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Case study: The role of insurance in the carbon markets

Case study: The role of insurance in the carbon markets

Carbon markets are evolving quickly. New standards, tighter regulation, rising demand and even an ‘integrity reset’⁴³are reshaping how carbon credits are created, traded and used.

Credits are now central to many net zero strategies. What began as a voluntary tool is now a multibillion-dollar asset class with the voluntary carbon markets (VCM)⁴⁴ sitting at the centre of climate strategy.

But credibility pervades and risk remains a market nuisance⁴⁵. Carbon credits can be invalidated, duplicated or downgraded at different stages of their lifecycle. These integrity risks affect both buyers and environmental outcomes.

These risks sharpen as carbon credits move from voluntary use into formal compliance. 

“Carbon markets are a prime example of how insurance can enable entirely new climate-related asset classes to scale. As compliance and voluntary carbon markets expand and mature, the ability to manage integrity risks is emerging as a critical requirement for market confidence.”  

Neil Kempston
Head of Incubation Underwriting, Beazley 

From voluntary use to compliance

Carbon markets are moving from optional use to regulatory obligation. Schemes such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)⁴⁶, which is entering its first compliance phases require organisations to offset emissions, not just report them.

This raises the stakes. Credits must meet stricter standards and remain valid over time.

Insurance supports this by protecting against the delivery, regulatory and performance risks that can affect credit usability.
Standardisation is improving clarity

Clearer rules are making carbon markets more structured. Compliance systems such as CORSIA and the EU Emissions Trading System⁴⁷ and evolving voluntary standards are defining what counts as a valid credit. This increases accountability. Failures can now lead to direct financial loss, from penalties to write-downs and reputational impact.

As a result, credit integrity is becoming a commercial issue, with clear financial consequences; from compliance penalties and asset write-downs to reputational harm and lost investor confidence.

Markets evolving toward clarity and capital 

Carbon markets are growing rapidly, with strong projections across the voluntary carbon markets (VCMs) of US$24 billion by 2030⁴⁸, and the compliance carbon markets (CCM)⁴⁹ of near US$5.91 trillion by 2031⁵⁰.

Insurance helps to catalyse this growth, helping to free stuck credits and provide the assurance needed for large-scale investment. By covering integrity risks rather than price movements – fraud, double counting, invalidation of credits, revocation of authorisation and governance failures – it helps buyers preserve the original asset value and navigate market transactions with confidence.

The sector’s evolution highlights a clear pattern: mature regulation enables insurance innovation by making risks easier to define, model and insure. Where frameworks are fragmented or changing, political and regulatory risk can limit coverage and limit participation for both buyers and underwriters.
Beyond credits: insuring the transition 

Insurers are exploring wider carbon solutions beyond credit integrity. As investment grows in carbon removal and low-carbon technologies, specialist cover can support complex risks around technology performance and clean energy tax credit exposures. Specifically, stepping in to mitigate underperformance, operational failure, and missed removal targets.

Emerging tech becomes more investable and viable, complemented by stronger confidence across regulation and tax.

Building trust in transition markets

Carbon markets show how insurance can underpin net zero strategies. It transfers risk, stabilises systems and builds trust, making them credible, stable and investable.