First carbon credit insurance launched

April 27, 2011

Parhelion, a UK-based insurance underwriter, has launched what is says is the first insurance policy that protects the value of carbon credits should the projects generating them be deemed ineligible by regulatory bodies in the future.

The firm says its Post 2012 Eligibility Insurance was created in response to interest shown by a number of carbon trading houses, financial institutions and project developers.

Uncertainty surrounding the post-2012 eligibility of UN Certified Emission Reductions (CERs) under the European Union's Emission Trading Scheme has recently increased following the the decision to block the use of CERs from HFC-23 and adipic acid N2O projects for compliance from May 2013.

This uncertainty can lead to "eligibility clauses" being inserted into purchase contracts which negate the obligation of the purchaser to buy the credits in the event they are deemed ineligible. Where purchasers are willing to assume the eligibility risk, the price they are willing to pay for the CERs is significantly lower due to the uncertainty surrounding eligibility.

The new insurance product developed by Parhelion removes eligibility risk and is designed to be flexible enough to work efficiently and economically in a number of different spot, forward purchase or option structures.