The future of carbon removal insurance: As big as oil and gas?

Carbon removal is poised to become a booming industry over the next 30 years, providing an opportunity for innovative P&C insurers to pioneer in carbon removal insurance products, Swiss Re’s chief risk officer predicts.

“By 2050, the industry of carbon removal could actually be as big as the oil and gas industry today,” Patrick Raaflaub, group chief risk officer at Swiss Re, told attendees of Swiss Re’s Canadian Insurance Outlook Breakfast on Tuesday. “That is not an unrealistic expectation. It’s an order of magnitude of the industrial sector, part of the economy, and clearly, from my side, an invitation [for P&C insurers] to explore and to actually be a pioneer.”

In 2019, Canada’s energy sector directly employed more than 282,000 people and indirectly supported over 550,500 jobs, the Government of Canada states on its website. “Canada’s energy sector accounts for over 10% of nominal Gross Domestic Product (GDP).” Canada’s GDP in 2019 was Can$1.98 trillion, according to Statistics Canada.

In a slide for an audience poll, Raaflaub noted that between 120 and 160 gigatons of carbon would have to be removed from the atmosphere until 2050 to reach the Paris Accord target, which is to keep an increase in the global temperature to below 2 C. In 2019, global emissions amounted to 33 gigatons, Raaflaub slide notes.

A number of nascent technologies have been developed to remove carbon from Earth’s atmosphere. Several are listed in a January 2020 working paper published by the World Resources Institute.

The World Resources Institute suggests natural approaches for carbon removal could remove up to 10 gigatons of carbon in 2050. Examples include tree restoration, agricultural soil carbon practices, wood waste preservation, and extended timber rotations.

Technology-only approaches would include direct air capture, carbon mineralization, and other capture and storage systems.

Using a mixture of both natural and technological approaches could cumulatively remove 20 gigatons of carbon in 2050, the Institute states.

All of the above technologies will be in need of insurance protection, as Raaflaub observed.

“If you think about all of these technologies and how rapidly they need to scale up in the next decades, it is clear that we are also looking at the very significant opportunity for, among others, the insurance industry,” Raaflaub said. “All of these solutions will need insurance protection, for very traditional property covers, engineering covers. They will challenge us in understanding them, but maybe even challenge our risk appetite.

“This is not the first time that the industry has marched side by side in significant technological development, and I think that will be needed.”

Apart from traditional covers, the new technologies will be linked to ancillary risks as well. For example, there may be an opportunity for insurers to provide additional or innovative forms of transportation cover, since some of the carbon removed from the atmosphere may not be able to be stored in the same place where it was converted into a storable form.

Also, there will be reputational and liability risks associated with the new technologies. “Some technologies — for technological reasons, or for other reasons — will not work,” Raaflaub said. “Or they will release the stored carbon dioxide over time.

“If, for example, you have [removed carbon] in [the form of] forestation, and the forest burns, the stored carbon is actually released. That could also be challenging, quite pioneering, but also an opportunity to provide some insurance protection.”

Feature image courtesy of iStock.ca/donald_gruener