume from 2020.
Source: sylvera.com
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