Frequently Asked Questions
THE CARBON CREDIT ECOSYSTEM
How does Oka, The Carbon Insurance Company™, 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 in mitigating 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 projects’ reliability, transparency, and scalability will improve as insurance becomes a default feature of carbon credit transactions.
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 — and the world needs a VCM that clears the pathway to net zero. Carbon credit insurance delivers security, confidence, and protection in an evolving climate commitment 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.
What is a carbon credit?
A carbon credit is a transferable certificate issued by a carbon credit rating agency to represent an emission reduction of one metric tonne of CO2, or an equivalent amount of other greenhouse gases (GHGs). Carbon credits grant public corporations the ability to lower their carbon emissions by investing in projects that offset carbon through reduction or sequestration efforts. The purchasing public corporation can “retire” carbon credits to claim the underlying reduction towards offsetting their carbon footprint, bringing them closer to net-zero outcomes.
How do carbon credits fit into a corporation’s overall decarbonization strategy?
Corporations across the globe are adopting decarbonization strategies to reduce or eliminate carbon dioxide emissions. Yet, many corporations find they cannot entirely eliminate their emissions or reduce them at the necessary rate to achieve their climate commitments. Carbon credits have become an essential strategy for corporations committed to reducing GHG emissions and minimizing their environmental impacts. High-quality carbon credits fit well within a portfolio of other emission-reducing programs.
Voluntary carbon credits direct private financing to climate-action projects that would not otherwise get off the ground, lowering the cost of new climate technologies and clearing the way to a net-zero future. According to Annette Nazareth, Chair of the Integrity Council, “We need every tool available working at full speed to channel investment towards keeping the global temperature within 1.5°C. A transparent, liquid, high-integrity voluntary carbon market is one very important tool we can use to achieve that goal.” Carbon credits are essential as part of a corporation’s decarbonization strategy.
What makes a high-quality carbon credit?
A carbon credit must have a comparable environmental impact to direct 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 corporation 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, corporations have a high degree of confidence their carbon credit investments are high-quality.
What risks are associated with carbon credits?
There are many risks associated with carbon credits including catastrophic events, human-induced events, non-additionality, overcrediting, adverse impacts, exclusive claims, and fraudulent issuing, among others. Corporations can better honor their climate commitments by purchasing insured credits from carbon credit sellers, which effectively mitigate these risks and protect their reputations. No corporation should purchase an uninsured carbon credit, and no carbon credit sellers should offer uninsured credits.
What are co-benefits?
Co-benefits are positive outcomes from a carbon offset project, over and above the greenhouse gas emissions reductions or removals, to communities in and around project sites.
Co-benefits can be social, economic, or environmental. Examples include supporting biodiversity, gender equality, community employment opportunities, access to health and education, etc. These benefits are often listed under the categories set out by the UN Sustainable Development Goals.
Carbon Credit Insurance
How does carbon credit insurance work?
Carbon credit insurance guarantees the ownership and transfers the risks associated with carbon credit purchases. Insurance will play a key role in transforming the VCM from opaque and unregulated to transparent and secure, driving demand for high-quality carbon removal solutions.
How is carbon credit insurance different from the buffer pools used by registries?
Carbon credit buffer pools hold non-tradable “buffer” 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 program’s permanence remains intact.
California’s forest carbon offsets buffer pool is severely undercapitalized. A Frontiers research article finds that nearly one-fifth of the total 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.
Buffer pool risk models are not dynamic and do not account for growing catastrophic risks. Moreover, buffer pools only cover unexpected natural disturbance risks — such as fire, droughts, and disease but do not cover any other risks associated with the credits, such as fraudulent issuing or cyber attacks.
It’s impossible to mitigate the many compounding risks throughout a carbon credit’s lifecycle with buffer pools, which continue siphoning a portion of credits throughout a carbon project’s lifecycle. In comparison, Oka transfers carbon credit risks and converts them into a cost that can be managed upfront, increasing the value of sellers’ credits and securing corporations’ carbon investments.
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.
When do SEC regulations begin?
February 2024, for the previous filing year.
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