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A new insurance solution for risks in interdependent carbon capture and storage value chains

Carbon capture and storage (CCS) has a major role to play in efforts to decarbonise, particularly for hard-to-abate industries, such as steel and cement, that face significant challenges in achieving net-zero targets.

Carbon capture and storage (CCS) has a major role to play in efforts to decarbonise, particularly for hard-to-abate industries, such as steel and cement, that face significant challenges in achieving net-zero targets.

Uncertainties impacting transition finance

To support the anticipated scale and pace of CCS deployment, innovation is required from the insurance community to offer new solutions for a wider set of risks.

As investment in carbon capture and storage continues to grow, a clear distinction is emerging between end-to-end capture and storage projects and value chains split across separate entities, such as carbon dioxide (CO2) emitters, transporters, and storers. In the latter case, government support has been crucial to provide certainty and encourage investment.

For inter-dependent chains, a key trend is the rise of large-scale cluster models, where various emitters capture their own CO2 and pay to utilise shared third-party transport and storage infrastructure, leveraging economies of scale.

This aggregation of CO2 volumes (before injection at a centralised storage site) has prompted operators to set CO2 specifications for each development. Creating these specifications is not only a risk management issue; it has cost implications that can impact project viability. Requiring very pure CO2 streams may limit customer options, as the cost of capture could become prohibitively high in some cases.

As each part of the removal chain is highly interdependent, any interruption at one point can impact the whole operation.

“The technology for working with CO2 is not new,” says Maria Arana, Marsh’s Climate and Sustainability Leader, Europe. “What is new is the kind of contractual frameworks created by implementing that technology at scale in a CCS value chain of separate but interdependent parties.”

Risks relating to CO2 specification

As recently explored in a conversation between Marsh colleagues Amy Barnes, Head of Climate and Sustainability and Energy and Power, and Hannah Jennings, CCS global leader, contaminants in CO2 can increase the risk of degradation and damage to the transportation infrastructure. For instance, excessive water content can lead to the formation of carbonic acid, resulting in potential corrosion. Additionally, the presence of low-level impurities within the CO2 stream can alter its behavior, potentially exceeding the design parameters of the associated infrastructure.

To effectively mitigate these risks, stringent specifications are being developed and agreed upon across each specific value chain, from capture to ultimate storage. Compliance with these specifications will be monitored at relevant intervals to ensure safe and reliable operations following the aggregation of CO2 volumes.

Even with robust risk management, insurance can help transfer residual risks. For example, if physical damage occurs due to the inadvertent introduction of off-spec CO2 into the system, existing risk transfer solutions can be adapted to cover the resulting damage. 

Non-damage triggers

However, this new business ecosystem can lead to potential losses beyond physical damage. For example, control protocols along the CCS value chain are designed to detect off-spec CO2. If detected, risk mitigation procedures may include venting the CO2 to prevent damage.

“When a cement plant, for example, in the past simply emitted CO2 into the atmosphere, they did not have to think about the molecular stability driven by impurities of that CO2,” explains Maria Arana. “When they capture the CO2 they emit and feed it into a CCS value chain, it becomes critical to have quality control processes and to think about what happens if a contaminated batch is detected at any point in the value chain. The consequences could be both serious and complex. Typically, the infrastructure operator at the place and moment of detection will have strict protocols to initiate a purposeful venting process to avoid further contamination or damage to the infrastructure.”

With the risks identified, various off-take agreements between CCS stakeholders allocate the associated liabilities. While there is no universally accepted standard for how this liability is contractually allocated, but two key complexities are often considered.

  • The timing of when the title of the CO2 and/or care and custody changes.
  • Situations, particularly in Europe, where mixing and blending occur, meaning multiple emitters share a single transport and storage infrastructure.

“The contracts are often structured in such a way that if one of the emitters is found to have provided off-spec CO2, it will be liable for cleaning and remediation costs, as well as any financial losses incurred by the other emitters,” says Maria Arana.

Off-spec CO2 liability insurance

In partnership with HDI Global, Marsh has launched a new insurance product designed to cover this specific risk in interdependent CCS value chains.

This innovative solution can provide:

  1. Coverage for defense costs associated with litigation, which may be commenced before the party responsible for contributing off-spec CO2 is identified.
  2. For an insured found to have contributed off-spec CO2, coverage for:

a. Carbon credits losses of co-emitters.
b. Other financial losses incurred by co-emitters.
c. Remediation and decontamination costs for the facilities involved.

Towards a whole value chain approach

As companies play their part in the transition to net-zero, it is essential for them to anticipate, mitigate, and transfer residual risks associated with carbon capture and storage.

This new solution complements Marsh’s existing solution that offers non-damage coverage for unexpected leakages from the storage site itself, underwritten by Canopius and Hiscox.

“Many of the new risk concerns come back to the element of interdependence in the ecosystem, with multi-stakeholder value chains,” says Hannah Jennings. “With these innovative solutions, we hope to enable the CCS industry and support our clients in their efforts to decarbonise.”

For more information, please contact a Marsh representative.

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Maria Arana

Maria Arana

Climate and Sustainability Leader, Europe

Hannah Jennings

Hannah Jennings

Senior Vice President and CCS Working Group Lead, Energy and Power