The ABC of Carbon Credit Types

From inception to retirement, carbon credits are exposed to an extensive list of risks that can be hard for any company to manage independently. Recent headlines demonstrate just how prolific those risks can be, affecting even the most well-resourced global multinationals.

Chief among the challenges cited by our customers is not just the volume of risks but their variation. No two carbon credit projects are the same — and the ecosystem is only growing more complex — which makes navigating their risks a virtual minefield.

In our latest blog, we take a deeper look at the different categories of carbon sequestration projects, as well as the benefits and drawbacks of each. Notwithstanding their many differences, one thing binds all projects: their shared need for insurance.

Nature-Based Projects

What are they? Nature-based solutions (NBS) leverage natural ecosystems to absorb and store carbon, usually in plants or soil. These are the most common source of issued credits, with well-known projects including Afforestation, Reforestation and Revegetation (ARR) and Reduce Emissions from Deforestation and forest Degradation (REDD+).

Benefits and drawbacks? Though they are relatively cheap, easily accessible, and provide co-benefits to local communities, NBS are riddled with risks. Most prominently, these include natural disasters and ensuing credit reversal, land-use conflicts or expropriation, and methodological flaws resulting in over-crediting. One major drawback of NBS is that carbon sequestration is inherently hard to measure, with estimates drawn from sampled areas that may be updated infrequently or a poor representation of the total land that should, in theory, account for one ton of carbon removed


  1. Afforestation involves planting trees in areas devoid of forestry or protecting those threatened by deforestation. Risks include tree mortality or natural disaster and potential conflicts with local land use or biodiversity conservation efforts.
  2. Soil carbon sequestration increases carbon storage in agricultural soil via sustainable farming. Risks include changes in land management practices, soil degradation, and carbon storage and monitoring failures.
  3. Blue carbon aims to conserve and restore coastal ecosystems such as mangroves, seagrasses, and salt marshes, which are highly efficient at sequestering carbon. Risks include habitat loss, coastal development, storms, or rising sea levels.

How can insurance help? Insurance can compensate corporate buyers in the event of:

  • Invalidation risk if the claimed carbon sequestered becomes a victim of methodological failings or fraudulent practices.
  • Reversal risk caused by natural disasters, such as storms, wildfires, or floods, or by human negligence, such as poor forestry management.
  • Geopolitical risk in the event of potential conflicts with local land-use regulations or legal disputes over land ownership.

Technology-Based and Hybrid Projects

What are they? The use of innovative technologies to capture and permanently store carbon is increasingly recognized as a crucial — if not unavoidable — lever for global decarbonization, though it is not without controversy. The name can be misleading, as such projects often combine NBS with technological approaches. Many, for instance, absorb carbon with technology and then store it in natural or geological formations.

Benefits and drawbacks? Though a more durable form of carbon dioxide removal (CDR) than NBS in theory, promising technological solutions can be prohibitively expensive and even (at this stage) experimental or unproven (both with regards to long-term viability and unintended side effects). These drawbacks, in combination with low carbon prices, could deter risk-sensitive investors and create a catch-22 cycle. Like any new technology, projects may also be susceptible to technical failures.


  1. Direct air capture and storage (DACS) technologies capture carbon from the atmosphere and store it underground. Risks include high costs, significant energy requirements, scalability challenges, and potential carbon leakage.
  2. Enhanced rock weathering is an accelerated form of the natural rock weathering phenomenon, which absorbs atmospheric carbon. Since weathering requires minerals like basalt, there are risks associated with large-scale mining processes.
  3. Ocean alkalization aims to increase the alkalinity of seawater, enhancing the ocean’s ability to absorb carbon (i.e. creating a “carbon sink”). Risks include potential disruptions to marine ecosystems and uncertain long-term side effects.
  4. Bioenergy with carbon capture and storage (BECCS) is the process of converting biomass to bioenergy, whereby the carbon byproduct is captured and stored. Risks include land conflicts and social insecurity caused by food and water scarcity.
  5. Biochar is a form of charcoal produced from biomass, which can be used to sequester carbon in the soil. Risks include uncertainty about long-term storage viability, its side effects and environmental impacts associated with biochar production.
  6. Ocean fertilization involves adding nutrients to seawater to propagate phytoplanktons, which absorb carbon from the atmosphere. Risks include disruptions to marine ecosystems and uncertainty about its long-term effectiveness.
  7. Geological storage describes a storage process by which carbon is injected into underground geological formations. Risks include carbon leakage, seismic activity, and potential impacts on surface-level communities and ecosystems.
  8. Long-lived products have a longer lifespan, thereby reducing the net carbon emitted during manufacturing. Risks include challenges in implementing circular economy models and inaccurate sequestration measurements.

How can insurance help? Insurance can compensate corporate buyers in the event of:

  • Invalidation risk, should the technology deployed fail to deliver the carbon reduction claimed and fall short of agreed-upon targets.
  • Reversal risk, should there be any technical failures in any of the carbon capture and storage processes.
  • Geopolitical risk, again in the event of potential conflicts with local regulations or legal disputes over project ownership.

Why Insure?

Projects remain frustratingly inscrutable even as credits grow more important within corporate sustainability strategies. Our singular objective at Oka, the Carbon Credit Insurance Company™, is to mitigate the financial and reputational fallout by ensuring every credit is insured.

The value of dedicated insurance solutions such as Carbon Protect™ goes beyond compensating clients when an unexpected crisis has already happened. By directing our data and modeling capabilities at often-inscrutable projects, no matter the origin, we aim to provide an additional verification and validation screen to mitigate client uncertainty and foster market integrity.

Build Your Carbon Credit Insurance Portfolio

Connect with one of our experts to secure your carbon investments.