Carbon capture and storage - Emerging risk or opportunity?

The carbon capture industry is set to be as big as oil and gas by 2050. Insurers can – and should – be harnessing its potential.

Climate science tells us that achieving net-zero carbon output by 2050 is crucial to preventing the planet warming more than 2°C above pre-industrial levels. Achieving this is a daunting prospect and at this point, limiting emissions will need to happen in conjunction with removal of remaining CO₂ emissions that we cannot yet avoid.

Swiss Re is doubling down on carbon emissions

Reducing our energy consumption and bringing our own CO2 emissions to net-zero are key targets for Swiss Re Group. Some of the activities to meet these targets include a comprehensive Greenhouse Neutral Program run across our operations over the past 17 years, and part of this was "offsetting" any carbon produced. In 2019, this evolved into our CO2 Net-Zero program which will see us increase efforts to reduce emissions and removing those which can't be avoided through carbon removal certificates, the first of which were purchased for use at a biochar project in Tampere, Finland. Biochar locks away the CO₂ that plants have removed from the air to grow their biomass.

As a co-founder of the Carbon Group's RE100 initiative, we are one of several companies in the commercial and industrial sector driving businesses to achieve 100% renewable electricity by 2050 - although the average target date for RE100 companies is 2028. By highlighting the business case, setting the bar for leadership and helping others overcome policy and market barriers, RE100 is a conductor for action led by the growing demands of shareholders, customers and employees all pushing for and in many cases expecting change.

While much of the focus on achieving global climate targets is aimed at reducing emissions through renewable and cleaner fuels, a rapidly expanding solution is the removal and storage of CO₂ emissions from the atmosphere – carbon capture and storage (CCS) – through biological or technological means. According to the Global CCS Institute, there are 51 large-scale CCS facilities in development globally but only 19 in operation.

As Swiss Re outlines in our latest SONAR 2020 insight report into emerging risks, the CCS industry is still in its infancy, and scalability is yet to be demonstrated but has the potential to grow, by 2050, to a size that will rival today’s oil and gas industries.

Accordingly, by writing business for, and making small-scale investments in new technologies, insurers can ready themselves to harness this potential major player over the coming decades.

We have seen preliminary efforts in Australia to get CCS off the ground. The $2.5bn project at Chevron’s Gorgon LNG facility on Western Australia’s Barrow Island began in August 2019. While over two years late and still building to full capacity, once it does begin, it will be the largest CCS facility in the world. CCS is also set for a new round of public funding from the Morrison government, with an aim to capture emissions at the point of resource extraction.

Barrow Island is symbolic of the state of CCS; slow and complicated but showing signs of promise. With the industry in this stage, insurers should be designing pilot offerings for property and engineering covers and investing at a small scale to gradually build up the necessary risk knowledge for profitable business in the future. The technology’s frontrunners are already attracting investments in the hundreds of millions of dollars, including more expensive solutions such as Direct Air Capture and Storage.

In addition to these investments, insurers can also play a pivotal role by providing specialist risk transfer knowledge and capacity to partners in other sectors of the economy.

Biological solutions also present an emerging opportunity, simultaneously containing risks that insurers can learn from. Tree planting initiatives are popular, and offer cheaper, readily available forms of CCS. Carbon sequestration in soils through changes in agricultural practices is gaining momentum and policy support, particularly in the US. Yet these solutions come with storage reversal risks; trees are susceptible to burn in wildfires, which, as we have seen from Australia and California’s recent summers, are becoming more frequent and intense. Technological solutions may present a lower risk factor for storage reversal, though insurers should take the opportunity to enter the space to provide thorough risk assessments.

The challenge of mitigating the worst effects of climate change is a long game that requires action now. The front-runners in the insurance industry are well positioned to provide the human and financial capital to boost CCS technologies, and given its infancy, are likely to witness the benefits for a long time to come.