Study examines viability of carbon removal industry

The challenge of halving global emission levels by 2030, reaching net zero by 2050 and staying that way throughout the second half of the century would necessitate the delivery of carbon removal services at such a scale, it would require an industrial effort equivalent to the size of today’s global oil and gas sectors combined.

This is the conclusion drawn by the Swiss Re Institute, whose latest report, The Insurance Rationale for Carbon Removal Solutions, examines the emerging topic of carbon removal, outlining how, as a risk taker, investor and buyer, the insurance industry can help to develop such a sector.

The pathway to tackle climate change is clear, the report argues: Reducing CO2 emissions is the priority and then any unavoidable emissions need to be removed from the atmosphere and stored permanently.

Chief research officer at Swiss Re Institute, Christoph Nabholz, explained: "Carbon removal will need to evolve into a multi-trillion-dollar industry akin to the value of the oil and gas industry today if we are to hit the climate targets set out by the 2015 Paris Agreement. Serious investment in this nascent industry must start now. Failing to tackle climate change could result in global GDP loss of 18%, which we showed earlier this year. No action is not an option."

Key report findings (Source: The Insurance Rationale for Carbon Removal Solutions, Swiss Re Institute)

• By 2050, the world will need to remove up to a quarter of the CO2 we currently emit globally – equal to 10 billion tonnes of CO2 per year – from the atmosphere. To achieve this, we must increase our carbon removal capacity by 60% every year over the next three decades – an unprecedented growth rate for a new industry. Eventually, carbon removal will have to grow to the size of today's oil and gas industry over the next three decades.

• The least cost-intensive means of carbon removal harness the power of nature to sequester carbon in forests, wetlands, oceans and soil. It is important to perform them in such a way that they also achieve co-benefits for livelihoods and biodiversity.

• Technological carbon removal solutions use engineering tools to filter CO2 from air and store it permanently in rock layers deep underground or in long-lived products like concrete. The costs are higher than for the nature-based solutions, but resource limitations and risk of reversal are lower.

• The main barrier to deployment of carbon removal is economic viability. In the absence of sufficiently high carbon pricing, or other emission policies like mandates, there is little incentive for society to cut, let alone collect and store emissions. The private sector can improve economic viability by de-risking, financing, and purchasing new carbon removal services.

• The insurance sector is uniquely positioned to support all three fronts by providing risk management, risk transfer solutions and insurance capacity. It can also provide capital as an institutional, long-term investor, and stimulate the market as an early buyer of carbon removal services.

• Many elements of the carbon removal value chain are familiar to re/insurers. Existing P/C lines of business can already cover a suite of risks during the operational phase of carbon removal projects. What remains a challenge are potential long-term liability exposures arising from the risk of storage reversal. The report discusses some considerations to overcome this challenge.

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