Data fraud, questionable accounting practices and intensified catastrophes are just some of the issues that have battered the voluntary carbon market.
Those misfortunes have helped spur a new line of business: Insurance policies designed to de-risk credits that polluters buy to neutralize their climate impact. Whether insurance can help stabilize an industry under heavy scrutiny remains to be seen, though.
Carbon credits are a financial instrument to help channel capital into projects that cut greenhouse gas emissions. Project developers sell credits equal to one ton of carbon dioxide reduced or avoided to polluters who want to cancel out emissions. But some projects — particularly forest projects — have been shown to benefit the climate much less than promised, often because the forests were not at risk of being cut down in the first place.
In the latest sign of the fledgling insurance industry’s growth, Park City, Utah-based insurer Oka teamed up with Cloverly, a carbon trading platform, to offer insured credits earlier this year. Cloverly’s 300-strong corporate users can purchase a policy to go with carbon credits tra